UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC  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: September
27, 2008 Commission file number: 1-10827   PAR
PHARMACEUTICAL COMPANIES, INC. (Exact
name of registrant as specified in its charter)   Delaware

22-3122182(State or other jurisdiction of

(I.R.S. Employerincorporation or organization)

Identification No.)   300 Tice Boulevard, Woodcliff Lake, New
Jersey  07677 (Address
of principal executive offices) Registrants telephone number, including
area code:  (201) 802-4000   Indicate by check mark
whether the Registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.  YesXNo___   Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer.  See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act:  Large accelerated filer [X] Accelerated filer [   ] Non-accelerated filer [
  ]   Indicate by check mark
whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes NoX_   Number of shares of the Registrantscommon stock outstanding as of October 30, 2008: 34,498,023          TABLE OF CONTENTS PAR PHARMACEUTICAL
COMPANIES, INC. FORM 10-Q FOR THE FISCAL QUARTER
ENDED SEPTEMBER 27, 2008  PAGE  PART I FINANCIAL
INFORMATION   Item 1. Condensed
Consolidated Financial Statements (unaudited)  Condensed
Consolidated Balance Sheets as of September 27, 2008 and December
31, 2007 3  Condensed
Consolidated Statements of Operations for the three months and nine months ended
September 27, 2008 and September 29, 2007 4  Condensed
Consolidated Statements of Cash Flows for the nine months ended
September 27, 2008 and September 29, 2007 5  Notes
to Condensed Consolidated Financial Statements 7  Item
2. Managements
Discussion and Analysis of Financial Condition and
Results of Operations 31  Item 3. Quantitative
and Qualitative Disclosures about Market Risk 42  Item 4. Controls
and Procedures 43   PART II OTHER
INFORMATION  Item 1. Legal
Proceedings 43  Item 1A. Risk
Factors 48  Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds 48  Item 6. Exhibits 49  SIGNATURES 50             2   PART I - FINANCIAL INFORMATION **ITEM 1.  FINANCIAL STATEMENTS** PAR PHARMACEUTICAL COMPANIES, INC. CONDENSED CONSOLIDATED BALANCE
SHEETS (In Thousands, Except Share Data) (Unaudited) September 27,

December 31,ASSETS

2008

2007Current assets:Cash and cash
equivalents

$171,623

$200,132Available for sale debt and
marketable equity securities

116,042

85,375Accounts receivable, net

87,723

64,182Inventories

48,912

84,887Prepaid expenses and other
current assets

16,217

14,294Deferred income tax
assets

48,548

56,921Income taxes
receivable

24,125

17,516Total current assets

513,190

523,307Property, plant and
equipment, at cost less accumulated
depreciation         and
amortization

86,321

82,650Available for sale debt and
marketable equity securities

4,054

6,690Investment in joint
venture

-

6,314Other investments

2,500

2,500Intangible assets,
net

46,892

36,059Goodwill

63,729

63,729Deferred financing costs
and other assets

1,855

2,544Non-current deferred income
tax assets, net

60,199

57,730Total assets

$778,740

$781,523LIABILITIES
AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of
long-term debt

$200,000

$200,000Accounts payable

28,768

32,200Payables due to
distribution agreement partners

44,308

36,479Accrued salaries and
employee benefits

6,312

16,596Accrued expenses and other
current liabilities

36,778

27,518Total current
liabilities

316,166

312,793Long-term debt, less current portion

-

-Other long-term liabilities

30,772

30,975Commitments and contingencies

-

-Stockholders' equityPreferred Stock, par value
$0.0001 per share, authorized
6,000,000         shares; none
issued and outstanding

-

-Common Stock, par value
$0.01 per share, authorized 90,000,000
        shares; issued
37,136,872 and 36,460,461 shares

371

364Additional paid-in
capital

285,196

274,963Retained earnings

214,378

230,195Accumulated other
comprehensive loss

(403)

(1,362)Treasury stock, at cost
2,675,204 and 2,604,977 shares

(67,740)

(66,405)Total stockholders'
equity

431,802

437,755Total liabilities and stockholders equity

$778,740

$781,523 The accompanying notes are an integral part
of these condensed consolidated financial statements.   3    PAR PHARMACEUTICAL COMPANIES,
INC. CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (In Thousands, Except Per Share Data) (Unaudited) Three Months
Ended

Nine Months
EndedSeptember 27,

September 29,

September 27,

September 29,2008

2007

2008

2007Revenues:Net product sales
$144,765

$206,923

$404,291

$589,526Other product related
revenues
4,202

5,753

12,541

25,000Total revenues
148,967

212,676

416,832

614,526Cost of goods sold
97,505

146,248

290,741

403,854Gross margin
51,462

66,428

126,091

210,672Operating expenses:Research and
development
13,784

32,815

46,897

61,131Selling, general and
administrative
30,664

33,910

98,701

100,466Settlements and loss
contingencies, net
4,592

(367)

4,592

(945)Total operating expenses
49,040

66,358

150,190

160,652Gain on sale of product rights and other
(2,200)

-

(4,325)

(20,000)Operating income (loss)
4,622

70

(19,774)

70,020Other (expense) income, net
-

-

-

(49)Equity in loss of joint venture
-

(107)

(330)

(335)Loss on marketable securities and
other      investments, net
(2,507)

-

(2,940)

(4,643)Interest income
2,285

3,680

7,428

10,265Interest expense
(1,667)

(1,691)

(5,001)

(5,136)Income (loss) from continuing operations
before     provision for income taxes
2,733

1,952

(20,617)

70,122Provision (benefit) for income taxes
923

683

(5,158)

24,541Income (loss) from continuing operations
1,810

1,269

(15,459)

45,581Discontinued operations:Gain from discontinued operations
-

-

505

-Provision for income taxes
150

-

863

-Loss from discontinued operations
150

-

358

-Net income (loss)
$1,660

$1,269

($15,817)

$45,581Basic earnings (loss) per share of common
stock:Income (loss) from continuing operations
$0.05

$0.04

($0.46)

$1.31Loss from discontinued operations
(0.00)

-

($0.01)

-Net income (loss)
$0.05

$0.04

($0.47)

$1.31Diluted earnings (loss) per share of common
stock:Income (loss) from continuing operations
$0.05

$0.04

($0.46)

$1.30Loss from discontinued operations
(0.00)

-

(0.01)

-Net income (loss)
$0.05

$0.04

($0.47)

$1.30Weighted average number of common shares
    outstanding:Basic
33,322

34,738

33,282

34,677Diluted
33,366

34,906

33,282

34,949 The accompanying notes are an integral part
of these condensed consolidated financial statements.   4   PAR PHARMACEUTICAL COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In
Thousands) (Unaudited)  Nine Months EndedSeptember 27,
September 29,2008
2007Cash flows from operating activities:Net (loss) income
$(15,817)
$45,581Deduct: Loss from discontinued operations, net of
tax
358
-(Loss) income from continuing operations
$(15,459)
$45,581Adjustments to reconcile net income to net cash
provided by operating activities:Deferred income
taxes
5,304
(7,020)Depreciation and
amortization
22,966
19,941Loss on marketable
securities and other investments, net
2,940
4,643Equity in loss of
joint venture
330
335Allowances against
accounts receivable
(43,472)
(27,540)Share-based
compensation expense
10,257
13,756Loss on disposal of fixed
assets
170
37Excess tax benefits
on exercise of nonqualified stock options
(205)
(459)Other
(76)
170Changes in assets
and liabilities:Decrease in accounts
receivable
19,931
18,401Decrease in
inventories
35,975
25,273Decrease in prepaid
expenses and other assets
3,061
3,488Decrease in accounts
payable, accrued expenses and other liabilities
(5,210)
(6,800)Increase (decrease)
in payables due to distribution agreement partners
7,829
(23,999)(Increase) decrease
in net income taxes receivable
(8,186)
281Net
cash provided by operating activities
36,155
66,088Cash flows from investing activities:Capital
expenditures
(13,015)
(5,272)Purchases of
intangibles
(20,000)
(600)Purchases of
available for sale debt securities
(98,903)
(231,739)Proceeds
from maturity and sale of available for sale debt and marketable equity
securities
67,825
158,511Proceeds
from settlement with liquidated fund
1,667
-Proceeds
from sale of other investments
-
16,588Acquisition of subsidiary,
contingent payment
-
(5,000)Capital contributions
to joint venture
(2,182)
(1,943)Proceeds from sale of
fixed assets
-
1,551Net
cash used in investing activities
(64,608)
(67,904)Net cash provided by
investing activities from discontinued operations
505
-Cash flows from financing activities:Proceeds
from issuances of common stock upon exercise of stock options
346
341Proceeds
from the issuance of common stock under the Employee Stock Purchase
Program
223
-Excess tax
benefits on exercise of nonqualified stock options
205
459Purchase of
treasury stock
(1,335)
(1,376)Payments of
short-term debt related to financed insurance premiums
-
(4,391)Principal
payments under long-term and other borrowings
-
(47)Net
cash used in financing activities
(561)
(5,014)Net decrease in cash and cash
equivalents
(28,509)
(6,830)Cash and cash equivalents at beginning of
period
200,132
120,991Cash and cash equivalents at end of
period
$171,623
$114,161   5    Supplemental disclosure of cash flow
information:Cash (received) paid during the period for:Income taxes, net
$(2,276)
$31,284Interest
$5,750
$5,883Non-cash transactions:Capital expenditures incurred but not
yet paid
$2,335
$334Nonmonetary
exchange of investment in joint venture for a prepaid asset and an
intangible asset
$7,576
$-The accompanying notes are an integral
part of these condensed consolidated financial
statements.        6   PAR
PHARMACEUTICAL COMPANIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS September 27, 2008 (In thousands, except per share amounts or
as otherwise noted) (Unaudited)  Par Pharmaceutical Companies, Inc.
operates primarily through its wholly owned subsidiary, Par Pharmaceutical, Inc.
(collectively referred to herein as the Company), in two business segments,
for the development, manufacture and distribution of generic pharmaceuticals and
branded pharmaceuticals in the United States.  In 2007, the Company began
operating the brand pharmaceutical segment under the name Strativa
Pharmaceuticals.  The Company also wholly owns Kali Laboratories, Inc.
(Kali), a generic pharmaceutical research and development company located in
Somerset, New Jersey.  Marketed products are principally in the solid oral
dosage form (tablet, caplet and two-piece hard-shell capsule).  The Company
also distributes several oral suspension products and certain products in the
semi-solid form of a cream.  Note 1- Basis of Presentation:  The accompanying condensed
consolidated financial statements at September 27, 2008 and for the three-month
and nine-month periods ended September 27, 2008 and September 29, 2007 are
unaudited; in the opinion of the Companys management, however, such statements
include all adjustments necessary to present fairly the information presented
therein.  The condensed consolidated balance sheet at December 31, 2007 was
derived from the Companys audited consolidated financial statements included in
the Companys 2007 Annual Report on Form 10-K.  Pursuant to accounting requirements of
the Securities and Exchange Commission (the SEC) applicable to quarterly
reports on Form 10-Q, the accompanying condensed consolidated financial
statements and these Notes do not include all disclosures required by accounting
principles generally accepted in the United States (GAAP) for audited
financial statements.  Accordingly, these statements should be read in
conjunction with the Companys 2007 Annual Report on Form 10-K.  Results of
operations for interim periods are not necessarily indicative of those that may
be achieved for full fiscal years.   Note 2  Recent Accounting
Pronouncements: In May 2008, the Financial Accounting
Standards Board (FASB) issued FASB Staff Position No. APB 14-a, Accounting
for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion
(Including Partial Cash Settlement)(FSP APB 14-a).  Under the new
rules for convertible debt instruments that may be settled entirely or partially
in cash upon conversion, an entity should separately account for the liability
and equity components of the instrument in a manner that reflects the issuers
economic interest cost.  The Companys senior subordinated convertible
notes are subject to FSP APB 14-a.  Upon conversion, the Company has agreed
to satisfy its conversion obligation in cash in an amount equal to the principal
amount of the notes converted.  The effect of the new rules for convertible
debt instruments is that the equity component would be included in the
additional paid-in capital section of stockholders equity on the Companys
condensed consolidated balance sheet and the value of the equity component would
be treated as original issue discount for purposes of accounting for the debt
component of the convertible debt instruments.  FSP APB 14-a will be
effective for fiscal years beginning after December 15, 2008, and for interim
periods within those fiscal years, with retrospective application required.
 For instruments subject to the scope of FSP APB 14-a, higher interest
expense will result through the accretion of the discounted carrying value of
the convertible debt instruments to their face amount over their term.
 Prior period interest expense will also be higher than previously reported
due to retrospective application.  Early adoption is not permitted.
 The Company is currently evaluating the proposed new rules and the
quantitative impact on its senior subordinated convertible notes (Note 11) and
the related impact on its condensed consolidated financial statements.  In May 2008, the FASB issued
Statement No. 162, The Hierarchy of Generally Accepted Accounting
Principles(SFAS 162).  SFAS 162 identifies the sources
of accounting principles and the framework for selecting the principles used
(order of authority) in the preparation of financial statements that are
presented in conformity with generally accepted accounting standards in the
United States.  SFAS 162 is intended to improve
financial reporting by identifying a consistent hierarchy for selecting
accounting principles to be used in preparing financial statements.  SFAS
162 is effective 60 days following the Securities and Exchange Commissions
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles.  The Company does not expect the
adoption of SFAS 162 to have a
material impact on its condensed consolidated financial statements.  In December 2007, the FASB ratified
Emerging Issue Task Force Issue No. 07-1 (EITF 07-1), Accounting for
Collaborative Arrangements.  A contractual arrangement falls within the
scope of EITF 07-1 if the arrangement requires the parties to be active
participants and the arrangement exposes the parties to significant risks and
rewards that are tied to the commercial success of the endeavor.  Costs
incurred and revenue generated on sales to third parties should be reported in
the statement of operations based on the guidance in EITF Issue No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an Agent.  The
equity method of accounting should not be applied to a collaborative arrangement
within the scope of this issue without the creation of a separate legal   7   entity for the arrangement.
 Payments between parties to the collaborative arrangement should be
presented in the statement of operations based on the nature of the arrangement
and each entity's business operations, the contractual terms of the arrangement
as well as if existing GAAP is applicable.  EITF 07-1 requires companies to
disclose the nature and purpose of the arrangement, its rights and obligations
under the arrangement, the accounting policy applied to the arrangement, and the
amounts attributable to transactions between other participants to the
collaborative arrangement and where in the statement of operations these amounts
have been classified.  EITF 07-1 requires that companies comply in its
first fiscal year beginning after December 15, 2008 and transition to the
guidance in this issue by retrospectively applying the guidance to all periods
presented for all arrangements existing at the effective date, unless it is
impracticable to do so.  The impracticability assessment should be made on
an arrangement-by-arrangement basis and certain disclosures would be required if
a company utilizes the impracticability exception.  The Company is
currently evaluating the potential impact of adopting EITF 07-1 on its condensed
consolidated financial statements, but does not expect a material impact upon
adoption.  In December 2007, the FASB issued FASB
Statement No. 141 (Revised 2007) (SFAS 141R),Business Combinations.
 SFAS 141R will significantly change the accounting for business
combinations.  Under SFAS 141R, an acquiring entity will be required to
recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition date fair value with limited exceptions.  SFAS 141R will
change the accounting treatment for certain specific items, including;
acquisition costs will be generally expensed as incurred, minority interests
will be valued at fair value at the acquisition date, acquired contingent
liabilities will be recorded at fair value at the acquisition date and
subsequently measured at either the higher of such amount or the amount
determined under existing guidance for non-acquired contingencies, in-process
research and development will be recorded at fair value as an indefinite-lived
intangible asset at the acquisition date, restructuring costs associated with a
business combination will be generally expensed subsequent to the acquisition
date, and changes in deferred tax asset valuation allowances and income tax
uncertainties after the acquisition date generally will affect income tax
expense.  SFAS 141R also includes a substantial number of new disclosure
requirements.  SFAS 141R applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.  Earlier adoption
is prohibited.  The Company is required to record and disclose
business combinations following existing GAAP until January 1, 2009.  In December 2007, SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements  an amendment
of ARB No. 51(SFAS 160), was issued. SFAS 160 requires entities to
report noncontrolling (minority) interests as a component of stockholders
equity on the balance sheet; include all earnings of a consolidated subsidiary
in consolidated results of operations; and treat all transactions between an
entity and noncontrolling interest as equity transactions between the parties.
 SFAS 160 is effective for the Companys fiscal year beginning 2009 and
adoption is prospective only; however, presentation and disclosure requirements
described above must be applied retrospectively.  The Company is currently
evaluating the potential impact of adopting SFAS 160 on its condensed
consolidated financial statements, but does not expect a material impact upon
adoption.  In June 2007, the FASB ratified
Emerging Issue Task Force Issue No. 07-3 (EITF 07-3), Accounting for
Non-Refundable Advance Payments for Goods or Services to Be Used in Future
Research and Development Activities, which requires nonrefundable advance
payments for goods and services that will be used or rendered for future
research and development activities to be deferred and capitalized.  These
amounts will be recognized as an expense in the period that the related goods
are delivered or the related services are performed or when an entity does not
expect the goods to be delivered or services to be rendered.  EITF 07-3 is
effective for the fiscal years beginning after December 31, 2007, including
interim periods within those fiscal years. The Companys adoption of the
provisions of EITF 07-3, beginning January 1, 2008 did not have a material
impact on its condensed consolidated financial statements.  In February
2007, the FASB issued SFAS No. 159 The Fair Value Option for Financial Assets
and Financial Liabilities  Including an Amendment of FASB Statement No. 115
(SFAS 159), which became effective for fiscal periods beginning after November
15, 2007.  Under SFAS 159, companies may elect to measure specified
financial assets and liabilities at fair value that are not otherwise measured
at fair value, with changes in fair value recognized in earnings each subsequent
reporting period.  This election, called the fair value option, will
enable some companies to reduce volatility in reported earnings caused by
measuring related assets and liabilities differently.  SFAS 159 also
establishes presentation and disclosure requirements designed to draw a
comparison between the different measurement attributes a company elects for
similar types of assets and liabilities.  The Company did not elect the
fair value option for any of its eligible financial assets or liabilities and
therefore the Companys adoption of SFAS 159 did not have a material impact on
its condensed consolidated financial statements. In September
2006, the FASB issued SFAS No. 157 Fair Value Measurements (SFAS
157).  SFAS 157 establishes a common definition for fair value to be
applied to GAAP guidance requiring use of fair value, establishes a framework
for measuring fair value, and expands disclosure about such fair value
measurements.  SFAS 157 applies to fair value measurements that are already
required or permitted by other accounting standards, except for measurements of
share-based payments and measurements that are similar to, but not intended to
be, fair value.  The FASB has previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
 Accordingly, this Statement does not require any new fair value
measurements.  SFAS 157 is effective for fiscal years beginning after
November 15, 2007.  In November 2007, FASB granted a one year deferral for
the implementation of SFAS 157 for non-financial assets and liabilities.
 The Companys adoption of SFAS 157 with respect to financial   8   assets
and liabilities as of January 1, 2008 did not have a material impact on its
condensed consolidated financial statements.  Refer to Note 19, Fair Value
Measurements.   Note 3 - Share-Based
Compensation: The Company adopted Statement of
Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment
(SFAS 123R), effective January 1, 2006.  SFAS 123R requires companies to
recognize compensation expense in the amount equal to the fair value of all
share-based payments granted to employees.  The Company elected the
modified prospective transition method and, therefore, adjustments to prior
periods were not required as a result of adopting SFAS 123R.  Under this
method, the provisions of SFAS 123R apply to all awards granted after the date
of adoption and to any unrecognized expense of non-vested awards at the date of
adoption based on the grant date fair value.   Under SFAS 123R, the
Company recognizes share-based compensation ratably over the service period
applicable to the award.  SFAS 123R also amended SFAS No. 95, Statement of
Cash Flows, to require that excess tax benefits that have been reflected as
operating cash flows be reflected as financing cash flows.  In accordance
with SFAS 123R, $205 and $459 of excess tax benefits for the nine months ended
September 27, 2008 and September 29, 2007, respectively, have been classified as
both an operating cash outflow and financing cash inflow.  The Company grants share-based awards
under its various plans, which provide for the granting of non-qualified stock
options, restricted stock (including restricted stock with market performance
vesting conditions) and restricted stock units to the employees of the Company
and others.  Stock options, restricted stock and restricted stock units
generally vest ratably over four years, and stock options have a maximum term of
ten years.  As of September 27, 2008, there were
approximately 5.7 million shares of common stock available for future stock
option grants.  The Company issues new shares of common stock when stock
option awards are exercised.  Stock option awards outstanding under the
Companys current plans have been granted at exercise prices that were equal to
the market value of the Companys common stock on the date of grant.  Stock Options  The Company uses the Black-Scholes
stock option pricing model to estimate the fair value of stock option awards
with the following weighted average assumptions: For the three
For the three
For the nine
For the ninemonths ended
months ended
months ended
months endedSeptember 27,
September 29,
September 27,
September 29,2008
2007
2008
2007Risk-free interest rate
n/a
4.6%
3.0%
4.6%Expected life (in years)
n/a
6.3
6.3
6.2Expected Volatility
n/a
49.4%
48.5%
52.5%Dividend
n/a
0%
0%
0% The Black-Scholes option pricing model
was developed for use in estimating the fair value of traded options, which have
no vesting restrictions and are fully transferable.  The Company compiled
historical data on an employee-by-employee basis from the grant date through the
settlement date.  The results of analyzing the historical data showed that
there were three distinct populations of optionees, the Executive Officers
Group, the Outside Directors Group, and the All Others Group.  The expected
life of options represents the period of time that the options are expected to
be outstanding and is based generally on historical trends.  However,
because none of the Companys existing options have reached their full 10-year
term, and also because the majority of such options granted are out-of-the-money
and the expected life of out-of-the-money options is uncertain, the Company
opted to use the simplified method for plain vanilla options described in
Staff Accounting Bulletin 107.  The simplified method calculation is the
average of the vesting term plus the original contractual term divided by 2.
 The Company will revisit this assumption at least annually or sooner if
circumstances warrant.  The risk-free rate is based on the yield on the
Federal Reserve treasury rate with a maturity date corresponding to the expected
term of the option granted.  The expected volatility assumption is based on
the historical volatility of the Companys common stock over a term equal to the
expected term of the option granted.  SFAS 123R also requires forfeitures
to be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates.  It is assumed
that no dividends will be paid during the entire term of the options.  All
option valuation models require input of highly subjective assumptions.
 Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
subjective input assumptions can materially affect the fair value estimate, the
actual value realized at the time the options are exercised may differ from the
estimated values computed above.  The Company did not grant any options in
the three month period ended September 27, 2008.  The weighted average per
share fair values of options granted in the three month period ended September
29, 2007 was $11.06.  The weighted average per share fair values of options
granted in the nine month periods ended September 27, 2008 and September 29,
2007 were $9.92 and $13.18, respectively.    9   Set forth
below is the impact on the Companys results of operations of recording
share-based compensation from its stock options for the three-month and
nine-month periods ended September 27, 2008 and September 29, 2007:  For the three months
ended

For the nine months
endedSeptember 27,

September 29,

September 27,

September 29,2008

2007

2008

2007Cost of sales

$67

$167

$205

$525Research and development

168

416

514

1,313Selling, general and
administrative

606

1,499

1,852

4,725Total, pre-tax

$841

$2,082

$2,571

$6,563Tax effect of share-based
compensation

(320)

(812)

(977)

(2,560)Total, net of tax

$521

$1,270

$1,594

$4,003  The incremental stock-based
compensation expense decreased both basic and diluted earnings per share by
$0.02 and $0.04 per share for the three-month periods ended September 27, 2008
and September 29, 2007, respectively, and $0.05 for basic and diluted earnings per share for the
nine-month period ended September 27, 2008 and $0.12 for basic earnings per
share and $0.11 for diluted earnings per share for the nine-month period ended
September 29, 2007.  The following is a summary of the Companys stock option
activity: Weighted

Weighted

AggregateAverage

Average

IntrinsicShares

Exercise Price

Remaining Life

ValueBalance at December 31, 2007

4,526

$34.76Granted

2

19.56Exercised

(47)

7.44Forfeited

(226)

37.44Balance at September 27, 2008

4,255

$34.85

5.1

$753Exercisable at September 27,
2008

3,596

$36.93

4.5

$753Vested and expected to vest at September 27,
2008

4,184

$35.09

4.8

$753 The total fair value of shares vested
during the three-month periods ended September 27, 2008 and September 29, 2007
was $752­­­­­ and $439, respectively.  The total fair
value of shares vested during the nine-month periods ended September 27, 2008
and September 29, 2007, was $6,756 and $9,734, respectively.  As of
September 27, 2008, the total compensation cost related to all non-vested stock
options granted to employees but not yet recognized was approximately $6,916.
 This cost will be amortized on a straight-line basis over the remaining
weighted average vesting period of 1.8 years.  Restricted Stock/Restricted Stock
Units  Outstanding restricted stock and
restricted stock units generally vest ratably over four years.  The related
share-based compensation expense is recorded over the requisite service period,
which is the vesting period.  The fair value of restricted stock is based
on the market value of the Companys common stock on the date of grant.  The Company accelerated the vesting of
67 outstanding non-vested restricted shares in connection with the termination
of certain executives in the nine-month period ended September 29, 2007.
 The effect of this acceleration resulted in additional compensation
expense of $1,482 in the nine-month period ended September 29, 2007.  The impact on the Companys results of
operations of recording share-based compensation from restricted stock for the
three-month and nine-month periods ended September 27, 2008 and September 29,
2007 was as follows:  For the three months
ended

For the nine months
endedSeptember 27,

September 29,

September 27,

September 29,2008

2007

2008

2007Cost of sales

$125

$180

$449

$458Research and development

312

451

1,121

1,145Selling, general and
administrative

1,125

1,622

4,035

5,590Total, pre-tax

$1,562

$2,253

$5,605

$7,193Tax effect of stock-based
compensation

(594)

(879)

(2,130)

(2,805)Total, net of tax

$968

$1,374

$3,475

$4,388   10     The following
is a summary of the Companys restricted stock activity (shares in
thousands): Weighted

AggregateAverage

IntrinsicShares

Grant Price

ValueNon-vested balance at December 31,
2007

698

$26.35Granted

328

21.41Vested

(191)

28.21Forfeited

(67)

23.62Non-vested balance at September 27,
2008

768

$24.02

$9,740  The following
is a summary of the Companys restricted stock unit activity (shares in
thousands): Weighted

AggregateAverage

IntrinsicShares

Grant Price

ValueRestricted stock unit balance at December 31,
2007

173

$23.53Granted

35

21.65Vested
and shares issued

(17)

29.01Forfeited

(9)

21.68Restricted stock unit balance at
September 27, 2008

182

$22.75

$2,311  As of September 27, 2008, the total
compensation cost related to all non-vested restricted stock and restricted
stock units (excluding restricted stock grants with market conditions described
below) granted to employees but not yet recognized was approximately $18.0
million; this cost will be amortized on a straight-line basis over the remaining
weighted average vesting period of approximately 2.4 years.  At September
27, 2008, approximately 0.9 million shares remain available for restricted stock
(including restricted stock with market conditions described below) and
restricted stock unit grants.  Restricted Stock Grants With
Market Performance Vesting Conditions In the first quarter of 2008, the
Company issued restricted stock grants with market performance vesting
conditions.  The vesting of restricted stock grants issued to certain
employees of the Company is contingent upon multiple market conditions that are
factored into the fair value of the restricted stock at grant date with cliff
vesting after three years if the market conditions have been met.  Vesting
will occur if the applicable continued employment condition is satisfied and the
Total Stockholder Return ("TSR") on the Companys common stock exceeds a minimum
TSR relative to the Companys stock price at the beginning of the three-year
vesting period, the TSR meets or exceeds the median of a defined peer group of
approximately 15 companies, and/or the TSR exceeds the Standard and Poors 400
Mid Cap Index ("S&P 400") over the three-year measurement period
beginning on January 1 in the year of grant and ending after three
years on December 31.  A maximum number of 720 shares of common stock
could be issued after the three-year vesting period depending on the achievement
of the TSR goals.  No shares of common stock will be issued if the
Companys TSR is below 6% annualized return over the three-year vesting period.
 Any shares earned will be distributed after the end of the three-year
period.  In all circumstances, restricted stock granted does not entitle
the holder the right, or obligate the Company, to settle the restricted stock in
cash.  The
effect of the market conditions on the restricted stock issued to certain
employees of the Company is reflected in the fair value on the grant date.
 The restricted stock grants with market conditions were valued using a
Monte Carlo simulation.  The Monte Carlo simulation estimates the fair
value based on the expected term of the award, risk-free interest rate, expected
dividends, and the expected volatility for the Company, its peer group, and the
S&P 400.  The expected term was estimated based on the vesting period
of the awards (3 years), the risk-free interest was based on the yield on the
Federal Reserve treasury rate with a maturity matching the vesting period
(2.6%).  The expected dividends were assumed to be zero for the Company.
 Volatility was based on historical volatility over the expected term
(40%).  Restricted stock that included multiple market conditions had a
grant date fair value per restricted share of $24.78.    11   The
following table summarizes the components of the Company's stock-based
compensation related to its restricted stock grants with market conditions
recognized in the Company's financial statements for the three-month and
nine-month periods ended September 27, 2008 and September 29, 2007: For the three months
ended

For the nine months
endedSeptember 27,

September 29,

September 27,

September 29,2008

2007

2008

2007Cost of sales

$ 56

$ -

$ 166

$ -Research and development

140

-

416

-Selling, general and
administrative

505

-

1,498

-Total, pre-tax

$ 701

$ -

$ 2,080

$ -Tax effect of stock-based
compensation

(266)

-

(790)

-Total, net of tax

$ 435

$ -

$ 1,290

$ -  As
of September 27, 2008, $6.3 million of total unrecognized compensation
cost, net of estimated forfeitures, related to restricted stock grants with
market conditions, is expected to be recognized over a weighted average period
of approximately 2.3 years.  The following is a summary of the
Companys restricted stock grants with market conditions activity (shares in
thousands): Weighted AverageGrant Date

AggregateFair Value

IntrinsicShares

Per Share

ValueNon-vested balance at December 31,
2007

-

$ -Granted

384

24.78Vested

-

-Forfeited

(22)

24.78Non-vested balance at September 27,
2008

362

$24.78

$4,593  The total
grant date fair value of restricted stock grants with market conditions during
the nine-month period ended September 27, 2008 was $8.9 million.  Employee Stock Purchase Program:  The Company maintains an Employee
Stock Purchase Program (the Program).  The Program is designed to qualify
as an employee stock purchase plan under Section 423 of the Internal Revenue
Code of 1986, as amended.  It enables eligible employees to purchase shares
of the Companys common stock at a 5% discount to the fair market value.
 An aggregate of 1,000 shares of common stock has been reserved for sale to
employees under the Program.  Employees purchased 7 shares and 15 shares
during the three-month and nine-month periods ended September 27, 2008.
 There was no Program activity during the three-month and nine-month
periods ended September 29, 2007 as the Program was suspended by the Company
from July 2006 to December 2007.   Note 4- Available for Sale Debt and Marketable
Equity Securities:  At September
27, 2008 and December 31, 2007, all of the Companys investments in debt and
marketable equity securities were classified as available for sale and, as a
result, were reported at their estimated fair values on the condensed
consolidated balance sheets.  Refer to Note 19 - Fair Value Measurements.
 The following is a summary of amortized cost and estimated fair value of
the Companys debt and marketable equity securities available for sale at
September 27, 2008: EstimatedUnrealized

FairCost

Gain

(Loss)

ValueSecurities issued by government agencies

$56,240

$ -

$(164)

$56,076Debt securities issued by various state and local
municipalities and agencies

29,862

64

-

29,926Other debt securities

32,892



(298)

32,594Available for sale debt
securities

118,994

64

(462)

118,596Marketable
equity securities available for sale - Hana Biosciences, Inc.

1,750

-

(250)

1,500Total

$120,744

$64

$(712)

$120,096    12   Of the $0.7
million of unrealized loss as of September 27, 2008, none has been in an
unrealized loss position for greater than one year.  The Company believes
that these losses are not other-than-temporary in accordance with FASB Staff
Position Nos. FAS 115-1 / 124-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments, due to its assessment
that all amounts due according to the contractual terms of the related debt
securities will be collected and its ability and intent to hold all marketable
debt securities for a reasonable period of time sufficient for a recovery of
fair value up to (or beyond) the cost of the investments.  Except as
described below, all available for sale debt securities are classified as
current on the Companys condensed consolidated balance sheet as of September
27, 2008. The Company
recorded a loss of $2.5 million in the condensed consolidated statement of
operations during the three-month period ended September 27, 2008, which
represented an other-than-temporary impairment of the Companys investment in a
debt security issued by Ford Motor Credit Company that matures in 2015.
 Due to the continued deterioration of the credit markets and the auto
industry and the severity of the loss and the duration of the period that the
investment has been in a loss position, the Company believes the loss is
other-than-temporary.  This item was included in Loss on marketable
securities and other investments, net on the condensed consolidated statement of
operations.  The Company has classified its investment in this debt
security (at the revised cost of $2.6 million) as a noncurrent asset on its
condensed consolidated balance sheet as of September 27, 2008 due to its
uncertainty as to when this investment will be liquidated. The Company
recorded a loss of $2.1 million in the condensed consolidated statement of
operations during the three-month period ended June 28, 2008, which represented
an other-than-temporary impairment of the Companys investment in Hana
Biosciences, Inc. (Hana), triggered by the severity of the loss and the
duration of the period that the investment has been in a loss position.
 This item was included in Loss on marketable securities and other
investments, net on the condensed consolidated statement of operations.
 The Company has classified its investment in Hana (at the revised cost of
$1.8 million) as a noncurrent asset on its condensed consolidated balance sheet
as of September 27, 2008 due to its intent to hold the investment for a period
of time greater than 12 months. The Company
recorded an investment loss of $6.0 million during the nine-month period ended
September 29, 2007 relating to the complete loss of an investment, as a limited
partner, in a fund that invested in various floating rate structured finance
securities.  The fund was liquidated and there was no remaining equity for
the limited partners.  During the three-month period ended June 28, 2008,
the Company reached a settlement in connection with the fund and received $1.7
million, which the Company recognized as a gain and included in Loss on
marketable securities and other investments, net on the condensed consolidated
statement of operations.  The following is a summary of
amortized cost and estimated fair value of the Companys investments in debt and
marketable equity securities available for sale at December 31, 2007: EstimatedUnrealized

FairCost

Gain

(Loss)

ValueSecurities issued by government agencies

$46,177

$24

$-

$46,201Debt
securities issued by various state and local municipalities and
agencies

24,226

-

(3)

24,223Other debt securities

15,020

-

(1,029)

13,991Auction rate securities

5,000

-

-

5,000Available for sale debt
securities

90,423

24

(1,032)

89,415Marketable equity securities
available for saleHana Biosciences,
Inc.

3,850

-

(1,200)

2,650Total

$94,273

$24

$(2,232)

$92,065  Auction Rate
Securities Auction rate securities were
classified as short-term available for sale debt securities as of December 31,
2007.  Auction rate securities are variable rate bonds and preferred stock
tied to short-term interest rates with maturities on the face of the securities
in excess of 90 days.  Auction rate securities have interest rate resets
through a modified Dutch auction, at predetermined short-term intervals, usually
every 7, 28 or 35 days.  Interest paid during a given period is based upon
the interest rate determined during the prior auction.  Although these
securities are issued and rated as long-term securities, they are priced and
traded as short-term instruments because of the historical liquidity provided
through the interest rate reset.  All of the Companys auction rate
securities were tax-exempt or tax-advantaged as of December 31, 2007.  All
of the Companys auction rate securities were tied to debt securities issued by
various state and local municipalities and agencies and the auction rate
securities were insured by insurance companies as of December 31, 2007.
 Given the negative liquidity conditions in the global credit markets,
there were failed auctions and related impairments relating to auction rate
securities in late 2007 and in January and February 2008, including those
auction rate securities tied to various municipalities.  The Companys
auction rate securities did not experience any failed auctions and the Company
sold its remaining auction rate securities during the three months ended March
29, 2008.   13    The following is a summary of the contractual
maturities of the Companys available for sale debt securities at September 27,
2008: September 27, 2008Estimated FairCost

ValueLess than one year

$41,740

$41,862Due between 1-2 years

44,580

44,268Due between 2-5 years

30,120

29,912Due after 5 years

2,554

2,554Total

$118,994

$118,596   Note 5- Other Investments:  Carrying Value

Carrying ValueSeptember 27,

December 31,2008

2007IntelliPharmaCeutics Ltd.

$2,500

$2,500Total other investments

$2,500

$2,500  In August 2007, the Company announced that it entered
into a stock purchase agreement to acquire an equity interest in
IntelliPharmaCeutics Ltd. (IPC Ltd.), a privately held Delaware company.
 The terms of the agreement included a $5,000 private placement investment
that represents a 4.2 percent equity interest in IntelliPharmaCeutics Corp.
(IPC Corp.), the operating subsidiary of IPC Ltd.  The Company recorded
its investment in IPC Corp. at $2,500 based on the Companys assessment of the
fair value of its investment and charged $2,500, which represents a
non-refundable upfront license payment, to research and development expense in
the third quarter of 2007.  Because IPC Ltd. is privately-held and
accounted for under the cost method, the Company monitors the investment on a
periodic basis to evaluate whether any declines in value become
other-than-temporary.  At September 27, 2008 and December 31, 2007, the
Company believed the carrying values of its cost method investment were not
otherthan-temporarily impaired.   Note 6- Accounts Receivable: The Company recognizes revenue for
product sales when title and risk of loss have transferred to its customers,
when reliable estimates of rebates, chargebacks, returns and other adjustments
can be made, and when collectibility is reasonably assured. This is generally at
the time that products are received by the customers.  Upon recognizing
revenue from a sale, the Company records estimates for chargebacks, rebates and
incentive programs, product returns, cash discounts and other sales reserves
that reduce accounts receivable. September 27,

December 31,2008

2007Gross trade accounts
receivable

$196,396

$216,327Chargebacks

(30,338)

(46,006)Rebates and incentive programs

(26,280)

(42,859)Returns

(39,673)

(47,102)Cash discounts and other

(12,379)

(16,158)Doubtful accounts

(3)

(20)Accounts receivable, net

$87,723

$64,182  Allowance for doubtful accountsFor the nine-month period
endedSeptember 27, 2008

September 29, 2007Balance at beginning of period

$(20)

$(2,465)Additions  charge to expense

(3)

-Adjustments and/or deductions

20

2,438Balance at end of period

$(3)

$(27)   14      The following
tables summarize the activity for the nine months ended September 27, 2008 and
September 29, 2007, respectively, in the accounts affected by the estimated
provisions described below: For the nine months ended September
27, 2008Accounts receivable reserves

Beginning balance

Provision recorded for current
period sales

(Provision) reversal recorded for
prior period sales

Credits processed

Ending balanceChargebacks

$(46,006)

$(286,435)

$(539)
(1)
$302,642

$(30,338)Rebates and incentive programs

(42,859)

(63,864)

(1,571)
(3)
82,014

(26,280)Returns

(47,102)

(13,049)

3,868
(4)
16,610

(39,673)Cash discounts and other

(16,158)

(35,095)

349

38,525

(12,379)Total

$(152,125)

$(398,443)

$2,107

$439,791

$(108,670)Accrued liabilities(2)

$(17,684)

$(17,365)

$(192)

$12,129

$(23,112)  For the nine months ended September
29, 2007Accounts receivable reserves

Beginning balance

Provision recorded for current
period sales

(Provision) reversal recorded for
prior period sales

Credits processed

Ending balanceChargebacks

$(51,891)

$(253,057)

$    -
(1)
$265,788

$(39,160)Rebates and incentive programs

(85,888)

(150,480)

3,109

172,174

(61,085)Returns

(42,905)

(24,646)

(3,164)

18,712

(52,003)Cash discounts and other

(18,037)

(55,144)

211

51,598

(21,372)Total

$(198,721)

$(483,327)

$156

$508,272

$(173,620)Accrued liabilities(2)

$(10,583)

$(13,006)

$   -

$7,067

$(16,522)  (1) Unless
specific in nature, the amount of provision or reversal of reserves related to
prior periods for chargebacks is not determinable on a product or customer
specific basis; however, based upon historical analysis and analysis of activity
in subsequent periods, the Company has determined that its chargeback estimates
remain reasonable. (2) Includes
amounts due to customers for which no underlying accounts receivable exists and
is principally comprised of Medicaid rebates and rebates due under other U.S.
Government pricing programs.  The Company included additional amounts that
were part of accrued expenses and other current liabilities on the condensed
consolidated balance sheets as of December 31, 2006 ($171), September 29, 2007
($436) and December 31, 2007 ($869) in the tables above that are similar to the
previously disclosed amounts due to customers for which no underlying accounts
receivable exists. (3) The
changes in accounts receivable reserves recorded for prior period sales related
to rebates and incentives programs are principally comprised of the finalization
of contract negotiations with a certain customer(s) that resulted in an
adjustment of ($2,313) to our rebates and incentive programs for sales made to
that customer in the fourth quarter of 2007.  With the exception of the
foregoing factor, there were no other factors that were deemed to be material
individually or in the aggregate. (4) The changes in
accounts receivable reserves recorded for prior period sales related to returns
principally comprised of the successful resolution in the nine-month period
ended September 27, 2008 of a customer dispute over invalid customer deductions
taken in prior periods of $1,486, and an update to managements prior period
returns estimates relating to the loss of a customer for a certain generic
product and branded products based on new returns information that became
available during the nine-month period ended September 27, 2008, of $2,382.  The Company sells its products
directly to wholesalers, retail drug store chains, drug distributors, mail order
pharmacies and other direct purchasers and customers that purchase its products
indirectly through the wholesalers, including independent pharmacies,
non-warehousing retail drug store chains, managed health care providers and
other indirect purchasers.  The Company has entered into agreements at
negotiated contract prices with those health care providers that purchase
products through the Companys wholesale customers at those contract prices.
 Chargeback credits are issued to wholesalers for the difference between
the Companys invoice   15   price to the wholesaler and
the contract price through which the product is resold to health care providers.
 Approximately 74% and 63%of the Companys net product sales were
derived from the wholesale distribution channel for the three months ended
September 27, 2008 and September 29, 2007, respectively.  The information
that the Company considers when establishing its chargeback reserves includes
contract and non-contract sales trends, average historical contract pricing,
actual price changes, processing time lags and customer inventory information
from its three largest wholesale customers.  The Companys chargeback
provision and related reserve vary with changes in product mix, changes in
customer pricing and changes to estimated wholesaler inventory.  Customer rebates and incentive
programs are generally provided to customers as an incentive for the customers
to continue carrying the Companys products or replace competing products in
their distribution channels with products sold by the Company.  Rebate
programs are based on a customers dollar purchases made during an applicable
monthly, quarterly or annual period.  The Company also provides indirect
rebates, which are rebates paid to indirect customers that have purchased the
Companys products from a wholesaler under a contract with the Company.
 The incentive programs include stocking or trade show promotions where
additional discounts may be given on a new product or certain existing products
as an added incentive to stock the Companys products.  The Company may,
from time to time, also provide price and/or volume incentives on new products
that have multiple competitors and/or on existing products that confront new
competition in order to attempt to secure or maintain a certain market share.
 The information that the Company considers when establishing its rebate
and incentive program reserves are rebate agreements with and purchases by each
customer, tracking and analysis of promotional offers, projected annual sales
for customers with annual incentive programs, actual rebates and incentive
payments made, processing time lags, and for indirect rebates, the level of
inventory in the distribution channel that will be subject to indirect rebates.
 The Company does not provide incentives designed to increase shipments to
its customers that it believes would result in out-of-the ordinary course of
business inventory for them.  The Company regularly reviews and monitors
estimated or actual customer inventory information at its three largest
wholesale customers for its key products to ascertain whether customer
inventories are in excess of ordinary course of business levels.  Pursuant to a drug rebate agreement
with the Centers for Medicare and Medicaid Services, TriCare and similar
supplemental agreements with various states, the Company provides such states
with a rebate on drugs dispensed under government programs.  The Company
determines its estimate of Medicaid rebate accrual primarily based on historical
experience of claims submitted by the various states and any new information
regarding changes in the Medicaid program that might impact the Companys
provision for Medicaid rebates.  In determining the appropriate accrual
amount the Company considers historical payment rates; processing lag for
outstanding claims and payments; and levels of inventory in the distribution
channel.  The Company reviews the accrual and assumptions on a quarterly
basis against actual claims data to help ensure that the estimates made are
reliable.  The Company accepts returns of product
according to the following criteria: (i) the product returns must be approved by
authorized personnel with the lot number and expiration date accompanying any
request and (ii) the Company generally will accept returns of products from any
customer and will provide the customer with a credit memo for such returns if
such products are returned within six months prior to, and until 12 months
following, such products expiration date. The Company records a provision for
product returns based on historical experience, including actual rate of expired
and damaged in-transit returns, average remaining shelf-lives of products sold,
which generally range from 12 to 36 months, and estimated return dates.
 Additionally the Company considers other factors when estimating its
current period return provision, including levels of inventory in the
distribution channel, significant market changes that may impact future expected
returns, and actual product returns, and may record additional provisions for
specific returns that it believes are not covered by the historical rates.  The Company offers cash discounts to
its customers, generally 2% of the sales price, as an incentive for paying
within invoice terms, which generally range from 30 to 90 days.  The
Company accounts for cash discounts by reducing accounts receivable by the full
amount of the discounts that the Company expects its customers to take.  In
addition to the significant gross-to-net sales adjustments described above, the
Company periodically makes other sales adjustments.  The Company generally
accounts for these other gross-to-net adjustments by establishing an accrual in
the amount equal to its estimate of the adjustments attributable to the
sale.  The Company may at its discretion
provide price adjustments due to various competitive factors, through
shelf-stock adjustments on customers existing inventory levels.  There are
circumstances under which the Company may not provide price adjustments to
certain customers as a matter of business strategy, and consequently may lose
future sales volume to competitors and risk a greater level of sales returns on
products that remain in the customers existing inventory.  As detailed above, the Company has the
experience and access to relevant information that it believes are necessary to
reasonably estimate the amounts of such deductions from gross revenues.
 Some of the assumptions used by the Company for certain of its estimates
are based on information received from third parties, such as wholesale customer
inventories and market data, or other market factors beyond the Companys
control.  The estimates that are most critical to the establishment of
these reserves, and therefore, would have the largest impact if these estimates
were not accurate, are estimates related to contract sales volumes, average
contract pricing, customer inventories and return volumes.  The Company
regularly reviews the information related to these estimates and adjusts its
reserves accordingly, if and when actual experience differs from previous
estimates.  With the exception of the product returns allowance, the ending
balances of accounts receivable reserves and allowances generally are processed
during a two-month to four-month period.    16   Use of Estimates in
Reserves The Company believes that its
reserves, allowances and accruals for items that are deducted from gross
revenues are reasonable and appropriate based on current facts and
circumstances. It is possible, however, that other parties applying reasonable
judgment to the same facts and circumstances could develop different allowance
and accrual amounts for items that are deducted from gross revenues.
Additionally, changes in actual experience or changes in other qualitative
factors could cause the Companys allowances and accruals to fluctuate,
particularly with newly launched or acquired products.  The Company reviews
the rates and amounts in its allowance and accrual estimates on a quarterly
basis. If future rates and amounts are significantly greater than those
reflected in its recorded reserves, the resulting adjustments to those reserves
would decrease the Companys reported net revenues; conversely, if actual
product returns, rebates and chargebacks are significantly less than those
reflected in its recorded reserves, then the resulting adjustments to those
reserves would increase its reported net revenues. If the Company were to change
its assumptions and estimates, its reserves would change, which would impact the
net revenues that the Company reports.  The Company regularly reviews the
information related to these estimates and adjusts its reserves accordingly, if
and when actual experience differs from previous estimates.  Major Customers The amounts due from the Companys
four largest customers, McKesson Corporation, AmerisourceBergen Corporation,
Cardinal Health Inc., and Walgreen Co., accounted for approximately 28%, 29%,
15% and 3%, respectively, of the gross accounts receivable balance at September
27, 2008 and approximately 31%, 21%, 17%, and 7%, respectively, of the gross
accounts receivable balance at December 31, 2007.   Note 7- Inventories: September 27,

December 31,2008

2007Raw materials and supplies

$17,766

$22,815Work-in-process

4,235

2,630Finished goods

26,911

59,442$48,912

$84,887  Inventory write-offs (inclusive of
pre-launch inventories detailed below) were $3,000 and $2,600 for the quarters
ended September 27, 2008 and September 29, 2007, respectively.
  Inventory write-offs were $7,900 and $14,900 for the year-to-date
periods ended September 27, 2008 and September 29, 2007, respectively. The Company
capitalizes inventory costs associated with certain products prior to regulatory
approval and product launch, based on management's judgment of reasonably
certain future commercial use and net realizable value, when it is reasonably
certain that the pre-launch inventories will be saleable.  The
determination to capitalize is made once the Company (or its third party
development partners) has filed an Abbreviated New Drug Application (ANDA)
that has been acknowledged by the FDA for containing sufficient information to
allow the FDA to conduct their review in an efficient and timely manner and
management is reasonably certain that all regulatory and legal hurdles will be
cleared.  This determination is based on the particular facts and
circumstances relating to the expected FDA approval of the generic drug product
being considered, and accordingly, the time frame within which the determination
is made varies from product to product.  The Company could be required to
write down previously capitalized costs related to pre-launch inventories upon a
change in such judgment, or due to a denial or delay of approval by regulatory
bodies, or a delay in commercialization, or other potential factors.  As of
September 27, 2008, the Company had inventories related to products that were
not yet available to be sold of $1,000. The amounts in
the table below are also included in the total inventory balances presented
above. Pre-Launch Inventories

September 27,

December 31,2008

2007Raw materials and supplies

$325

$1,183Work-in-process

516

153Finished goods

155

5,086$996

$6,422 Pre-launch
inventories at December 31, 2007 were mainly comprised of a specific partnered
product of $5,100.  Since the launch of this specific partnered product
anticipated for 2008 has been delayed, this inventory was written off to the
extent the Company felt it would be unable to recover its carrying value.
 The remaining balance in each period was comprised of several other
pre-launch products for which regulatory approval has been applied for but not
yet received.  None of the other pre-launch products accounted for more
than 1% of the total inventory balance at September 27, 2008 and December 31,
2007, on an individual basis.  Write-offs of pre-launch inventories, net of
allocation to a partner, were $1,500 for the quarter ended September 27, 2008.
 There were   17   no
write-offs of pre-launch inventories in the three months ended September 29,
2007.  Write-offs of pre-launch inventories, net of allocation to a
partner, were $3,500 and $600 for the year-to-date periods ended September 27,
2008 and September 29, 2007, respectively.   Note 8  Property, Plant and Equipment,
net: September 27,

December 31,2008

2007Land

$1,882

$1,882Buildings

26,073

25,947Machinery and equipment

51,478

49,302Office equipment, furniture and
fixtures

5,646

5,476Computer software and hardware

32,074

28,989Leasehold improvements

14,752

14,865Construction in progress

14,412

8,205146,317

134,666Less accumulated depreciation and
amortization

59,996

52,016$86,321

$82,650  Depreciation and amortization expense
related to property, plant and equipment was $3,173 and $3,349 for the three
months ended September 27, 2008 and September 29, 2007, respectively, and
$10,115 and $10,180 for the nine months ended September 27, 2008 and September
29, 2007, respectively.   Note 9- Intangible Assets, net: September 27,

December 31,2008

2007Trademark
licensed from Bristol-Myers Squibb Company, net of accumulated
amortization of $3,242 and $2,155

$6,759

$7,846Teva
Pharmaceutical Industries, Inc. Asset Purchase Agreement, net of
accumulated amortization of $8,487 and $3,193

-

5,294Ivax License Agreement, net of accumulated
amortization of $7,295 and $5,068

705

2,932Paddock Licensing Agreement, net of accumulated
amortization of $2,000 and $1,250

4,000

4,750Spectrum
Development and Marketing Agreement, net of accumulated amortization of $0
and $0

25,000

5,000Genpharm,
Inc. Distribution Agreement, net of accumulated amortization of $7,403 and
$6,860

3,432

3,973SVC Pharma,
Inc. License and Distribution Agreement, net of accumulated amortization
of $682

3,002

-Bristol-Myers
Squibb Company Asset Purchase Agreement, net of accumulated amortization
of $11,003 and $9,749

697

1,950FSC Laboratories Agreement, net of accumulated
amortization of $4,190 and $3,814

1,631

2,008Intellectual property, net of accumulated
amortization of $1,145 and $940

1,546

1,751Other intangible assets, net of
accumulated amortization of $5,127 and $4,693

120

555$46,892

$36,059  The Company recorded amortization
expense related to intangible assets of $12,851 and $9,761, respectively, for
the nine-month periods ended September 27, 2008 and September 29, 2007, and such
expense is included in cost of goods sold. During the
nine-month period ended September 27, 2008, the Company invested $20,000 as part
of an amendment to its agreement with Spectrum Pharmaceuticals pursuant to
which the Company increase
d its share of the profits from 38% to 95% for
the commercialization of the generic versions of GSK's Imitrex®

(sumatriptan) i njection
..  Based on a settlement agreement
between Spectrum Pharmaceuticals and GSK, the Company launched generic versions
of certain sumatriptan injection products in November 2008.  This agreement
will be amortized over a useful life of three years commencing with the launch
of the product. During the
nine-month period ended September 27, 2008, the Company reclassified a portion
of its investment in SVC to intangible assets, which represents the right and
license to market dronabinol in the United States.  Refer to Note 15 -
Investment in Joint Venture for further details.   18   Amortization
expense related to the intangible assets currently being amortized is expected
to total approximately $8,499 for the remainder of 2008, $16,034 in 2009,
$10,267 in 2010, $8,608 in 2011, $2,733 in 2012 and $751 thereafter.  The Company evaluates all intangible
assets for impairment quarterly or whenever events or other changes in
circumstances indicate that the carrying value of an asset may no longer be
recoverable.  An impairment charge of approximately $4,900 related to the
Teva Pharmaceutical Industries, Inc. Asset Purchase Agreement was recorded in
the three months ended September 27, 2008 driven by an increased competitive
environment and expected lower future cash flows coupled with the Companys
routine evaluation of its generic product portfolio.  As of September 27,
2008, the Company believes its net intangible assets are recoverable.   Note 10- Income Taxes:  The Company reflects interest and
penalties attributable to income taxes, to the extent they arise, as a component
of its income tax provision or benefit as well as its outstanding income tax
assets and liabilities. The IRS is
currently examining the Companys 2003-2006 federal income tax returns.
 Prior periods have either been audited or are no longer subject to IRS
audit.  The Company is currently under audit in one state jurisdiction for
the years 2003-2005.  In most other state jurisdictions, the Company is no
longer subject to examination by tax authorities for years prior to 2003.  Current deferred income tax assets at
September 27, 2008 and December 31, 2007 consisted of temporary differences
primarily related to accounts receivable reserves.  Non-current deferred
income tax assets at September 27, 2008 and December 31, 2007 consisted of the
tax benefit related to purchased call options, acquired in-process research and
development and timing differences primarily related to intangible assets and
stock options.  The Companys effective tax rates for
continuing operations for the three months ended September 27, 2008 and
September 29, 2007 were 34% and 35%, respectively.  The Companys
effective tax rates for the nine months ended September 27, 2008 and September
29, 2007 were 25% and 35%, respectively.  The Companys effective tax rate
for the three and nine month periods ended September 27, 2008 includes the
impact of permanent tax items and reflects a $2,700 charge, recorded in the
third quarter of 2008, related to the Companys revised filing position on
certain tax credits relating to prior years.   Note 11 -
Long-Term Debt: Long-Term Debt September 27,

December 31,2008

2007Senior subordinated convertible notes
(a)

$200,000

$200,000Less current portion

(200,000)

(200,000)$-

$-  (a) The notes bear interest at an annual
rate of 2.875%, payable semi-annually on March 30 and September 30 of each year.
 The notes are convertible into common stock at an initial conversion price
of $88.76 per share, upon the occurrence of certain events.  Upon
conversion, the Company has agreed to satisfy the conversion obligation in cash
in an amount equal to the principal amount of the notes converted.  The
notes mature on September 30, 2010, unless earlier converted, accelerated or
repurchased.  The Company may not redeem the notes prior to their
maturity date.  On September 27, 2008, the senior subordinated convertible
notes had a quoted market value of approximately $177,500.  See Legal
Proceedings in Note 14, Commitments, Contingencies and Other Matters for
discussion involving notices of default and acceleration the Company received
from the Trustee of the Companys 2.875% senior subordinated convertible notes
due 2010 and the related litigation.  Until the matter is resolved, the
Company is recording the payment obligations as a current liability as of
September 27, 2008 because the Court in the matter could (i) rule against the
Companys position and (ii) determine that the appropriate remedy would be the
accelerated payment of the Notes.  Accordingly, the
Company cannot consider the possibility of accelerated payment to be remote.
 Refer to Note 20 Subsequent Events for detail of repurchase transactions
involving the notes.     19   Note 12- Changes in Stockholders
Equity: Changes
in the Companys Common Stock, Additional Paid-In Capital and Accumulated Other
Comprehensive Loss accounts during the nine-month period ended September 27,
2008 were as follows: AccumulatedAdditional

OtherCommon Stock

Paid-In

ComprehensiveShares

Amount

Capital

LossBalance, December 31, 2007

36,461

$364

$274,963

$(1,362)Unrealized gain on available for sale securities,
net of tax

-

-

-

959Exercise of stock options

47

-

346

-Tax benefit from exercise of stock options

-

-

205

-Tax deficiency related to vesting of restricted
stock

-

-

(717)

-Issuance of
common stock under the Employee Stock Purchase Program

-

-

223

-Forfeitures of restricted stock

(90)

(1)

1

-Issuances of restricted stock

719

8

(8)

-Compensatory arrangements

-

-

10,257

-Other

-

-

(74)

-Balance, September 27, 2008

37,137

$371

$285,196

$(403)   Three months ended

Nine months endedSeptember 27,

September 29,

September 27,

September 29,2008

2007

2008

2007Comprehensive Income:Net income (loss)

$1,660

$1,269

$(15,817)

$45,581Other comprehensive income:Reclassification adjustment for net losses (gains) included
in net income, net of tax

1,554

-

2,856

2,879Unrealized
(loss) gain on available for sale securities, net of tax

(722)

(1,174)

(1,897)

(1,097)Comprehensive income (loss)

$2,492

$95

$(14,858)

$47,363  In April 2004, the Board authorized
the repurchase of up to $50.0 million of the Companys common stock.
 Repurchases are made from time to time in the open market or in privately
negotiated transactions, whenever it appears prudent to do so, subject to
compliance with applicable securities laws.  Shares of common stock
acquired through the repurchase program are available for reissuance for general
corporate purposes.  In 2007, the Company announced that its Board approved
an expansion of its share repurchase program allowing for the repurchase of up
to $75 million of the Companys common stock, inclusive of the $17.8 million
remaining from the April 2004 authorization.  The authorized amount
remaining for stock repurchases under the repurchase program was $43.6 million,
as of September 27, 2008.  The repurchase program has no expiration date.   Note 13- Earnings Per Share: The following is a reconciliation of
the amounts used to calculate basic and diluted earnings per share: Three months ended

Nine months endedSeptember 27,

September 29,

September 27,

September 29,2008
2007
2008
2007Income (loss) from continuing operations

$1,810

$1,269

$(15,459)

$45,581Loss from discontinued operations

-

-

505

-Provision for income taxes

150

-

863

-Loss from discontinued operations

150

-

358

-Net income (loss)

$1,660

$1,269

$(15,817)

$45,581   20    Basic:Weighted average number of common shares
outstanding

33,322

34,738

33,282

34,677Income (loss) from continuing operations

$0.05

$0.04

$(0.46)

$1.31Loss from discontinued operations

(0.00)

-

(0.01)

-Net income (loss) per share of common stock

$0.05

$0.04

$(0.47)

$1.31Assuming dilution:Weighted average number of common shares
outstanding

33,322

34,738

33,282

34,677Effect of dilutive securities

44

168

-

272Weighted average number of common and common
equivalent shares outstanding

33,366

34,906

33,282

34,949Income (loss) from continuing operations

$0.05

$0.04

$(0.46)

$1.30Loss from discontinued operations

(0.00)

-

(0.01)

-Net income (loss) per share of common stock

$0.05

$0.04

$(0.47)

$1.30  Outstanding options of 4,045 and 4,281
as of September 27, 2008 and September 29, 2007, respectively, 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 during the
respective periods and their inclusion would, therefore, have been
anti-dilutive.  Since the Company had a net loss for the three months and
nine months ended September 27, 2008, basic and diluted net loss per share of
common stock is the same, because the effect of including potential common stock
equivalents (such as stock options, restricted shares, and restricted stock
units) would be anti-dilutive.  As of September 27, 2008, restricted stock
grants with market conditions were not included in the calculation of diluted
earnings per share because the Total Stockholder Return ("TSR") on the Companys
common stock did not exceed a minimum TSR relative to the Companys stock price
at the beginning of the vesting period.  In addition, outstanding warrants
sold concurrently with the sale of the subordinated convertible notes in
September 2003 and issued in conjunction with the acquisition of Kali in June
2004 were not included in the computation of diluted earnings per share as of
September 27, 2008 and September 29, 2007.  The warrants related to the
notes are exercisable for an aggregate of 2,253 shares of common stock at an
exercise price of $105.20 per share and the warrants related to the Kali
acquisition are exercisable for an aggregate of 150 shares of common stock at an
exercise price of $47.00 per share.   Note 14- Commitments, Contingencies and
Other Matters: Legal
Proceedings Contractual Matters On May 3, 2004, Pentech
Pharmaceuticals, Inc. (Pentech) filed an action against the Company in the
United States District Court for the Northern District of Illinois. This action
alleges that the Company breached its contract with Pentech relating to the
supply and marketing of paroxetine (PaxilÒ) and that the Company breached fiduciary
duties allegedly owed to Pentech. The Company and Pentech are in dispute over
the amount of gross profit share due to them. Discovery in this case has
concluded. The Court denied cross motions for summary judgment relating to the
construction of the contract and denied Pentechs motion for summary judgment
against the Companys fraudulent inducement counterclaim. The Company also filed
a motion for summary judgment against Pentechs breach of fiduciary duty claim,
and that motion was granted.  The Company has since withdrawn its
counterclaim.  A bench trial before a Magistrate Judge has been scheduled
to commence on December 9, 2008. The Company intends to defend vigorously this
action.  Unless otherwise indicated in the
details provided below, the Company cannot predict with certainty the outcome or
the effects on the Company of the litigations described below.  The outcome
of these litigations could include substantial damages, the imposition of
substantial fines, penalties, and injunctive or administrative remedies, however
unless otherwise indicated, the Company at this time is not able to estimate the
possible loss or range of loss, if any, associated with these legal
proceedings.    21   Corporate Litigation  The Company and certain of its
executive officers have been named as defendants in consolidated class action lawsuits filed on
behalf of purchasers of common stock of the Company between July 23, 2001 and July 5, 2006. The lawsuits
followed the Companys July 5, 2006 announcement regarding the restatement of
certain of its financial statements and allege that the Company and certain
members of its management engaged in violations of the Securities Exchange Act
of 1934, as amended (the Exchange Act), by issuing false and misleading
statements concerning the Companys financial condition and results of
operations. The class actions are pending in the United
States District Court, District of New Jersey.  On June
24, 2008, the Court dismissed co-lead plaintiffs Consolidated Amended Complaint without
prejudice with leave to re-file.  On July 24, 2008,
co-lead plaintiffs filed a Second Consolidated Amended Complaint. The Company and the individual defendants have filed a motion
to dismiss.  The time for plaintiffs to respond has not yet expired.  The Company intends, and the members of management named
as defendants have stated their
intentions, to vigorously defend the class action.   On August 14, 2006, individuals
claiming to be stockholders of the Company filed a derivative action, purportedly on behalf of the Company, against the current and
certain former directors and certain current and former officers of the Company
and the Company as a nominal defendant. The plaintiffs in this action alleged
that, among other things, the named defendants breached their fiduciary duties
to the Company based on substantially the same factual allegations as the class
action lawsuits referenced above. The plaintiffs also alleged that certain of
the defendants had been unjustly enriched based on their receipt of allegedly
backdated options to purchase shares of common stock of the Company, and seek to
require those defendants to disgorge any profits made in connection with their
exercise of such options and additional attendant damages relating to allegedly
backdated options during the period from January 1, 1996 to the present. The
action is pending in the United States
District Court, District of New Jersey.  On June 29, 2007, the plaintiffs
filed an Amended Shareholder Derivative Complaint and in connection therewith
dropped their claims related to the alleged stock option backdating and withdrew their claims as against certain defendants.  On August 30, 2007, defendants filed a motion to
dismiss the Amended Shareholder Derivative Complaint.  As of June 26, 2008,
the parties entered into a Stipulation of Settlement, which provided for, among
other things, the Company to implement and/or maintain various corporate
governance measures including the appointment of the General
Counsel (or Assistant General Counsel) to implement a risk management program
and to report directly to the Audit Committee of the Company, which shall have
direct access to the General Counsel (or Assistant) without Company management
present, and for the Companys insurance carriers to pay
fees and expenses to plaintiffs counsel in the amount of $200,000.  On
June 27, 2008, plaintiffs filed an unopposed motion for preliminary approval of
the settlement.  On July 25, 2008, the court granted preliminary approval
of the settlement, directed the issuance of notice to shareholders of the
proposed Settlement, and set a Final Approval Hearing for
October 14, 2008.  At the Final Approval Hearing, the Court found the settlement to be fair, reasonable, adequate and in the
best interests of the Company and its shareholders and finally approved the settlement, dismissed
the action with prejudice and provided for releases in favor
of the defendants.  On September 1, 2006, the Company
received a notice of default from the American Stock Transfer & Trust
Company, as trustee (the Trustee)  of the Companys 2.875% Senior
Subordinated Convertible Notes due 2010 (the Notes). The Trustee claims, in
essence, that the Companys failure to include financial statements in its
Quarterly Report on Form 10-Q for the second quarter of 2006 constituted a
default under Section 6.2 of the Indenture, dated as of September 30,
2003 (the Indenture), between the Company, as issuer, and the Trustee,
relating to the Notes. The notice of default asserted that if the purported
default continued unremedied for 30 days after the receipt of the notice,
an event of default would occur under the Indenture. Under the Indenture, the
occurrence of an event of default would give the Trustee or certain holders of
the Notes the right to declare all unpaid principal and accrued interest on the
Notes immediately due and payable. On October 2, 2006, the Company received
a notice of acceleration from the Trustee purporting to accelerate payment of
the Notes. The Company
believes that it has complied with its obligations under the Indenture relating
to the Notes. Therefore, the Company believes that the above-mentioned notice of
default and notice of acceleration are invalid and without merit. Under the
Indenture, the Company is required only to provide the Trustee with copies of
its annual and other reports (or copies of such portions of such reports as the
SEC may by rules and regulations prescribe) that it is required to file with the
SEC pursuant to Section 13 or 15(d) of the Exchange Act within 15 calendar days
after it files such annual and other reports with the SEC. Moreover, the
Companys Indenture specifically contemplates providing the Trustee with
portions of reports. On August 24, 2006 (within 15 days of filing with the SEC),
the Company provided to the Trustee a copy of its Quarterly Report on Form 10-Q
for the second quarter of 2006. The Companys Form 10-Q did not include the
Companys financial statements for the second quarter of 2006 and related
Managements Discussion and Analysis due to the Companys work to restate
certain of its past financial statements, and, therefore, in accordance with SEC
rules, the Company filed a Form 12b-25 Notification of Late Filing disclosing
the omissions. The Companys Form 12b-25 also was provided to the Trustee on
August 24, 2006. Accordingly, the Company believes that it complied with the
Indenture provision in question. After the Company communicated its
position to the Trustee, the Trustee filed a lawsuit, on October 19, 2006,
on behalf of the holders of the Notes in the Supreme Court of the State of New
York, County of New York, alleging a breach of the Indenture and of an alleged
covenant of good faith and fair dealing. The lawsuit demands, among other
things, that the Company pay the holders of the Notes either the principal, any
accrued and unpaid interest and additional interest (as such term is defined in
the Indenture), if any, or the difference between the fair market value of the
Notes on October 2, 2006 and par, whichever the Trustee elects, or in the   22   alternative, damages to be
determined at trial, alleged by the Trustee to exceed $30.0 million. The
Company filed a Notice of Removal to remove the lawsuit to the U.S. District
Court for the Southern District of New York and has filed its answer to the
complaint in that Court. On January 19, 2007, the Trustee filed a motion
for summary judgment along with supporting documentation. On February 16, 2007,
the Company filed its response to the Trustees motion for summary judgment and
cross-moved for summary judgment in its favor.  The Court has not yet ruled
on the motions.  Until the matter is resolved, the Company is recording the
payment obligations as a current liability on the condensed consolidated balance
sheets because the Court in the matter could (i) rule against the Companys
position and (ii) determine that the appropriate remedy would be the accelerated
payment of the convertible notes.  Patent Related Matters  On July 15,
2003, the Company filed a lawsuit against Roxane Laboratories, Inc. (Roxane)
in the United States District Court for the District of New Jersey. The Company
alleged that Roxane had infringed the Companys U.S. Patents numbered 6,593,318
and 6,593,320 and that the infringement was willful. Roxane has denied these
allegations and has counterclaimed for declaratory judgments of non-infringement
and invalidity of both patents. On September 8, 2006, the Court issued a claim
construction ruling on certain claim terms in dispute between the parties. Based
on that construction, the Court ruled in favor of the Company and dismissed
Roxanes motion for summary judgment of non-infringement. On November 8, 2006,
the Court ruled that the claims at issue in these patents were invalid as
non-enabled on summary judgment. On December 8, 2006, the Company appealed the
ruling to the Federal Circuit Court of Appeals, highlighting the district
courts failure to apply its own claim construction and to consider the
testimony of the Companys experts before awarding summary judgment to Roxane.
 On October 26, 2007, the U.S. Circuit Court of Appeals for the Federal
Circuit affirmed the New Jersey District Court's ruling of invalidity for
non-enablement.  In January 2008, the District Court conducted a hearing on
Roxanes application for attorneys fees under 35 U.S.C. section 285. Briefs in
opposition for both sides were filed on March 10, 2008 and a motion hearing was
set for April 7, 2008.  On April 10, 2008, the District Court rejected
Roxanes request for attorneys fees. On March 10,
2006, Apotex Inc. and Apotex Corp. (Apotex) filed a lawsuit against the
Company in the United States District Court for New Jersey, seeking a
declaratory judgment that four of the Companys patents relating to megestrol
acetate oral suspension are invalid, unenforceable and not infringed by an
Apotex product that was launched in the third quarter of 2006. The Company has
moved for a preliminary injunction against Apotex pending resolution of the
litigation and has asserted counterclaims that the Apotex product infringes at
least one claim of U.S. Patent 6,593,318.  The Company was granted a stay
and the action was terminated without prejudice on April 9, 2007 pending final
resolution of the Roxane appeal.  On February 6, 2008, a joint stipulation
of dismissal and order with prejudice was signed by the Judge in the case with
each party only liable for its own costs and attorneys fees. On
April 28, 2006, CIMA Labs, Inc. (CIMA) and Schwarz Pharma, Inc. (Schwarz
Pharma) filed separate lawsuits against the Company in the United States
District Court for the District of New Jersey.  CIMA and Schwarz Pharma
each have alleged that the Company infringed U.S. Patent Nos. 6,024,981 (the
981 patent) and 6,221,392 (the 392 patent) by submitting a Paragraph IV
certification to the FDA for approval of alprazolam orally disintegrating
tablets.  CIMA owns the 981 and 392 patents and Schwarz Pharma is CIMAs
exclusive licensee.  The two lawsuits were consolidated on January 29,
2007.  In response to the lawsuit, the Company has answered and
counterclaimed denying CIMAs and Schwarz Pharmas infringement allegations,
asserting that the 981 and 392 patents are not infringed and are invalid
and/or unenforceable.  The parties have exchanged written discovery.
 All 40 claims in the 981 patent were rejected in a non-final office
action in a reexamination proceeding at the United States Patent and Trademark
Office (PTO) on February 24, 2006.  The PTO again rejected all 40 claims
in a second non-final office action dated February 24, 2007.  The 392
patent is also the subject of a reexamination proceeding.  As of July 10,
2008, the PTO has rejected with finality all claims pending in both the 392 and
981 patents.  CIMA has moved to stay this lawsuit pending the outcome of
the reexamination proceedings and to consolidate this lawsuit with another
lawsuit in the same district involving the same patents (CIMA Labs, Inc. et al.
v. Actavis Group hf et al.). The Company intends to vigorously defend this
lawsuit and pursue its counterclaims. The Company
entered into a licensing agreement with developer Paddock Laboratories, Inc.
(Paddock) to market testosterone 1% gel, a generic version of Unimed
Pharmaceuticals, Inc.s (Unimed) product Androgel®.  Pursuant to this
agreement, the Company is responsible for management of any litigation and
payment of all legal fees associated with this product.  The product, if
successfully brought to market, would be manufactured by Paddock and marketed by
the Company.  Paddock has filed an ANDA (that is pending with the FDA) for
the testosterone 1% gel product.  As a result of the filing of the ANDA,
Unimed and Laboratories Besins Iscovesco (Besins), co-assignees of the
patent-in-suit, filed a lawsuit against Paddock in the United States District
Court for the Northern District of Georgia, alleging patent infringement on
August 22, 2003.  The Company has an economic interest in the outcome of
this litigation by virtue of its licensing agreement with Paddock.  Unimed
and Besins sought an injunction to prevent Paddock from manufacturing the
generic product.  On November 18, 2003, Paddock answered the complaint and
filed a counterclaim, seeking a declaration that the patent-in-suit is invalid
and/or not infringed by Paddocks product.  On September 13, 2006, the
Company acquired from Paddock all rights to the ANDA for testosterone 1% gel, a
generic version of Unimeds product Androgel® for $6 million.  The lawsuit
was resolved by settlement.  The settlement and license agreement
terminates all on-going litigation and permits the Company
to launch the generic version of the product no earlier than August 31, 2015 and
no later than February 28, 2016, assuring the Companys ability to market a
generic version of Androgel® well before the expiration of the patents at issue.
 On March 7, 2007, the Company was issued a Civil Investigative Demand
seeking information and documents in connection with the court-approved
settlement in 2006 of the patent infringement case, Unimed v. Paddock, in the
U.S. District Court for Northern District of   23   Georgia.
 The Bureau of Competition for the Federal Trade Commission (FTC) is
investigating whether the settlement of the litigation constituted unfair
methods of competition in a potential violation of Section 5 of the FTC Act.
 The Company believes it has complied with all applicable laws in
connection with the court-approved settlement and it intends to co-operate with
the FTC in this matter.  On October 4, 2006, Novartis
Corporation, Novartis Pharmaceuticals Corporation, and Novartis International AG
(collectively Novartis) filed a lawsuit against the Company in the United
States District Court for the District of New Jersey. Novartis alleged that the
Company and Kali infringed U.S. Patent No. 6,162,802 (the 802 patent) by
submitting a Paragraph IV certification to the FDA for approval of amlodipine
and benazepril hydrochloride combination capsules. The Company and its
subsidiaries denied Novartis allegation, asserting that the 802 patent is not
infringed and is invalid. The parties are currently engaged in discovery
regarding the claims.  The Company submitted a claim construction brief on
September 5, 2008 and its rebuttal brief on October 8, 2008.  The Company
intends to defend vigorously this action and pursue its counterclaims against
Novartis.  On December 19, 2006, Reliant
Pharmaceuticals, Inc. (Reliant) filed a lawsuit against the Company in the
United States District Court for the District of Delaware.  Reliant
alleged, in its Complaint, that the Company infringed U.S. Patent No. 5,681,588
(the 588 patent) by submitting a Paragraph IV certification to the FDA for
approval to market generic 325 mg Propafenone HCl SR capsules.  On January
26, 2007, Reliant amended its complaint to add the additional allegation that
the Company infringed the 588 patent by submitting a Paragraph IV certification
to the FDA for approval to market generic 225 mg and 425 mgin addition to the
325 mgPropafenone HCl SR capsules.  The Company has answered and
counterclaimed denying Reliants infringement allegations, and asserting that
the 588 patent is invalid and unenforceable.  The parties are presently
engaged in discovery.  The Company intends to vigorously defend this
lawsuit and pursue its counterclaims.  On May 9, 2007, Purdue Pharma Products
L.P. (Purdue), Napp Pharmaceutical Group Ltd. (Napp), Biovail Laboratories
International SRL (Biovail), and Ortho-McNeil, Inc. (Ortho-McNeil) filed a
lawsuit against the Company in the United States District Court for the District
of Delaware.  The complaint alleges infringement of U.S. Patent No.
6,254,887 (the 887 patent) because the Company submitted a Paragraph IV
certification to the FDA for approval of 200mg extended release tablets
containing tramadol hydrochloride.  On May 30, 2007, the Company filed its
answer and counterclaim to the complaint seeking a declaration of
noninfringement and invalidity of the '887 patent.  A subsequent complaint
was served on July 2, 2007 in the same District Court.  The new complaint
alleges that the Company's 100mg and 200mg extended release tablets containing
tramadol hydrochloride infringe the 887 patent.  The Company filed its
answer and counterclaim on July 23, 2007 and will assert all available defenses
in addition to seeking a declaration of noninfringement and invalidity of the
'887 patent.  On October 24, 2007, plaintiffs filed an amended complaint in
the Delaware District Court in view of the Company's amendment of its ANDA to
include the 300 mg strength of extended release tramadol. A scheduling order has
been entered in the case requiring that fact discovery be completed by May 15,
2008; expert discovery completed by August 15, 2008; a Markman hearing be held
July 2008; and a trial date set for November 10, 2008.  On June 18, 2008,
the parties agreed to extend the deadline for fact discovery.  On July 24,
2008, the Court announced that the Markman hearing would have to be postponed to
September 2008; however, no other key dates in the case were changed.  On
August 29, 2008, the Court postponed the Markman hearing originally scheduled
for September 5, 2008 to October 8, 2008.  The presiding judge for the case
has been replaced by an appeals court judge.  Due to this substitution, the
pre-trial order is now due December 5, 2008, the pre-trial conference is to be
held December 18, 2008, and the 6-day bench trial is to be held January 9, 2009.
 The Company intends to defend this action vigorously and pursue its
counterclaims against Purdue, Napp, Biovail and Ortho-McNeil.  On July 6, 2007, Sanofi-Aventis and
Debiopharm, S.A. filed a lawsuit against the Company and its development
partner, MN Pharmaceuticals ("MN"), in the United States District Court for the
District of New Jersey.  The complaint alleges infringement of U.S. Patent
Nos. 5,338,874 and 5,716,988 because the Company and MN submitted a Paragraph IV
certification to the FDA for approval of 50 mg/10 ml, 100 mg/20 ml, and 200
mg/40 ml oxaliplatin by injection.  The Company and MN filed their answer
and counterclaims on October 10, 2007.  On January 14, 2008, following MN's
amendment of its ANDA to include oxaliplatin injectable 5 mg/ml, 40 ml vial,
Sanofi-Aventis filed a complaint asserting infringement of the '874 and the '998
patents.  The Company and MN filed their answer and counterclaim on
February 20, 2008.  The court has set a tentative discovery deadline of
December 31, 2008.  The Court has scheduled a status conference for all of
the parties for February 11, 2009, with all motions due by June 15, 2009.
 The Company and MN intend to defend these actions vigorously and pursue
their counterclaims against Sanofi and Debiopharm.  On September 21, 2007, Sanofi-Aventis
and Sanofi-Aventis U.S., LLC (Sanofi-Aventis) filed a lawsuit against the
Company and its development partner, Actavis South Atlantic LLC ("Actavis"), in
the United States District Court for the District of Delaware.  The
complaint alleges infringement of U.S. Patent Nos. 4,661,491 and 6,149,940
because the Company and Actavis submitted a Paragraph IV certification to the
FDA for approval of 10 mg alfuzosin hydrochloride extended release tablets. The
Company has filed an answer to the complaint and counterclaims that the patents
asserted are not infringed and are invalid.  On April 3, 2008, the judge
ordered all actions in the case stayed pending the plaintiffs motion for
transfer and consolidation under the rules governing multi-district litigation.
 On June 9, 2008, the Multi-District Litigation Panel granted plaintiffs
motion for transfer and consolidation and lifted the stay of litigation.
 The Company intends to defend this action vigorously and pursue its
counterclaims against Sanofi-Aventis.    24   On
October 1, 2007, Elan Corporation, PLC (Elan) filed a lawsuit against the
Company and its development partner, IntelliPharmaCeutics Corp., and
IntelliPharmaCeutics Ltd. ("IPC") in the United States District Court for the
District of Delaware.  On October 5, 2007, Celgene Corporation (Celgene)
and Novartis filed a lawsuit against IPC in the United States District Court for
the District of New Jersey.  The complaint in the Delaware case alleged
infringement of U.S. Patent Nos. 6,228,398 and 6,730,325 because the Company
submitted a Paragraph IV certification to the FDA for approval of 5, 10, 15, and
20 mg dexmethylphenidate hydrochloride extended release capsules.  The
original complaint in the New Jersey case alleged infringement of U.S. Patent
Nos. 6,228,398; 6,730,325; 5,908,850; 6,355,656; 6,528,530; 5,837,284; and
6,635,284 because the Company and IPC submitted a Paragraph IV certification to
the FDA for approval of 5, 10, 15, and 20 mg dexmethylphenidate extended release
capsules.  The Company and IPC filed an answer and counterclaims in both
the Delaware case and the New Jersey case.  Elan filed a motion to
consolidate the cases on January 2, 2008, and on February 20, 2008, the judge in
the Delaware litigation consolidated all four related cases pending in Delaware
and entered a scheduling order providing for April 15, 2009 as the deadline for
all discovery and August 17, 2009 as the date for a bench trial.  A Rule 16
conference was held for the New Jersey litigation on March 4, 2008 setting a
deadline of December 12, 2008 for all discovery.  The Company intends to
defend these actions vigorously and pursue its counterclaims against Elan,
Celgene and Novartis.  On September 13, 2007, Santarus, Inc.
(Santarus), and The Curators of the University of
Missouri (Missouri) filed a lawsuit against the Company in the United States
District Court for the District of Delaware.  The complaint alleges
infringement of U.S. Patent Nos. 6,699,885; 6,489,346; and 6,645,988 because the
Company submitted a Paragraph IV certification to the FDA for approval of 20 mg
and 40 mg omeprazole/sodium bicarbonate capsules.  The Company filed its
answer and counterclaims on October 17, 2007.  A scheduling conference was
held February 11, 2008, setting September 8, 2008 as the date for the claim
construction hearing and July 13, 2009 as the first day of the bench trial.
 On March 4, 2008, the cases pertaining to the Companys ANDAs for
omeprazole capsules and omeprazole oral suspension (see below) were consolidated
for all purposes.  The Company filed its claim construction brief on August
22, 2008, and its answering brief on September 22, 2008, as the Court
rescheduled the Markman hearing to October 21, 2008.  On October 21, 2008,
the Markman hearing was postponed to November 5, 2008.  The Company intends
to defend this action vigorously and pursue its counterclaims against Santarus
and Missouri.  On December
11, 2007, AstraZeneca Pharmaceuticals, LP, AstraZeneca UK Ltd., IPR
Pharmaceuticals, Inc. and Shionogi Seiyaku Kabushiki Kaisha filed a lawsuit
against the Company in the United States District Court for the District of
Delaware.  The complaint alleges patent infringement because the Company
submitted a Paragraph IV certification to the FDA for approval of 5 mg, 10 mg,
20 mg and 40 mg rosuvastatin calcium tablets.  The Company filed an answer
and counterclaims, and on April 11, 2008, the court held a scheduling conference
setting the Markman hearing for March 10, 2009, the pretrial conference for
January 11, 2010, and a bench trial for February 15, 2010. The Company intends
to defend these actions vigorously and pursue its counterclaims against
AstraZeneca Pharmaceuticals, LP, AstraZeneca UK Ltd., IPR Pharmaceuticals, Inc.
and Shionogi Seiyaku Kabushiki Kaisha. On December 20, 2007, Santarus, Inc.
(Santarus), and The Curators of the University of Missouri (Missouri) filed
a lawsuit against the Company in the United States District Court for the
District of Delaware.  The complaint alleges infringement of U.S. Patent
Nos. 6,699,885; 6,489,346; 6,780,882; and 6,645,988 because the Company
submitted a Paragraph IV certification to the FDA for approval of 20 mg and 40
mg omeprazole/sodium bicarbonate powders for oral suspension.  The Company
has filed an answer and counterclaims, and on March 4, 2008, the cases
pertaining to the Companys ANDAs for omeprazole capsules (see above) and
omeprazole oral suspension were consolidated for all purposes. The Company
intends to defend this action vigorously against Santarus and Missouri.  Industry Related
Matters  Beginning in September
2003, the Company, along with numerous other pharmaceutical companies, has been
named as a defendant in actions brought by state Attorneys General and a number
of municipal bodies within the state of New York, as well as a federal qui
tamaction brought on behalf of the United States by the pharmacy Ven-A-Care
of the Florida Keys, Inc. ("Ven-A-Care") alleging generally that the defendants
defrauded the state Medicaid systems by purportedly reporting Average Wholesale
Prices (AWP) and or Wholesale Acquisition Costs that exceeded the actual
selling price of the defendants prescription drugs.  To date, the Company
has been named as a defendant in substantially similar civil law suits filed by
the Attorneys General of Alabama, Alaska, Hawaii, Idaho, Illinois, Iowa,
Kentucky, Massachusetts, Mississippi, South Carolina, Texas and Utah, and also
by the city of New York, 46 counties across New York State and Ven-A-Care.
 These cases generally seek some combination of actual damages, and/or
double damages, treble damages, civil penalties, disgorgement of excessive
profits, restitution, counsel fees and costs, investigative costs, injunctive
relief, punitive damages, imposition of a constructive trust, accounting of
profits or gains derived through the alleged conduct, expert fees, interest and
other relief that the court deems proper. Several of these cases have been
transferred to the AWP multi-district litigation proceedings pending in the U.S.
District Court for the District of Massachusetts for pretrial proceedings.
 The case brought by the state of Mississippi will be litigated in the
Chancery Court of Rankin County, Mississippi and the federal case brought by
Ven-A-Care will be litigated in the United States District of Massachusetts.
 The other cases will likely be litigated in the state or federal courts in
which they were filed.  In the Utah and federal Ven-A-Care actions the time
for responding to the complaint has not yet elapsed.  In each of the
remainder of these matters, the Company has either moved to dismiss the
complaints or answered the complaints denying liability.  The Company
intends to defend each of these actions vigorously.   25   In
addition, at various times between 2006 and 2008, the Attorneys General of
Florida and Virginia issued subpoenas, and the Attorneys General of Michigan,
Tennessee and Indiana issued civil investigative demands, to the Company.
 The demands generally request documents and information relating to sales
and marketing practices that allegedly caused pharmacies to dispense higher
priced drugs when presented with prescriptions for certain products.  The
Company has provided the requested documents and information to the respective
Attorneys Generaland will continue to cooperate with the Attorneys
General in these investigations if it is called upon to do so. Other  The Company is, from time to time, a
party to certain other litigations, including product liability litigations.
 The Company believes that these litigations are part of the ordinary
course of its business and that their ultimate resolution will not have a
material adverse effect on its financial condition, results of operations or
liquidity. The Company intends to defend or, in cases where the Company is
plaintiff, to prosecute these litigations vigorously.  Contingency The Company accrued for a loss
contingency related to a routine post award contract review of the Companys
Department of Veterans Affairs contract (the VA Contingency) for the periods
2004 to 2007 that is being conducted by the Office of Inspector General of the
Department of Veterans Affairs.  The regulations that govern the
calculations used to generate the pricing-related information are complex and
require the exercise of judgment.  Should there be ambiguity with regard to
how to interpret the regulations that govern the calculations, and report these
calculations, and even in the absence of any such ambiguity, a governmental
authority may take a position contrary to the position that the Company has
taken.  In accordance with Statement of Financial Accounting Standards
No. 5, Accounting for Contingencies(SFAS 5), the Company accrues
for contingencies by a charge to income when it is both probable that a loss
will be incurred and the amount of the loss can be reasonably estimated.
 In the event that the Companys loss contingency is ultimately determined
to be higher than originally accrued, the recording of the additional liability
may result in a material impact on the Companys results of operations,
liquidity or financial condition when such additional liability is accrued.
 The Companys estimate of the probable loss is approximately $4.6 million,
including interest, which has been accrued as of September 27, 2008 and reflected in Settlements and loss
contingencies, net on the condensed consolidated statements of operations during
the three-month period ended September 27, 2008.  Note 15  Investment in Joint
Venture: On April 15, 2002, Rhodes Technology
(Rhodes) and the Company created a joint venture, SVC Pharma (SVC), to
research, develop, commercialize and market pharmaceutical preparations for
human therapy.  Under the terms of this arrangement, the parties had agreed
to capitalize the joint venture with equal contributions and all profits or
losses were to be shared equally between Rhodes and the Company. The Company
accounted for this investment under the equity method of accounting in
accordance with APB No. 18, the Equity Method of Accounting for Investments
in Common Stock.  As of June 27, 2008, the Companys net investment in
SVC totaled $7,576.  The lead product of this joint
venture, dronabinol (Marinol®), was approved by the FDA on June 27, 2008.
 Concurrent with FDA approval, the Company and SVC entered into a license
and distribution agreement for dronabinol (the license agreement).  Under
the terms of the license agreement, the Company transferred 100% of its interest
in SVC to Rhodes, and SVC became the sole owner of the ANDA for dronabinol.
 In exchange, SVC granted the Company the exclusive right and license to
market, distribute and sell dronabinol in the United States for a term of
approximately 10 years.  The Company will share net product margin as
contractually defined on future sales of dronabinol with SVC.  The Company
is responsible for distribution, collections, and returns, while SVC is
responsible for supplying dronabinol to the Company for distribution.  The Company accounted for the license
agreement as a nonmonetary exchange under the provisions of SFAS 153,
Exchanges of Nonmonetary Assets  an amendment of APB No. 29,at
historical value, as the Company determined that there was no significant change
in the cash flow expected under the license agreement as compared to the
previous joint venture structure.  The Company reclassified a portion of
its investment in SVC to prepaid assets, which represents the contractual
prepayment of dronabinol related inventory, and the remainder to intangible
assets, which represents the right and license to market dronabinol in the
United States.  The Company launched dronabinol during the three months
ended September 27, 2008.     26   Note
16  Discontinued Operations  Related Party Transaction: In January 2006, the Company announced
the divestiture of FineTech Laboratories, Ltd (FineTech), effective December
31, 2005.  The Company transferred the business for no proceeds to Dr. Arie
Gutman, president and chief executive officer of FineTech.  Dr. Gutman also
resigned from the Companys Board of Directors.  The results of FineTech
operations have been classified as discontinued for all periods presented
because the Company had no continuing involvement in FineTech.  In January
2008, Dr. Gutman sold FineTech to a third party.  Under the terms of the
divestiture, the Company received $505 during the nine-month period ended
September 27, 2008 which represents the Companys share of the net proceeds of
the sale transaction.  This $505 has been classified as discontinued
operations on the condensed consolidated statement of operations for the nine
months ended September 27, 2008.   Note 17- Segment Information: The Company
operates in two reportable business segments: generic pharmaceuticals and
branded pharmaceuticals.  In 2007, the Company began operating the brand
pharmaceutical segment under the name Strativa Pharmaceuticals.  Strativa
products are marketed under brand names through marketing programs that are
designed to generate physician and consumer loyalty.  These branded
products generally are patent protected, which provides a period of market
exclusivity during which they are sold with little or no competition.
 Generic pharmaceutical products are the chemical and therapeutic
equivalents of reference brand drugs.  The Drug Price Competition and
Patent Term Restoration Act of 1984 provides that generic drugs may enter the
market upon the approval of an ANDA and the expiration, invalidation or
circumvention of any patents on corresponding brand drugs, or the expiration of
any other market exclusivity periods related to the brand drugs. The business
segments of the Company were determined based on managements reporting and
decision-making requirements in accordance with SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information.  The Company
believes that its generic products represent a single operating segment because
the demand for these products is mainly driven by consumers seeking a lower cost
alternative to brand name drugs.  The Companys generic drugs are developed
using similar methodologies, for the same purpose (e.g., seeking
bioequivalence with a brand name drug nearing the end of its market exclusivity
period for any reason discussed above).  The Companys generic products are
produced using similar processes and standards mandated by the FDA, and the
Companys generic products are sold to similar customers.  Based on the
economic characteristics, production processes and customers of the Companys
generic products, the Company has determined that its generic pharmaceuticals
are a single reportable business segment.  The Companys chief operating
decision maker does not review the generic segment in any more granularity, such
as at the therapeutic or other classes or categories.  Certain of the
Companys expenses, such as the direct sales force and other sales and marketing
expenses, specific research and development expenses, and specific general and
administrative expenses are charged directly to either of the two segments.
  Other expenses, such as non-specific general and administrative
expenses and non-specific research and development expenses are allocated
between the two segments based on assumptions determined by the Companys
management. The financial data for
the two business segments are as follows: Three months
ended

Nine months
endedSeptember 27,

September 29,

September 27,

September 29,2008

2007

2008

2007Revenues:Generic

$129,383

$188,092

$352,168

$548,872Strativa

19,584

24,584

64,664

65,654Total revenues

$148,967

$212,676

$416,832

$614,526Gross margin:Generic

$35,932

$47,150

$75,291

$161,536Strativa

15,530

19,278

50,800

49,136Total gross margin

$51,462

$66,428

$126,091

$210,672Operating income (loss):Generic

$4,117

$12,310

($20,323)

$67,501Strativa

505

(12,240)

549

2,519Total operating income (loss)

$4,622

$70

($19,774)

$70,020Other (expense)
income, net

-

-

-

(49)Equity in loss of
joint venture

-

(107)

(330)

(335)Loss
on marketable securities and other
investments,
net

(2,507)

-

(2,940)

(4,643)   27    Interest
income

2,285

3,680

7,428

10,265Interest
expense

(1,667)

(1,691)

(5,001)

(5,136)Provision (benefit)
for income taxes

923

683

(5,158)

24,541Income (loss) from continuing
operations

$1,810

$1,269

$(15,459)

$45,581    The Companys chief
operating decision maker does not review the Companys assets, depreciation or
amortization by business segment at this time as they are not material to its
branded operations.  Therefore, such allocations by segment are not
provided.  Total revenues of the Companys top
selling products were as follows:  Three months
ended

Nine months
endedSeptember 27,

September 29,

September 27,

September 29,Product

2008

2007

2008

2007GenericMetoprolol succinate ER (Toprol-XL®)

$41,003

$71,719

$123,311

$101,337Meclizine Hydrochloride (Antivert®)

14,869

3,503

21,295

5,809Dronabinol (Marinol®)

7,960

-

7,960

-Fluticasone (Flonase®)

6,345

29,846

34,636

130,114Cabergoline (Dostinex®)

5,054

7,475

17,648

26,258Propranolol HCl ER (Inderal LA®)

4,292

12,134

13,216

53,769Ibuprofen Rx (Advil®, Nuprin®, Motrin®)

3,489

6,127

9,321

13,942Megestrol oral suspension (Megace®)

3,215

1,307

8,034

5,421Methimazole (Tapazole®)

2,818

3,292

8,041

9,013Hydralazine Hydrochloride (Apresoline®)

2,636

2,592

6,840

6,344Various amoxicillin products (Amoxil®)

2,521

6,840

11,310

27,088Fluoxetine (Prozac®)

2,484

2,722

5,858

9,997Tramadol HCl and acetaminophen tablets
(Ultracet®)

636

4,553

1,108

11,413Ranitidine HCl Syrup (Zantac®)

(98)

4,389

615

10,864Other product related revenues (2)

1,560

3,253

4,614

17,500Other (1)

30,599

28,340

78,361

120,003Total Generic Revenues

$129,383

$188,092

$352,168

$548,872StrativaMegace® ES

$16,942

$22,084

$56,737

$58,154Other product related revenues (2)

2,642

2,500

7,927

7,500Total Strativa Revenues

$19,584

$24,584

$64,664

$65,654   (1) The
further detailing of revenues of the Companys other approximately 60
generic products is impracticable due to the low volume of revenues
associated with each of these generic products.  No single product in
the other category is in excess of 3% of total generic revenues for
three-month or nine-month periods ended September 27, 2008 or September
29, 2007.(2) Other
product related revenues represents licensing and royalty related revenues
from profit sharing agreements related to products such as ondansetron
ODT, the generic version of Zofran ODT®, nifedipine ER, the generic
version of Procardia®, doxycycline monohydrate, the generic version of
Adoxa®, and quinapril, the generic version of Accupril®.  Other
product related revenues included in the Strativa business relate to a
co-promotion arrangement with Solvay.  During the three-month and nine-month
periods ended September 27, 2008, the Company recognized a gain on the sale of
product rights of $2,200 and $3,700, respectively, related to the sale of
multiple ANDAs.  In November 2007, the Company entered into an agreement to
provide certain information and other deliverables related to Megace®ESto enable the formal technology transfer to a third party
seeking to commercialize Megace®ESoutside of the U.S.
 The Company recorded $625 in the operating results of the first quarter of
2008 when the Companys obligations were fulfilled related to this
agreement.    28      Note 18- Research and Development
Agreements: In January 2008, the Company entered
into an exclusive license agreement with Alfacell Corporation (Alfacell).
 Under the agreement, the Company received the exclusive U.S.
commercialization rights to Alfacells Onconase®(ranpirnase).
 In exchange for the U.S. commercialization rights, the Company made an
initial payment to Alfacell of $5,000 (charged to research and development
expense) and will make a subsequent payment of up to $30,000 upon (and subject
to) Alfacells receipt of FDA approval for the product.  If Onconase®
receives FDA approval, the Company will commercialize the product in the United
States and pay Alfacell royalties on net sales of the product, and Alfacell will
be eligible to receive additional milestone payments if net sales reach certain
threshold amounts in any given calendar year.  In addition, Alfacell may be
eligible to receive milestone payments upon the achievement of certain
development and regulatory milestones with respect to future indications for
Onconase®.  Under a separate supply agreement between Alfacell and the
Company, Alfacell will supply commercial quantities of Onconase® to the Company.  In June 2008, the Company
entered into an exclusive licensing agreement with MonoSol Rx (MonoSol) under
which the Company acquired the commercialization rights in the United States and
its territories to MonoSols thin film formulation of ondansetron.  Through
September 2008, the Company made payments of $2,500 (charged to research and
development expense) to MonoSol, consisting of an initial payment of $1,250 for
the delivery of product prototype and a development milestone of $1,250 for the
delivery of pilot stability reports, and the Company may make subsequent
payments of up to $3,500, depending upon (and subject to) MonoSols achievement
of specified development milestones.  The Company may also pay up to $2,000
of certain clinical costs in excess of $1,000.  If the productreceives FDA approval, the Company will commercialize the product in the
United States and pay MonoSol royalties on net sales (as defined in the
agreement) of the product, and MonoSol will be eligible to receive sales
milestone payments if net sales reach certain threshold amounts in any given
calendar year.  Subject to FDA approval, MonoSol will supply commercial
quantities of the product to the Company.   Note 19  Fair Value
Measurements: As described in Note 2 Recent
Accounting Pronouncements, the Company adopted SFAS 157 with respect to
financial assets and liabilities as of January 1, 2008.  SFAS 157 defines
fair value as the price that would be received for an asset or paid to transfer
a liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date.  SFAS 157 requires that assets and liabilities carried at
fair value be classified and disclosed in one of the following three categories:  Level 1: Quoted
market prices in active markets for identical assets and liabilities.
 Active market means a market in which transactions for assets or
liabilities occur with sufficient frequency and volume to provide pricing
information on an ongoing unadjusted basis.  The Companys Level 1 assets
include the Companys investment in Hana Biosciences, Inc. that is traded in an
active exchange market. Level
2:  Observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the
assets or liabilities. The Companys Level 2 assets primarily include debt
securities including governmental agency and municipal securities, and corporate
bonds with quoted prices that are traded less frequently than exchange-traded
instruments, whose value is determined using a pricing model with inputs that
are observable in the market or can be derived principally from or corroborated
by observable market data. Level 3: Unobservable inputs that are
not corroborated by market data. The fair value of the Companys
financial assets and liabilities measured at fair value on a recurring basis
were as follows: Estimated Fair Value at September
27, 2008

Level 1

Level 2

Level 3Securities issued by government agencies (Note
4)

$56,076

$ -

$56,076

$ -Debt securities issued by various state and local
municipalities and agencies (Note 4)

29,926

-

29,926

-Other debt securities (Note 4)

32,594

-

32,594

-Marketable equity securities available for sale
Hana Biosciences, Inc. (Note 4)

1,500

1,500

-

-Total investments in debt and marketable equity
securities

$120,096

$1,500

$118,596

$
- The Companys Level 2 assets are
valued at the quoted market price from broker or dealer quotations.    29    Note 20  Subsequent
Events: In October 2008, the Company announced
that it plans to resize its generic products division as part of an ongoing
strategic assessment of its businesses.  In addition, the Company intends
to significantly reduce its research and development expenses by decreasing its
internal generic research and development effort to focus on completing generic
products currently in development and will continue to look for opportunities
with external partners.  The Company further intends to trim its current
generic product portfolio and retain only those marketed products that deliver
acceptable profit to the Company.  These actions will result in a workforce
reduction of approximately 190 employees.  Approximately 30% of the
affected positions in manufacturing, research and development, and general and
administrative will be eliminated by year-end 2008 and the remaining positions
by the end of the first half of 2009.  In connection with these actions,
the Company expects to incur pre-tax expenses in the range of approximately $28
to $38 million, which is comprised of approximately $11 million for severance
and other employee-related costs; approximately $17 to $18 million for asset
impairments resulting from facility closures and related actions; up to
approximately $2 million in inventory write-offs related to the reduction of the
Companys generic product portfolio; and up to approximately $7 million for
other costs.  The Company expects that approximately $8 to $10 million of
this charge will result in cash expenditures during the fourth quarter of 2008
and the first half of 2009.  The charges related to this plan to reduce the
size of the generic business will be reflected on the consolidated statements of
operations for the year ended December 31, 2008 and during the first half of
2009.  In October 2008, the Company
repurchased senior subordinated convertible notes that were to mature on
September 30, 2010 in the aggregate principal amount of $58.0 million for
approximately $50 million, including accrued interest.  The notes bore
interest at an annual rate of 2.875%.  This repurchase will result in the
write-off of approximately $0.5 million of deferred financing costs in the
fourth quarter of 2008.  The Company will record a gain of approximately $5
million, after tax, in the fourth quarter of 2008 related to this debt
extinguishment.      30   ITEM
2. MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.  Certain statements in this Report
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, trends
and future events, particularly relating to sales of current products and the
development, approval and introduction of new products.  To the extent that
any statements made in this Report contain information that is not historical,
such statements are essentially forward-looking.  These statements are
often, but not always, made using words such as estimates, plans,
projects, anticipates, continuing, ongoing, expects, intends,
believes, forecasts or similar words and phrases.  Such forward-looking
statements are subject to 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.  Risk factors that might affect such forward-looking statements
include those set forth in Item 1A of the Companys Annual Report on Form
10-K for the year ended December 31, 2007, in Item 1A of the Companys
subsequent Quarterly Reports on Form 10-Q, in other of the Companys filings
with the SEC from time to time, including Current Reports on Form 8-K, and on
general industry and economic conditions.  Any forward-looking statements
included in this Report are made as of the date hereof only, based on
information available to the Company as of the date hereof, and, subject to any
applicable law to the contrary, the Company assumes no obligation to publicly
update any forward-looking statements, whether as a result of new information,
future events or otherwise.  The financial data contained in this section is in thousands or
as otherwise noted.  The following discussion should be
read in conjunction with the Companys Condensed Consolidated Financial
Statements and related Notes to Condensed Consolidated Financial Statements
contained elsewhere in this Form 10-Q.  OVERVIEW Critical to
the growth of the Company is its introduction of new manufactured and
distributed products at selling prices that generate adequate gross margins.
 On October 14, 2008, the Company announced a resizing of its generic
products division as part of an ongoing strategic assessment of its businesses.
This initiative is intended to enable Par to optimize its current product
portfolio and its pipeline of first-to-file/first-to-market products. As a
result, the Company believes it will be better positioned to compete in the
generic marketplace over the long term.  The Company will significantly
reduce its research and development expenses by decreasing its internal research
and development activities in an effort to focus on completing products
currently in development.  Also, the Company will continue seeking
additional products for sale through new and existing distribution agreements or
acquisitions of complementary products and businesses, additional first-to-file
opportunities and unique dosage forms to differentiate its products in the
marketplace.  The Company pays a percentage of the gross profits or sales
to its strategic partners on sales of products covered by its distribution
agreements.  Generally, products that the Company develops internally, and
to which it is not required to split any profits with strategic partners,
contribute higher gross margins than products covered by distribution
agreements. Sales and
gross margins of the Companys products depend principally on the: (i)
introduction of other generic drug manufacturers products in direct competition
with the Companys significant products; (ii) ability of generic competitors to
quickly enter the market after patent or exclusivity period expirations, or
during exclusivity periods with authorized generic products, diminishing the
amount and duration of significant profits to the Company from any one product;
(iii) pricing practices of competitors and the removal of competing products
from the market; (iv) continuation of existing distribution agreements; (v)
introduction of new distributed products; (vi) consolidation among distribution
outlets through mergers, acquisitions and the formation of buying groups; (vii)
willingness of generic drug customers, including wholesale and retail customers,
to switch among generic pharmaceutical manufacturers; (viii) approval of ANDAs,
introduction of new Par manufactured products, and future new product launches;
(ix) granting of potential marketing exclusivity periods; (x) extent of market
penetration for the existing product line; (xi) level, quality and amount of
customer service; and (xii) market acceptance of the Companys recently
introduced branded product and the successful development to commercialization
of the Company's in-licensed branded product pipeline.  Net sales and gross margins derived
from generic pharmaceutical products often follow a pattern based on regulatory
and competitive factors that are believed by the Companys management to be
unique to the generic pharmaceutical industry. As the patent(s) for a brand name
product and the related exclusivity period(s) expire, the first generic
manufacturer to receive regulatory approval from the FDA for a generic
equivalent of the product is often able to capture a substantial share of the
market.  At that time, however, the branded company may license an
authorized generic product to a competing generic company.  As additional
generic manufacturers receive regulatory approvals for competing products, the
market share and the price of that product have typically declined, often
significantly, depending on several factors, including the number of
competitors, the price of the brand product and the pricing strategy of the new
competitors.     31   GENERIC
BUSINESS In the third
quarter and year-to-date periods ending September 27, 2008, the Companys
generic business net revenues and gross margin were concentrated in a few
products, including two product launches. In thethird quarter of
2008, the Company launched dronabinol in 2.5mg, 5mg and 10mg strengths in soft
gel capsules.  The Company has the right to market, sell and distribute
dronabinol in the United States.  The Company will share net product
margin, as contractually defined, on future sales of dronabinol with SVC Pharma
LP, an affiliate of Rhodes Technologies. The Company
also commenced shipment of meclizine HCl tablets in 12.5mg and 25mg strengths in
the third quarter of 2008.  At this time, the Company believes it is the
exclusive supplier of the AB-related generic product.  The Company marketed
meclizine prior to an explosion at the facility of its API supplier in February
2008.  The Company has since qualified a new API source and received the
appropriate approval of its new drug application to manufacture and market
meclizine utilizing its new supplier. In November
2008, the Company launched
generic versions of Imitrex®
(sumatriptan) injection 4mg and 6mg starter kits and 4mg and 6mg prefilled
syringe cartridges pursuant to a supply and distribution agreement with
GlaxoSmithKline plc (GSK).  On May
7 , 2008
, the Company

announced an amendment to its agreement with Spectrum Pharmaceuticals

and paid
Spectrum $20 million pursuant to which the Company will
increase its share of the profits from 38% to 95% for the commercialization of
the generic versions of GSK's Imitrex®
(sumatriptan) i
njection. New product
launches in 2007 included propranolol HCl extended release (ER) capsules, a
product resulting from the Companys strategic partnership with Nortec
Development Associates, Inc.,
and ranitidine HCl syrup, pursuant to a
supply and distribution agreement with GSK
in the first quarter and the
launch of metoprolol succinate ER 25mg in the fourth quarter of 2006 and
additional strengths (50mg, 100mg, and 200mg) in the third quarter 2007,
pursuant to a supply and distribution agreement with AstraZeneca (AZ).  In addition,
the Companys investments in generic development is expected to yield
approximately eleven new product launches during 2009 and 2010 based on one or
more of the following: expiry of the relevant 30-month stay period; patent
expiry date; expiry of regulatory exclusivity; and date certain due to
settlement agreement.  However, such dates may change due to various
circumstances, including extended litigation, outstanding citizens petitions,
other regulatory requirements set forth by the FDA, and stays of litigation.
 These launches will be significant mileposts for the Company as many of
these products are first-to-file opportunities with gross margins in excess of
the Companys current portfolio.  STRATIVA For Strativa, the Company will
continue to invest in the marketing and sales of its promoted products and
prepare for the commercialization of its licensed products.   In
addition, the Company will continue to seek new licenses and acquisitions that
accelerate the growth of its branded business.  
The Company
anticipates these efforts and the four potential new product filings for
Strativa noted below will contribute to its goal of generating annualized brand
total revenue in excess of $250 million by the end of 2010. In July 2005, the Company
received FDA approval for its first New Drug Application (NDA), filed pursuant
to Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, and immediately
began marketing megestrol acetate oral suspension NanoCrystal® Dispersion
(Megace® ES).  Megace® ES is indicated for the treatment of anorexia,
cachexia or any unexplained significant weight loss in patients with a diagnosis
of AIDS and is utilizing the Megace® brand name that the Company has licensed
from Bristol-Myers Squibb Company (BMS).  The Company has promoted
Megace® ES as its primary brand product and generated prescription growth from
launch through 2007.  Net sales growth tempered in 2008 principally due to
the reimbursement environment for Megace® ES that became more challenging and
included a change in reimbursement status that was implemented by a major
Medicare Part D plan. In September
2006, the Company entered into an extended-reach agreement with Solvay
Pharmaceuticals, Inc. (Solvay) that provides for the Companys branded sales
force to co-promote Androgel®, as well as future versions of the product or
other products that are mutually agreed upon, for a period of six years.
 As compensation for its marketing and sales efforts, the Company will
receive up to $10 million annually, paid quarterly, for the six-year period. In July
2007, the Company acquired an exclusive licensing agreement under which the
Company will receive commercialization rights in the U.S. to BioAlliance
Pharma's Loramyc® (miconazole Lauriad®), an antifungal therapy for the treatment
of oropharyngeal candidiasis, an opportunistic infection commonly found in
immunocompromised patients, including those with HIV and cancer.  Phase III
studies have been completed by BioAlliance and it is anticipated that a NDA for
Loramyc® could be filed with the FDA near the end of 2008. In August
2007, the Company also acquired the North American commercial rights to
ZensanaTM (ondansetron HCl) Oral Spray from Hana Biosciences, Inc.
(Hana).  Ondansetron is used to prevent nausea and vomiting after
chemotherapy, radiation and surgery, and if approved, ZensanaTM could
be among the first in its class of 5-HT3 antagonist anti-emetic therapies to be
available in an oral spray form.  The Company and its development partner
in this program, NovaDel, are collaborating in the reformulation of
ZensanaTM.  The parties recently completed bioequivalence
studies. Bioequivalence to the reference drug was achieved in certain   32   studies
and not achieved in others.  The Company is working with NovaDel to further
evaluate the results in order to determine the next steps for the ZensanaTM program. In June 2008,
the Company entered into an exclusive licensing agreement with MonoSol Rx
(MonoSol) under which the Company acquired the commercialization rights in the
United States to MonoSols thin film formulation of ondansetron.
 Ondansetron thin film formulation is a new oral formulation in development
for the prevention of chemotherapy-induced nausea and vomiting, prevention of
nausea and vomiting associated with radiotherapy, and post-operative nausea and
vomiting.  Bio-equivalency studies were initiated in 2008 by Monosol.
 Two studies have recently been completed in this program that demonstrated
bio-equivalence to the reference drug.  Subject to further studies, it is
anticipated that Strativa could file a NDA with the FDA within the next twelve
months. In
January 2008, the Company announced that it entered into an exclusive licensing
agreement with Alfacell Corporation (Alfacell) to acquire the
commercialization rights in the United States for Onconase® (ranpirnase). 
In May 2008, Alfacell reported that the preliminary data from its Phase III
clinical trial, which assessed treatment with Onconase® plus doxorubicin
compared to treatment with doxorubicin alone, did not meet statistical
significance for the primary endpoint of overall survival in unresectable
malignant mesothelioma (UMM).  However, based on the preliminary data from
the Phase III study, statistically significant results were achieved in the
subset of evaluable UMM patients who failed a prior chemotherapy regimen before
entering this clinical trial.  This subset of patients achieved a
statistically significant increase in overall survival when treated with
Onconase® plus doxorubicin compared to treatment with doxorubicin alone. 
Alfacell is continuing with the planned submission of the remaining components
of the NDA, based on the statistically significant results of this subset of
patients.  OTHER
CONSIDERATIONS In addition to the substantial costs
of product development, the Company may incur significant legal costs in
bringing certain products to market. Litigation concerning patents and
proprietary rights is often protracted and expensive. Pharmaceutical companies
with patented brand products are increasingly suing companies that produce
generic forms of their patented brand name products for alleged patent
infringement or other violations of intellectual property rights, which could
delay or prevent the entry of such generic products into the market. Generally,
a generic drug may not be marketed until the applicable patent(s) on the brand
name drug expires. When an ANDA is filed with the FDA for approval of a generic
drug, the filing person may certify either that the patent listed by the FDA as
covering the branded product is about to expire, in which case the ANDA will not
become effective until the expiration of such patent, or that the patent listed
as covering the branded drug is invalid or will not be infringed by the
manufacture, sale or use of the new drug for which the ANDA is filed. In either
case, there is a risk that a branded pharmaceutical company may sue the filing
person for alleged patent infringement or other violations of intellectual
property rights.  Because a substantial portion of the Companys current
business involves the marketing and development of generic versions of brand
products, the threat of litigation, the outcome of which is inherently
uncertain, is always present. Such litigation is often costly and
time-consuming, and could result in a substantial delay in, or prevent, the
introduction and/or marketing of products, which could have a material adverse
effect on the Companys business, financial condition, prospects and results of
operations.   RESULTS OF
OPERATIONS The following table
shows the revenues, gross margin, and operating income and loss by segment for
the three months and nine months ended September 27, 2008 and September 29,
2007:  Three months
ended

Nine months
endedSeptember 27,

September 29,

September 27,

September 29,2008

2007

2008

2007Revenues:Generic

$129,383

$188,092

$352,168

$548,872Strativa

19,584

24,584

64,664

65,654Total revenues

$148,967

$212,676

$416,832

$614,526Gross margin:Generic

$35,932

$47,150

$75,291

$161,536Strativa

15,530

19,278

50,800

49,136Total gross margin

$51,462

$66,428

$126,091

$210,672   33    Operating income (loss):Generic

$4,117

$12,310

$(20,323)

$67,501Strativa

505

(12,240)

549

2,519Total operating income (loss)

$4,622

$70

$(19,774)

$70,020  Revenues  Three
Months Ended September 27, 2008 Total revenues for the three months
ended September 27, 2008 were $148,967, decreasing $63,709, or 30.0%, from total
revenues of $212,676, for the three months ended September 29, 2007.
 Revenues for generic products for the three months ended September 27,
2008 were $129,383, decreasing $58,709, or 31.2%, from generic revenues of
$188,092 for the three months ended September 29, 2007.  Lower generic
revenues in 2008 were primarily due to pricing pressure, including for
metoprolol, which decreased $30,716; fluticasone, which decreased $23,501;
propranolol, which decreased $7,842; ranitidine HCl syrup, which decreased
$4,487; various amoxicillin products, which decreased $4,319; cabergoline, which
decreased $2,421; and a decline in many of the Companys other products due to
pricing pressures.  Partially offsetting these decreases were increased
sales resulting from meclizine, which launched in July 2008 (increase of
$11,366) and the launch of the 2.5mg, 5mg and 10mg strengths of dronabinol in
July 2008 (increase of $7,960).  Net sales of distributed products, which
consist of products manufactured under contract and licensed products, were
approximately $78,355 or 53% of the Companys total product revenues for the
three month period ended September 27, 2008, and $134,004 or 63% of the
Companys total revenues for the three month period ended September 29, 2007.
 The decrease in the percentage is primarily driven by lower sales of
partnered products such as fluticasone and metoprolol, tempered by the launch of
dronabinol as well as increased sales of meclizine, which is a manufactured
product.  The Company is substantially dependent upon distributed products
for its overall sales and any inability by its suppliers to meet demand could
adversely affect the Companys future sales.  Revenues for the Strativa
segment were $19,584 for the three months ended September 27, 2008, decreasing
$5,000, or 20.3%, from Strativa revenues of $24,584 for the three months ended
September 29, 2007, due to decreased net sales of Megace® ES.
 Net sales growth of Megace® ES tempered in 2008 principally due
to the reimbursement environment that became more challenging and included a
change in reimbursement status that was implemented by a major Medicare Part D
plan.  Revenues  Nine
Months Ended September 27, 2008 Total revenues for the nine months
ended September 27, 2008 were $416,832, decreasing $197,694, or 32.2%, from
total revenues of $614,526 for the nine months ended September 29, 2007.
 Revenues for generic products for the nine months ended September 27, 2008
were $352,168, decreasing $196,704, or 35.8%, from generic revenues of $548,872
for the nine months ended September 29, 2007.  Lower generic revenues in
2008 were primarily due to pricing pressure, including for fluticasone, which
decreased $95,478; propranolol, which decreased $40,553; various amoxicillin
products, which decreased $15,778; tramadol, which decreased $10,305; ranitidine
HCl syrup, which decreased $10,249; cabergoline, which decreased $8,610; and a
decline in many of the Companys other products due to pricing pressures, as
well as lower royalties, which decreased by $12,886 primarily from lower sales
of ondansetron.  Increased competition adversely affected both the volume
and pricing on these existing products.  These decreases were partially
offset by higher sales of metoprolol, which increased by $21,974, resulting from
increased sales during the first half of the year, meclizine which relaunched in
July 2008 (increase of $15,486), and the launch of the 2.5mg, 5mg and 10mg
strengths of dronabinol in July 2008 (increase of $7,960).  Net sales of
distributed products, which consist of products manufactured under contract and
licensed products, were approximately $231,602, or 56% of the Companys total
revenues for the nine months ended September 27, 2008, and $341,609, or 56% of
the Companys total revenues, for the nine months ended September 29, 2007.
 The decrease in the percentage is primarily driven by lower sales of
fluticasone, tempered by the launch of dronabinol and increased sales of
metoprolol, as well as increased sales of meclizine, which is a manufactured
product.  The Company is substantially dependent upon distributed products
for its overall sales, and any inability by its suppliers to meet demand could
adversely affect the Companys future sales.  Revenues for the Strativa
segment were $64,664 for the nine months ended September 27, 2008, decreasing
$990, or 1.5%, from Strativa revenues of $65,654 for the nine months ended
September 29, 2007, primarily due to decreased sales of Megace® ES.  Net
sales growth of Megace® ES tempered in 2008 principally due to the
reimbursement environment that became more challenging and included a change in
reimbursement status that was implemented by a major Medicare Part D plan.  Generic drug pricing at the wholesale
level can create significant differences between the invoice price and the
Companys net selling price.  Wholesale customers purchase product from the
Company at invoice price, then resell the product to specific healthcare
providers on the basis of prices negotiated between the Company and the
providers, and the wholesaler submits a chargeback credit to the Company for the
difference.  The Company records estimates for these chargebacks, sales
returns, rebates and incentive programs, and other sales allowances, for all its
customers at the time of sale, as reductions to gross revenues, with
corresponding adjustments to its accounts receivable reserves and allowances.  The Companys
gross revenues before deductions for chargebacks, rebates and incentive programs
(including rebates paid under federal and state government Medicaid drug
reimbursement programs), sales returns and other sales allowances were $830,725
for the nine months ended September 27, 2008, compared to $1,110,703 for the
nine months ended September 29, 2007.  Deductions from gross revenues were
$413,893 for the nine months ended September 27, 2008, compared to $496,177 for
the nine months ended September 29, 2007. These deductions are discussed in the
Notes to condensed consolidated financial statements  Note 6  Accounts
Receivable.  The total gross-to-net sales adjustments as a percentage of
gross sales increased to 49.8% for the nine months   34   ended
September 27, 2008, compared to 44.7% for the nine months ended September 29,
2007, primarily due to increased pricing pressure for key products including
metoprolol, and lower royalty income in 2008, tempered by lower returns and
lower rebates primarily related to fluticasone and driven by customer net
pricing trends and lower formulary sales. As detailed above, the Company has the
experience and the access to relevant information that it believes are necessary
to reasonably estimate the amounts of such deductions from gross revenues.
 Some of the assumptions used by the Company for certain of its estimates
are based on information received from third parties, such as wholesale customer
inventory data and market data, or other market factors beyond the Companys
control.  The estimates that are most critical to the establishment of
these reserves, and therefore would have the largest impact if these estimates
were not accurate, are estimates related to expected contract sales volumes,
average contract pricing, customer inventories and return levels.  The
Company regularly reviews the information related to these estimates and adjusts
its reserves accordingly if and when actual experience differs from previous
estimates.  With the exception of the product returns allowance, the ending
balances of account receivable reserves and allowances generally are eliminated
during a two- to four-month period, on average.  The Company recognizes revenue for
product sales when title and risk of loss have transferred to its customers and
when collectibility is reasonably assured. This is generally at the time that
products are received by the customers.  Upon recognizing revenue from a
sale, the Company  records estimates for chargebacks, rebates and
incentives, returns, cash discounts and other sales reserves that reduce
accounts receivable.  The following tables summarize the
activity for the nine months ended September 27, 2008 and September 29, 2007 in
the accounts affected by the estimated provisions described below: For the nine months ended September
27, 2008Accounts receivable reserves

Beginning balance

Provision recorded for current
period sales

(Provision) reversal recorded for
prior period sales

Credits processed

Ending balanceChargebacks

$(46,006)

$(286,435)

$(539)
(1)
$302,642

$(30,338)Rebates and incentive programs

(42,859)

(63,864)

(1,571)
(3)
82,014

(26,280)Returns

(47,102)

(13,049)

3,868
(4)
16,610

(39,673)Cash discounts and other

(16,158)

(35,095)

349

38,525

(12,379)Total

$(152,125)

$(398,443)

$2,107

$439,791

$(108,670)Accrued liabilities(2)

$(17,684)

$(17,365)

$(192)

$12,129

$(23,112)  For the nine months ended September
29, 2007Accounts receivable reserves

Beginning balance

Provision recorded for current
period sales

(Provision) reversal recorded for
prior period sales

Credits processed

Ending balanceChargebacks

$(51,891)

$(253,057)

$    -
(1)
$265,788

$(39,160)Rebates and incentive programs

(85,888)

(150,480)

3,109

172,174

(61,085)Returns

(42,905)

(24,646)

(3,164)

18,712

(52,003)Cash discounts and other

(18,037)

(55,144)

211

51,598

(21,372)Total

$(198,721)

$(483,327)

$156

$508,272

$(173,620)Accrued liabilities(2)

$(10,583)

$(13,006)

$   -

$7,067

$(16,522)  (1) Unless
specific in nature, the amount of provision or reversal of reserves related to
prior periods for chargebacks is not determinable on a product or customer
specific basis; however, based upon historical analysis and analysis of activity
in subsequent periods, the Company has determined that its chargeback estimates
remain reasonable. (2) Includes
amounts due to customers for which no underlying accounts receivable exists and
is principally comprised of Medicaid rebates and rebates due under other U.S.
Government pricing programs.  The Company included additional amounts that
were part of accrued expenses and other current liabilities on the condensed
consolidated balance sheets as of   35   December 31,
2006 ($171), September 29, 2007 ($436) and December 31, 2007 ($869) in the
tables above that are similar to the previously disclosed amounts due to
customers for which no underlying accounts receivable exists. (3) The
changes in accounts receivable reserves recorded for prior period sales related
to rebates and incentives programs are principally comprised of the finalization
of contract negotiations with a certain customer(s) that resulted in an
adjustment of ($2,313) to our rebates and incentive programs for sales made to
that customer in the fourth quarter of 2007.  With the exception of the
foregoing factor, there were no other factors that were deemed to be material
individually or in the aggregate. (4) The changes in
accounts receivable reserves recorded for prior period sales related to returns
principally comprised of the successful resolution in the nine-month period
ended September 27, 2008 of a customer dispute over invalid customer deductions
taken in prior periods of $1,486, and an update to managements prior period
returns estimates relating to the loss of a customer for a certain generic
product and branded products based on new returns information that became
available during the nine-month period ended September 27, 2008, of $2,382.  Use of Estimates in
Reserves  The Company believes that its
reserves, allowances and accruals for items that are deducted from gross
revenues are reasonable and appropriate based on current facts and
circumstances. It is possible, however, that other parties applying reasonable
judgment to the same facts and circumstances could develop different allowance
and accrual amounts for items that are deducted from gross revenues.
Additionally, changes in actual experience or changes in other qualitative
factors could cause the Companys allowances and accruals to fluctuate,
particularly with newly launched or acquired products.  The Company reviews
the rates and amounts in its allowance and accrual estimates on a quarterly
basis. If future estimated rates and amounts are significantly greater than
those reflected in its recorded reserves, the resulting adjustments to those
reserves would decrease the Companys reported net revenues; conversely, if
actual product returns, rebates and chargebacks are significantly less than
those reflected in its recorded reserves,  the resulting adjustments to
those reserves would increase its reported net revenues. If the Company were to
change its assumptions and estimates, its reserves would change, which would
impact the net revenues that the Company reports.  The Company regularly
reviews the information related to these estimates and adjusts its reserves
accordingly, if and when actual experience differs from previous estimates.  Gross Margin  Three Months Ended
September 27, 2008  The Companys gross margin of $51,462
(34.5% of total revenues) for the three months ended September 27, 2008
decreased $14,966 from $66,428 (31.2% of total revenues) for the three months
ended September 29, 2007.  The generic products gross margin of $35,932
(27.8% of generic revenues) for the three months ended September 27, 2008,
decreased $11,218 from $47,150 (25.1% of generic revenues) for the three months
ended September 29, 2007, primarily due to higher sales of lower margin products
driven by metoprolol, lower sales of fluticasone, propranolol, and cabergoline,
a decline in many of the Companys other products due to pricing pressures, an
impairment charge of approximately $4,900 for nabumetone, and lower royalties
primarily from ondansetron tablets.  These net decreases were partially
offset by lower inventory write-offs for the three months ended September 27,
2008, the launch of meclizine and the launch of dronabinol.   Strativa
gross margin of $15,530 (79.3% of Strativa revenues)for the three months
ended September 27, 2008, decreased by $3,748 from $19,278 (78.4% of Strativa
revenues) for the three months ended September 29, 2007, due to lower sales and
increased rebates for Megace® ES.  The Companys gross margin percentage
increased from 31.2% to 34.5% driven primarily by increased sales of higher
margin meclizine and dronabinol and lower sales of low margin product such as
metoprolol, partially offset by lower royalty income and lower sales of higher
margin products such as propranolol, which launched in February 2007, and
Megace® ES.  Strativas gross margin percentage improved due mainly to a
2008 mid-year price increase tempered by increased rebates.  Gross Margin  Nine Months Ended
September 27, 2008  The Companys gross margin of $126,091
(30.2% of total revenues) in the first nine months of 2008 decreased $84,581
from $210,672 (34.3% of total revenues) in the corresponding period of 2007.
 Generic product gross margins of $75,291 (21.4% of generic revenues) in
the nine months ended September 27, 2008, decreased $86,245 from $161,536 (29.4%
of generic revenues) in the corresponding period of 2007.  The decrease in
generic gross margins were primarily due to the significant increase in sales of
lower margin products driven by metoprolol, lower sales of fluticasone,
propranolol, and cabergoline, a decline in many of the Companys other products
due to pricing pressures, and lower royalties primarily from ondansetron
tablets.  These net decreases were partially offset by lower inventory
write-offs for the nine months ended September 27, 2008, the launch of meclizine
and the launch of dronabinol.  Strativa gross margin of $50,800 (78.6% of
branded revenues)for the nine months ended September 27, 2008, increased
by $1,664 from $49,136 (74.8% of branded revenues) for the nine months ended
September 29, 2007, due to price improvement.  The Companys gross margin
percentage decreased from 34.3% to 30.2%.  The decreased percentage is
attributed to lower royalty income and lower sales of higher margin products
such as propranolol, which launched in February 2007, partially offset by
increased sales of higher margin meclizine.  Strativas gross margin
percentage improved due mainly to mid-year price increases in 2007 and 2008
tempered by increased rebates.    36   Operating
Expenses  Research and Development  Three Months Ended
September 27, 2008 The Companys
research and development expenses of $13,784 (9.3% of total revenues) for the
three months ended September 27, 2008, decreased $19,031, or 58.0%, from $32,815
(15.4% of total revenues) for the three months ended September 29, 2007, driven
by the non-recurrence of one-time milestone payments and costs incurred in
2007. On-going
R&D expense for Strativa increased $1,094 principally due to development
costs associated with ZensanaTM (ondansetron HCl) oral spray.
 This increase was offset by a $14,900 net reduction in one-time payments
as a third quarter 2008 development milestone payment to Monosol Rx of $1,250
related to the thin film formulation of ondansetron was offset by the
non-recurrence of a $15,000 milestone paid to BioAlliance Pharma for the U.S.
commercialization rights to Loramyc and $1,150 paid to Hana Biosciences, Inc. in
connection with Zensana, both of which occurred in the third quarter of 2007. Development
costs of the Companys generic portfolio decreased $5,225 driven by the
non-recurrence of one-time costs associated with a third party development
agreement ($2,500) and lower internal development costs ($3,490).  Research and Development  Nine Months Ended
September 27, 2008 The Companys
research and development expenses of $46,897 (11.3% of total revenues) for the
nine months ended September 27, 2008, decreased $14,234, or 23.3%, from $61,131
(9.9% of total revenues) for the nine months ended September 29, 2007,
principally driven by a net reduction of $11,650 of one-time Strativa milestone
payments, as $7,500 of 2008 payments to Alfacell and Monosol Rx, detailed below,
were more than offset by the non-recurrence of $19,150 of payments incurred in
2007 to acquire rights to late stage compounds, comprised of Loramyc®,
pafuramidine maleate and ZensanaTM.  The development of
pafuramidine maleate was discontinued in February 2008. In January
2008, the Company entered into an exclusive licensing agreement with Alfacell
Corporation to acquire the commercialization rights to Onconase® in the United
States.  Onconase® is in Phase III clinical development for the treatment
of unresectable malignant mesothelioma, a rare cancer affecting the lungs
usually associated with exposure to asbestos.  Under the terms of the
agreement, the Company made an initial cash payment of $5,000 to Alfacell in the
first quarter of 2008. In June 2008,
the Company entered into an exclusive licensing agreement under which it
acquired the commercialization rights in the United States to the thin film
formulation of ondansetron from MonoSol Rx.  Ondansetron thin film
formulation is a new oral formulation in development for the prevention of
chemotherapy-induced nausea and vomiting, prevention of nausea and vomiting
associated with radiotherapy, and post-operative nausea and vomiting.
 Under the terms of the agreement, the Company made an initial cash payment
to MonoSol in the second quarter of 2008 of $1,250 and an additional $1,250 in
the third quarter of 2008 upon successful completion of the first contractual
milestone. In
addition to these milestones, on-going R&D expense in support of the
Companys strategy to expand Strativa increased $1,800 driven by costs related
to the development of ZensanaTM. Expenditures
related to the Companys generic portfolio decreased $4,383 principally due to
the non-recurrence of one-time costs associated with a third party development
agreement ($2,500) and lower internal development costs ($1,878). In October
2008, the Company announced that it plans to resize its generic unit as part of
an ongoing strategic assessment of its businesses.  In conjunction with
this action, the Company intends to significantly reduce its research and
development expenses by decreasing its generic research and development effort.
 Refer to Note 20 - Subsequent Events in the notes to the condensed
consolidated financial statements for further detail.  Although there can
be no such assurance, excluding restructuring charges anticipated to be
recognized in the fourth quarter of 2008 relating to these decisions,
 research and development expenses for 2008, including payments to be made
to unaffiliated companies and milestone payments, are expected to decrease by
approximately 15% to 20% from 2007.  Selling,
General and Administrative Expenses  Three months ended September 27,
2008 Total selling, general and
administrative (SG&A) expenses of $30,664 (20.6% of total revenues) for
the three months ended September 27, 2008, decreased $3,246 or 9.6% from $33,910
(15.9% of total revenues) for the three months ended September 29, 2007. The decrease
in 2008 was mainly driven by lower compensation costs, including share-based
compensation ($4,114) and lower expenses related to sales and marketing of
Megace® ES ($1,382), tempered by an increase in legal fees
($2,553).  Selling,
General and Administrative Expenses  Nine months ended September 27,
2008 Total selling,
general and administrative expenses of $98,701 (23.7% of total revenues) for the
nine months ended September 27, 2008, decreased $1,765, or 1.8%, from $100,466
(16.3% of total revenues) for the nine months ended September 29, 2007.
 The decrease in 2008 was mainly driven by lower compensation costs,
including share-based compensation ($5,969), the non-recurrence   37   of
severance costs that were incurred in the second quarter of 2007 ($1,723), lower
expenses related to sales and marketing of Megace® ES ($4,248), and
lower insurance costs ($1,607).  These decreases were tempered by an
increase in legal fees ($11,288).  Although there can be no such assurance,
SG&A expenses for 2008, excluding the impact of charges related to the
resizing of the generic business anticipated to be recognized in the fourth
quarter of 2008 and Strativa spending for potential pre-launch activities, are
expected to decrease approximately 5% from fiscal year 2007 and may also
fluctuate due to legal costs associated with the Companys product
litigations.  Settlements and Loss
Contingencies, net During the
three months ended September 29, 2008, the Company recorded a loss contingency
of approximately $4,592 in connection with Companys Department of Veterans
Affairs contract (refer to Note 14 to the condensed consolidated financial
statements), which represents its estimate of the loss related to an expected
settlement of this matter, including interest. In August
2007, the Company received $367 and recorded a corresponding gain relating to
the settlement of a class action law suit against a former supplier of raw
materials that was found guilty of anti-competitive activities. In August 2003, the Company and
Perrigo Pharmaceuticals Company entered into a product development manufacturing
and supply agreement to commercialize various products.  In March 2007, the
parties terminated the agreement.  The terms of the settlement resulted in
a net gain for the Company in the amount of $378 for the nine months ended
September 29, 2007.  In September 1999, the Company entered
into an agreement to develop, manufacture and market the pharmaceutical
formulation naturbinol with Resolution Chemicals Limited.  In February
2007, the parties agreed to terminate this agreement.  The terms of the
settlement resulted in a net gain for the Company in the amount of $200 for the
nine months ended September 29, 2007.  Gain on Sale of Product
Rights and other During the three-month and nine-month
periods ended September 27, 2008, the Company recognized a gain on the sale of
product rights of $2,200 and $3,700, respectively, related to the sale of multiple ANDAs.  In November 2007, the Company entered
into an agreement to provide certain information and other deliverables related
to Megace®ESto enable the formal technology transfer to
a third party that is seeking to commercialize Megace®ESoutside of the U.S.  The Company recorded $625 in the quarter ended
March 29, 2008, when the Companys obligations were fulfilled related to this
agreement.  In May 2005, the Company and Optimer
entered into a joint development and collaboration agreement to commercialize
Difimicin (PAR 101), an investigational drug to treat Clostridium
difficle-associated diarrhea.  On February 27, 2007, in exchange for
$20,000, the Company returned the marketing rights to Optimer and recorded a
corresponding gain on the sale of product rights.  Equity in Loss of Joint Venture  Equity in loss of joint venture was $0
and $107 for the three months ended September 27, 2008 and September 29, 2007,
respectively, and $330 and $335 for the nine months ended September 27, 2008 and
September 29, 2007, respectively.  The amounts represent the Companys
share of loss in SVC Pharma (SVC), the joint venture created with Rhodes
Technology (Rhodes), and primarily relates to research and development costs
incurred by the joint venture to develop ANDAs.  As further detailed in
Note 15  Investment in Joint Venture of the accompanying condensed financial
statements, on June 27, 2008, the Company and SVC entered into a license and
distribution agreement concurrent with FDA approval of an ANDA for dronabinol
(Marinol®).  In connection with the agreement, the Company transferred its
interest in SVC to Rhodes.  Loss on Sale of Marketable Securities
and Other Investments, Net  The Company recorded a realized loss
of $2.5 million during the three-month period ended September 27, 2008, which
represented an other-than-temporary impairment of the Companys investment in a
debt security issued by Ford Motor Credit Company that matures in 2015.
 Due to the recent deterioration of the credit markets and the auto
industry and the severity of the loss and the duration of the period that the
investment has been in a loss position, the Company no longer intends to hold
this investment until maturity.  As such, the Company believed the loss was
other-than-temporary.  The Company recorded a realized loss
of $2,100 during the nine months ended September 27, 2008, which represented an
other-than-temporary impairment of the Companys investment in Hana Biosciences,
Inc. (Hana). The Company
recorded an investment loss of $6,000 during in the nine months ended September
29, 2007, relating to the complete loss of an investment, as a limited partner,
in a fund that invested in various floating rate structured finance securities.
 The fund was liquidated and there was no remaining equity for the limited
partners.  During the nine months ended September 27, 2008, the Company
reached a settlement in connection with the fund and received $1,667, which the
Company recognized as a gain.   38   In February
2007, the Company sold approximately 1.1 million shares of its investment in
Optimer stock for approximately $6,800 and recognized a pre-tax gain of
approximately $1,357 for the nine month period ended September 29, 2007.  Interest Income  Interest income was $2,285 and $3,680
for the three months ended September 27, 2008 and September 29, 2007,
respectively, and $7,428 and $10,265 for the nine months ended September 27,
2008 and September 29, 2007, respectively.  Interest income principally
includes interest income derived primarily from money market and other
short-term investments.  The Companys return on investments was negatively
impacted by investments in instruments with lower yields.  Interest Expense  Interest expense was $1,667 and $1,691
for the three months ended September 27, 2008 and September 29, 2007,
respectively, and $5,001 and $5,136 for the nine months ended September 27, 2008
and September 29, 2007, respectively.  Interest expense principally
includes interest payable on the Companys senior subordinated convertible notes
due 2010.  Refer to Subsequent Events below for details of certain
repurchases of the Companys senior subordinated convertible notes.  Income
Taxes The Company recorded a provision for
income taxes of $923 and $683 for the three months ended September 27, 2008 and
September 29, 2007, respectively.  The Companys effective tax rates for
continuing operations for the three months ended September 27, 2008 and
September 29, 2007 were 34% and 35%, respectively.  For the nine-month
periods ended September 27, 2008 and September 29, 2007, the Company recorded a
benefit for income taxes of $5,158 and a provision for income taxes of $24,541,
respectively. The Companys effective tax rates for the nine months ended
September 27, 2008 and September 29, 2007 were 25% and 35%, respectively.
 The Companys effective tax rate for the three and nine month periods
ended September 27, 2008 includes the impact of permanent tax items and reflects
a $2,700 charge, recorded in the third quarter of 2008, related to the Companys
revised filing position on certain tax credits relating to prior
years.  Discontinued
Operations In January 2006, the Company announced
the divestiture of FineTech Laboratories, Ltd (FineTech), effective December
31, 2005.  The Company transferred the business for no proceeds to Dr. Arie
Gutman, president and chief executive officer of FineTech.  Dr. Gutman also
resigned from the Companys Board of Directors.  The results of FineTech
operations have been classified as discontinued for all periods presented
because the Company had no continuing involvement in FineTech.  In January
2008, Dr. Gutman sold FineTech to a third party.  Under the terms of the
divestiture, the Company received $505 during the nine months ended September
27, 2008 which represents the Companys share of the net proceeds of the sale
transaction.  This $505 has been classified as discontinued operations on
the condensed consolidated statement of operations for the nine months ended
September 27, 2008.   FINANCIAL CONDITION  Liquidity and Capital Resources  Cash and cash equivalents of
$171,623 at September 27, 2008 decreased $28,509 from $200,132 at December
31, 2007.  Cash provided by operations was $36,155 for the nine months
ended September 27, 2008, which reflects continuing operations as adjusted
primarily for depreciation and amortization of $22,966, and share-based
compensation of $10,257 and was driven by the liquidation of working capital,
mainly lower inventory levels, which declined $35,975 due to lower sales demand
for certain products and timing of receipt of certain purchased finished
goods.  Payables due to distribution agreement partners increased $7,829
from higher sales of partnered products, mainly metoprolol.  These working
capital reductions were offset by the higher net accounts receivable balance of
$23,541 that was primarily driven by timing of sales in the quarter.  Cash
flows used in investing activities of $64,608 were driven by net investments of
$31,078 in available for sale debt securities, $20,000 invested as part of the
amendment to the Companys agreement with Spectrum Pharmaceuticals pursuant to
which the Company increased its share of the profits from 38% to 95% for the
commercialization of the generic versions of GSK's Imitrex®
(sumatriptan) injection, in addition to capital expenditures of $13,015. 
Cash used in financing activities were minimal in the nine-month period ended
September 27, 2008.  However, refer to the Subsequent Events section below
for a description of $50,000 used to repurchase certain senior subordinated
convertible notes during the fourth quarter.  The Companys working capital, current
assets minus current liabilities, of $197,024 at September 27, 2008 decreased
$13,490 from $210,514 at December 31, 2007.  The working capital ratio,
which is calculated by dividing current assets by current liabilities, was 1.62x
at September 27, 2008 compared to 1.67x at December 31, 2007.  The Company
believes that its working capital ratio indicates the ability to meet its
ongoing and foreseeable obligations for the next 12 fiscal months.    39   In 2004,
the Board authorized the repurchase of up to $50,000 of the Companys common
stock.  Repurchases are made, subject to compliance with applicable
securities laws, from time to time in the open market or in privately negotiated
transactions.  Shares of common stock acquired through the repurchase
program are available for general corporate purposes.  In 2007, the Company
announced that its Board approved an expansion of its share repurchase program
allowing for the repurchase of up to $75,000 of the Companys common stock,
inclusive of the $17,800 remaining from the April 2004 authorization.  The
Company repurchased 1,643 shares of its common stock for approximately $31,400
pursuant to the expanded program in the fourth quarter of 2007.  The
authorized amount remaining for stock repurchases under the repurchase program
was approximately $43,600, as of September 27, 2008.  In addition to its cash and cash
equivalents, the Company had $116,042 of available for sale debt securities
classified as current assets on the condensed consolidated balance sheet as of
September 27, 2008.  These available for sale debt securities were all
available for immediate sale.  The Company intends to continue to use its
current liquidity to support the expansion of its Strativa business, enter into
product license arrangements, potentially acquire other complementary businesses
and products, and for general corporate purposes.  As of September
27, 2008, the Company had payables due to distribution agreement partners of
$44,308related primarily to amounts due
under profit sharing agreements, including an amount owed to Pentech with
respect to paroxetine.  The Company is expected to pay substantially all of
these amounts, with the exception of the payable due to Pentech, which is being
disputed in current litigation with Pentech, out of its working capital during
the first two months of the fourth quarter of 2008.  In 2004, Pentech filed
a legal action against the Company alleging that the Company breached its
contract with Pentech.  The Company and Pentech are in dispute over the
amount of gross profit share.   The Company also accrued for a loss
contingency estimated at approximately $4,600, including interest, as of
September 27, 2008 related to a routine post award contract review of the
Companys Department of Veterans Affairs contract (the VA Contingency) for the
periods 2004 to 2007 that is being conducted by the Office of Inspector General
of the Department of Veterans Affairs.  In the event that the VA
Contingency is ultimately determined to be higher than originally accrued, the
recording of the additional liability may result in a material impact on the
Companys liquidity or financial condition when such additional liability is
paid. There have
been no material changes to the contractual obligations table presented as of
December 31, 2007 in the Companys Annual Report on Form 10-K, except for the
repurchases of senior subordinated convertible notes in the aggregate principal
amount of $58,000 for approximately $50,000, including accrued interest.
  Refer to the Subsequent Events section below for further details.  In addition to its internal research
and development costs, the Company, from time to time, enters into agreements
with third parties for the development of new products and technologies. To
date, the Company has entered into agreements and advanced funds and has
commitments or contingent liabilities with several non-affiliated companies for
products in various stages of development.  These contingent payments or
commitments are generally dependent on the third party achieving certain
milestones or the timing of third-party research and development or legal
expenses.  Due to the uncertainty of the timing and/or realization of such
contingent commitments, these obligations were not included in the contractual
obligations table presented as of December 31, 2007 in the Companys Annual
Report on Form 10-K.  Payments made pursuant to these agreements are either
capitalized or expensed in accordance with the Companys accounting policies.
 The total amount that ultimately could be due under agreements with
contingencies is approximately $57,000 as of September 27, 2008.  The Company expects to continue to
fund its operations, including its research and development activities, capital
projects, in-licensing product activity and obligations under its existing
distribution and development arrangements discussed herein, out of its working
capital.  Implementation of the Companys business plan may require
additional debt and/or equity financing; there can be no assurance that the
Company will be able to obtain any such additional financing when needed on
terms acceptable or favorable to it.  Financing  At September 27, 2008, the Companys
total outstanding short and long-term debt, including the current portion, was
$200,000.  The amount consisted of senior subordinated convertible notes
that the Company sold in 2003 pursuant to Rule 144A under the Securities Act of
1933, as amended.  The notes bear interest at an annual rate of 2.875%,
payable semi-annually on March 30 and September 30 of each year.  The notes
are convertible into shares of common stock of the Company at an initial
conversion price of $88.76 per share, only upon the occurrence of certain
events.  Upon redemption, the Company has agreed to satisfy the conversion
obligation in cash in an amount equal to the principal amount of the notes
converted.  The notes mature on September 30, 2010, unless earlier
converted, accelerated or repurchased.  The Company may not redeem the
notes prior to the maturity date.  The Trustee under the Indenture
governing the Notes has alleged that the Company has defaulted in the
performance of its obligations under the Indenture and has instituted a lawsuit
in connection therewith.  Accordingly, until the matter is resolved, the
Company is recording the payment obligations under the Notes as a current
liability on the Companys condensed consolidated balance sheet as of September
27, 2008.  Refer to Notes to condensed consolidated financial statements 
Note 14  Commitments, Contingencies and Other Matters.  In October 2008,
the Company repurchased senior subordinated convertible notes in the aggregate
principal amount of $58,000 related to three separate unsolicited offers for
approximately $50 million, including accrued interest.  This repurchase
will   40   result in the write-off of
approximately $500 of deferred financing costs in the fourth quarter of 2008.
 The Company will record a gain of approximately $5,000, after tax, in the
fourth quarter of 2008 related to this debt extinguishment.   Critical Accounting Policies and Use of
Estimates  The Companys critical accounting
policies are set forth in its Annual Report on Form 10-K for the fiscal year
ended December 31, 2007.  There has been no change, update or revision to
the Companys critical accounting policies subsequent to the filing of the
Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2007
other than as set forth below.  Inventories: Inventories are stated at the lower of
cost (first-in, first-out basis) or market value.  The Company establishes
reserves for its inventory to reflect situations in which the cost of the
inventory is not expected to be recovered.  In evaluating whether inventory
is stated at the lower of cost or market, management considers such factors as
the amount of inventory on hand, estimated time required to sell such inventory,
remaining shelf life and current expected market conditions, including level of
competition.  The Company records provisions for inventory to cost of goods
sold. The Company
capitalizes costs associated with certain products prior to regulatory approval
and product launch (pre-launch inventories) when it is reasonably certain that
the pre-launch inventories will be saleable, based on managements judgment of
future commercial use and net realizable value.  The determination to
capitalize is made once the Company (or its third party development partners)
has filed an Abbreviated New Drug Application that has been acknowledged by the
FDA for containing sufficient information to allow the FDA to conduct their
review in an efficient and timely manner and management is reasonably certain
that all regulatory and legal hurdles will be cleared.  This determination
is based on the particular facts and circumstances relating to the expected FDA
approval of the generic drug product being considered, and accordingly, the time
frame within which the determination is made varies from product to product.
 The Company could be required to expense previously capitalized costs
related to pre-launch inventories upon a change in such judgment, due to a
denial or delay of approval by regulatory bodies, a delay in commercialization,
or other potential risk factors.  If these risks were to materialize and
the launch of such product were significantly delayed, the Company may have to
write-off all or a portion of such pre-launch inventories and such amounts could
be material.  As of September 27, 2008, the Company had pre-launch
inventories of $1.0 million.  Should any launch be delayed, inventory
write-offs may occur to the extent the Company is unable to recover the full
value of its inventory investment.  The recoverability of the cost of
pre-launch inventories with a limited shelf life is evaluated based on the
specific facts and circumstances surrounding the timing of anticipated product
launches, including the Companys expected number of competitors during the
six-month period subsequent to any anticipated product launch.  Further,
the Company believes that the inventory balance at September 27, 2008 is
recoverable based on anticipated launches and the related expected demand for
lower priced generic products that may be substituted for referenced branded
products upon FDA approval.  Recent Accounting
Pronouncements Adopted as of January 1, 2008 In June 2007, the FASB ratified
Emerging Issue Task Force Issue No. 07-3 (EITF 07-3), Accounting for
Non-Refundable Advance Payments for Goods or Services to Be Used in Future
Research and Development Activities, which requires nonrefundable advance
payments for goods and services that will be used or rendered for future
research and development activities to be deferred and capitalized.  These
amounts will be recognized as expense in the period that the related goods are
delivered or the related services are performed or when an entity does not
expect the goods to be delivered or services to be rendered.  EITF 07-3 is
effective for the fiscal years beginning after December 31, 2007, including
interim periods within those fiscal years. The Companys adoption of the
provisions of EITF 07-3, beginning January 1, 2008 did not have a material
impact on its condensed consolidated financial statements.  In February
2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities  Including an Amendment of FASB Statement No.
115 (SFAS 159), which became effective for fiscal periods beginning after
November 15, 2007.  Under SFAS 159, companies may elect to measure
specified financial assets and liabilities at fair value that are not otherwise
measured at fair value, with changes in fair value recognized in earnings each
subsequent reporting period.  This election, called the fair value
option, will enable some companies to reduce volatility in reported earnings
caused by measuring related assets and liabilities differently.  SFAS 159
also establishes presentation and disclosure requirements designed to draw a
comparison between the different measurement attributes a company elects for
similar types of assets and liabilities.  The Company did not elect the
fair value option for any of its eligible financial assets or liabilities and
therefore the Companys adoption of SFAS 159 did not have a material impact on
its condensed consolidated financial statements. In September 2006, the FASB issued
SFAS No. 157, Fair Value Measurements (SFAS 157).  SFAS 157
establishes a common definition for fair value to be applied to GAAP guidance
requiring use of fair value, establishes a framework for measuring fair value,
and expands disclosure about such fair value measurements.  SFAS 157
applies to fair value measurements that are already required or permitted by
other accounting standards, except for measurements of share-based payments and
measurements that are similar to, but not intended to be, fair value.  The
FASB has previously concluded in those accounting pronouncements that fair value
is the relevant measurement attribute.  Accordingly, this Statement does
not require any new fair value measurements.  SFAS 157 is effective for
fiscal years beginning after November 15, 2007.  In November 2007, FASB
granted a one year deferral for the   41   implementation of SFAS 157 for
non-financial assets and liabilities.  The Companys adoption of SFAS 157
with respect to financial assets and liabilities did not have a material impact
on its condensed consolidated financial statements.  Subsequent Events In October 2008, the Company announced
that it plans to resize its generic products division as part of an ongoing
strategic assessment of its businesses.  In addition, the Company intends
to significantly reduce its research and development expenses by decreasing its
internal generic research and development effort to focus on completing generic
products currently in development and will continue to look for opportunities
with external partners.  The Company further intends to trim its current
generic product portfolio and retain only those marketed products that deliver
acceptable profit to the Company.  These actions will result in a workforce
reduction of approximately 190 employees.  Approximately 30% of the
affected positions in manufacturing, research and development, and general and
administrative will be eliminated by year-end 2008 and the remaining positions
by the end of the first half of 2009.  In connection with these actions,
the Company expects to incur pre-tax expenses in the range of approximately
$28,000 to $38,000, which is comprised of approximately $11,000 for severance
and other employee-related costs; approximately $17,000 to $18,000 for asset
impairments resulting from facility closures and related actions; up to
approximately $2,000 in inventory write-offs related to the reduction of the
Companys generic product portfolio; and up to approximately $7,000 for other
costs.  The Company expects that approximately $8,000 to $10,000 of this
charge will result in cash expenditures during the fourth quarter of 2008 and
the first half of 2009.  The charges related to this plan to reduce the
size of the generic business will be reflected on the consolidated statements of
operations for the year ended December 31, 2008.  In October 2008, the Company
repurchased senior subordinated convertible notes that were to mature on
September 30, 2010 in the aggregate principal amount of $58,000 for
approximately $50,000, including accrued interest.  The notes bore interest
at an annual rate of 2.875%.  This repurchase will result in the write-off
of approximately $500 of deferred financing costs in the fourth quarter of 2008.
 The Company will record a gain of approximately $5,000, after tax, in the
fourth quarter of 2008 related to this debt extinguishment.  After the
repurchase, $142,000 of senior subordinated convertible notes remains
outstanding.    ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Available
for sale debt securities The primary objectives for the
Companys investment portfolio are liquidity and safety of principal.
Investments are made with the intention to achieve the best available rate of
return on traditionally low risk investments. The Companys investment policy
limits investments to certain types of instruments issued by institutions with
investment-grade credit ratings, the U.S. government and U.S. governmental
agencies.  The Company is subject to market risk primarily from changes in
the fair values of its investments in debt securities including governmental
agency and municipal securities, and corporate bonds.  These instruments
are classified as available for sale securities for financial reporting
purposes.  A ten percent increase in interest rates on September 27, 2008
would have caused the fair value of the Companys investments in available for
sale debt securities to decline by approximately $0.4 million as of that date.
 Additional investments are made in overnight deposits and money market
funds. These instruments are classified as cash and cash equivalents for
financial reporting purposes, generally also have lower interest rate risk
relative to its investments in debt securities and changes in interest rates
generally have little or no impact on their fair values.  For cash, cash
equivalents and available for sale debt securities, a ten percent decrease in
interest rates would decrease interest income earned by the Company by
approximately $0.8 million on an annual basis. The following
table summarizes the carrying value of available for sale securities that
subject the Company to market risk at September 27, 2008 and December 31,
2007: September 27,

December 31,2008

2007Securities issued by government agencies
$56,076

$46,201Debt securities issued by various state and local
municipalities and agencies
29,926

24,223Other debt securities
32,594

13,991Marketable equity securities available for
sale
1,500

2,650Auction rate securities
-

5,000Total
$120,096

$92,065  Senior Subordinated
Convertible Notes The outstanding par value of the
senior subordinated convertible notes was $200,000 and bear fixed interest at an
annual rate of 2.875% as of September 27, 2008.  The notes mature on
September 30, 2010, unless earlier converted, accelerated or
repurchased.  On September 27, 2008, the senior subordinated
convertible notes had a quoted market value of approximately $177,500, which is
lower than the quoted market value as of December 31, 2007 of approximately
$180,800.  The Company does not   42   have any financial obligations
exposed to variability in interest rates.  Refer to Subsequent Events
above for detail of repurchase transactions involving the senior subordinated
convertible notes.     ITEM 4. CONTROLS AND PROCEDURES  Disclosure Controls and Procedures  The Company
maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Companys filings with the SEC is
recorded, processed, summarized and reported within the time period specified in
the SECs rules and forms, and that such information is accumulated and
communicated to management, including the Companys  Chief Executive
Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely
decisions regarding required disclosure based on the definition of
 disclosure controls and procedures as defined in Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
Act).  In designing and evaluating disclosure controls and procedures, the
Company has recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management is required to apply judgment in
evaluating its controls and procedures.  An evaluation was performed under
the supervision and with the participation of Company management, including the
CEO and the CFO, to assess the effectiveness of the design and operation of its
disclosure controls and procedures (as defined under the Exchange Act) as of
September 27, 2008.  Based on that evaluation, the Companys management,
including its CEO and the CFO, concluded that the Companys disclosure controls
and procedures were not effective as of September 27, 2008 because it has not
yet been concluded that the material weakness in the Companys internal control
over financial reporting related to the recording of proper income tax benefits
from discontinued operations reported as of December 31, 2007, in the Companys
Form 10-K has been remediated.   Changes in Internal Control
over Financial Reporting  There have been no significant changes
in the Company's internal control over financial reporting identified during the
quarter ended September 27, 2008, except for the implementation of measures
described below under Remediation of Material Weakness.   Remediation of Material
Weakness   The Company has taken the following
steps to remediate the weakness mentioned above: (1) replaced members of senior
management and managers responsible for the oversight of income tax matters, (2)
formalized a policy and procedure for the communication and review of
non-routine tax matters by senior management and (3) as appropriate the Company
will engage external tax advisors for advice with respect to non-routine tax
matters.  The Company anticipates that these
actions will remediate the material weakness. The effectiveness of its
remediation efforts will not be known until the Company can test those controls
in connection with the management tests of internal controls over financial
reporting that the Company will perform as of December 31, 2008.   PART II. OTHER INFORMATION   ITEM 1. LEGAL PROCEEDINGS Contractual Matters On May 3, 2004, Pentech
Pharmaceuticals, Inc. (Pentech) filed an action against the Company in the
United States District Court for the Northern District of Illinois. This action
alleges that the Company breached its contract with Pentech relating to the
supply and marketing of paroxetine (PaxilÒ) and that the Company breached fiduciary
duties allegedly owed to Pentech. The Company and Pentech are in dispute over
the amount of gross profit share due to them. Discovery in this case has
concluded. The Court denied cross motions for summary judgment relating to the
construction of the contract and denied Pentechs motion for summary judgment
against the Companys fraudulent inducement counterclaim. The Company also filed
a motion for summary judgment against Pentechs breach of fiduciary duty claim,
and that motion was granted. The Company has since withdrawn its counterclaim.
 A bench trial before a Magistrate Judge has been scheduled to commence on
December 9, 2008.  The Company intends to defend vigorously this action.  Corporate Litigation The Company and certain of its
executive officers have been named as defendants in consolidated class action
lawsuits filed on behalf of purchasers of common stock of the Company between
July 23, 2001 and July 5, 2006. The lawsuits followed the Companys July 5, 2006
announcement regarding the restatement of certain of its financial statements
and allege that the Company   43   and certain members of its
management engaged in violations of the Securities Exchange Act of 1934, as
amended (the Exchange Act), by issuing false and misleading statements
concerning the Companys financial condition and results of operations. The
class actions are pending in the United States District Court, District of New
Jersey.  On June 24, 2008, the Court dismissed co-lead plaintiffs
Consolidated Amended Complaint without prejudice with leave to re-file.  On
July 24, 2008, co-lead plaintiffs filed a Second Consolidated Amended Complaint.
The Company and the individual defendants have filed a motion to dismiss. 
The time for plaintiffs to respond has not yet expired.  The Company
intends, and the members of management named as defendants have stated their
intentions, to vigorously defend the class action.  On August 14, 2006, individuals
claiming to be stockholders of the Company filed a derivative action,
purportedly on behalf of the Company, against the current and certain former
directors and certain current and former officers of the Company and the Company
as a nominal defendant. The plaintiffs in this action alleged that, among other
things, the named defendants breached their fiduciary duties to the Company
based on substantially the same factual allegations as the class action lawsuits
referenced above. The plaintiffs also alleged that certain of the defendants had
been unjustly enriched based on their receipt of allegedly backdated options to
purchase shares of common stock of the Company, and seek to require those
defendants to disgorge any profits made in connection with their exercise of
such options and additional attendant damages relating to allegedly backdated
options during the period from January 1, 1996 to the present. The action is
pending in the United States District Court, District of New Jersey.  On
June 29, 2007, the plaintiffs filed an Amended Shareholder Derivative Complaint
and in connection therewith dropped their claims related to the alleged stock
option backdating and withdrew their claims as against certain defendants. 
On August 30, 2007, defendants filed a motion to dismiss the Amended Shareholder
Derivative Complaint.  As of June 26, 2008, the parties entered into a
Stipulation of Settlement, which provided for, among other things, the Company
to implement and/or maintain various corporate governance measures including the
appointment of the General Counsel (or Assistant General Counsel) to implement a
risk management program and to report directly to the Audit Committee of the
Company, which shall have direct access to the General Counsel (or Assistant)
without Company management present, and for the Companys insurance carriers to
pay fees and expenses to plaintiffs counsel in the amount of $200,000.  On
June 27, 2008, plaintiffs filed an unopposed motion for preliminary approval of
the settlement.  On July 25, 2008, the court granted preliminary approval
of the settlement, directed the issuance of notice to shareholders of the
proposed Settlement, and set a Final Approval Hearing for October 14,
2008.  At the Final Approval Hearing, the Court found the settlement to be
fair, reasonable, adequate and in the best interests of the Company and its
shareholders and finally approved the settlement, dismissed the action with
prejudice and provided for releases in favor of the defendants.  On September 1, 2006, the Company
received a notice of default from the American Stock Transfer & Trust
Company, as trustee (the Trustee)  of the Companys 2.875% Senior
Subordinated Convertible Notes due 2010 (the Notes). The Trustee claims, in
essence, that the Companys failure to include financial statements in its
Quarterly Report on Form 10-Q for the second quarter of 2006 constituted a
default under Section 6.2 of the Indenture, dated as of September 30,
2003 (the Indenture), between the Company, as issuer, and the Trustee,
relating to the Notes. The notice of default asserted that if the purported
default continued unremedied for 30 days after the receipt of the notice,
an event of default would occur under the Indenture. Under the Indenture, the
occurrence of an event of default would give the Trustee or certain holders of
the Notes the right to declare all unpaid principal and accrued interest on the
Notes immediately due and payable. On October 2, 2006, the Company received
a notice of acceleration from the Trustee purporting to accelerate payment of
the Notes. The Company
believes that it has complied with its obligations under the Indenture relating
to the Notes. Therefore, the Company believes that the above-mentioned notice of
default and notice of acceleration are invalid and without merit. Under the
Indenture, the Company is required only to provide the Trustee with copies of
its annual and other reports (or copies of such portions of such reports as the
SEC may by rules and regulations prescribe) that it is required to file with the
SEC pursuant to Section 13 or 15(d) of the Exchange Act within 15 calendar days
after it files such annual and other reports with the SEC. Moreover, the
Companys Indenture specifically contemplates providing the Trustee with
portions of reports. On August 24, 2006 (within 15 days of filing with the SEC),
the Company provided to the Trustee a copy of its Quarterly Report on Form 10-Q
for the second quarter of 2006. The Companys Form 10-Q did not include the
Companys financial statements for the second quarter of 2006 and related
Managements Discussion and Analysis due to the Companys work to restate
certain of its past financial statements, and, therefore, in accordance with SEC
rules, the Company filed a Form 12b-25 Notification of Late Filing disclosing
the omissions. The Companys Form 12b-25 also was provided to the Trustee on
August 24, 2006. Accordingly, the Company believes that it complied with the
Indenture provision in question. After the Company communicated its
position to the Trustee, the Trustee filed a lawsuit, on October 19, 2006,
on behalf of the holders of the Notes in the Supreme Court of the State of New
York, County of New York, alleging a breach of the Indenture and of an alleged
covenant of good faith and fair dealing. The lawsuit demands, among other
things, that the Company pay the holders of the Notes either the principal, any
accrued and unpaid interest and additional interest (as such term is defined in
the Indenture), if any, or the difference between the fair market value of the
Notes on October 2, 2006 and par, whichever the Trustee elects, or in the
alternative, damages to be determined at trial, alleged by the Trustee to exceed
$30.0 million. The Company filed a Notice of Removal to remove the lawsuit
to the U.S. District Court for the Southern District of New York and has filed
its answer to the complaint in that Court. On January 19, 2007, the Trustee
filed a motion for summary judgment along with supporting documentation. On
February 16, 2007, the Company filed its response to the Trustees motion for
summary judgment and cross-moved for summary judgment in its   44   favor.  The Court has not
yet ruled on the motions.  Until the matter is resolved, the Company is
recording the payment obligations as a current liability on the condensed
consolidated balance sheets because the Court in the matter could (i) rule
against the Companys position and (ii) determine that the appropriate remedy
would be the accelerated payment of the convertible notes.  Patent Related Matters  On July 15,
2003, the Company filed a lawsuit against Roxane Laboratories, Inc. (Roxane)
in the United States District Court for the District of New Jersey. The Company
alleged that Roxane had infringed the Companys U.S. Patents numbered 6,593,318
and 6,593,320 and that the infringement was willful. Roxane has denied these
allegations and has counterclaimed for declaratory judgments of non-infringement
and invalidity of both patents. On September 8, 2006, the Court issued a claim
construction ruling on certain claim terms in dispute between the parties. Based
on that construction, the Court ruled in favor of the Company and dismissed
Roxanes motion for summary judgment of non-infringement. On November 8, 2006,
the Court ruled that the claims at issue in these patents were invalid as
non-enabled on summary judgment. On December 8, 2006, the Company appealed the
ruling to the Federal Circuit Court of Appeals, highlighting the district
courts failure to apply its own claim construction and to consider the
testimony of the Companys experts before awarding summary judgment to Roxane.
 On October 26, 2007, the U.S. Circuit Court of Appeals for the Federal
Circuit affirmed the New Jersey District Court's ruling of invalidity for
non-enablement.  In January 2008, the District Court conducted a hearing on
Roxanes application for attorneys fees under 35 U.S.C. section 285. Briefs in
opposition for both sides were filed on March 10, 2008 and a motion hearing was
set for April 7, 2008.  On April 10, 2008, the District Court rejected
Roxanes request for attorneys fees. On March 10,
2006, Apotex Inc. and Apotex Corp. (Apotex) filed a lawsuit against the
Company in the United States District Court for New Jersey, seeking a
declaratory judgment that four of the Companys patents relating to megestrol
acetate oral suspension are invalid, unenforceable and not infringed by an
Apotex product that was launched in the third quarter of 2006. The Company has
moved for a preliminary injunction against Apotex pending resolution of the
litigation and has asserted counterclaims that the Apotex product infringes at
least one claim of U.S. Patent 6,593,318.  The Company was granted a stay
and the action was terminated without prejudice on April 9, 2007 pending final
resolution of the Roxane appeal.  On February 6, 2008, a joint stipulation
of dismissal and order with prejudice was signed by the Judge in the case with
each party only liable for its own costs and attorneys fees. On
April 28, 2006, CIMA Labs, Inc. (CIMA) and Schwarz Pharma, Inc. (Schwarz
Pharma) filed separate lawsuits against the Company in the United States
District Court for the District of New Jersey.  CIMA and Schwarz Pharma
each have alleged that the Company infringed U.S. Patent Nos. 6,024,981 (the
981 patent) and 6,221,392 (the 392 patent) by submitting a Paragraph IV
certification to the FDA for approval of alprazolam orally disintegrating
tablets.  CIMA owns the 981 and 392 patents and Schwarz Pharma is CIMAs
exclusive licensee.  The two lawsuits were consolidated on January 29,
2007.  In response to the lawsuit, the Company has answered and
counterclaimed denying CIMAs and Schwarz Pharmas infringement allegations,
asserting that the 981 and 392 patents are not infringed and are invalid
and/or unenforceable.  The parties have exchanged written discovery.
 All 40 claims in the 981 patent were rejected in a non-final office
action in a reexamination proceeding at the United States Patent and Trademark
Office (PTO) on February 24, 2006.  The PTO again rejected all 40 claims
in a second non-final office action dated February 24, 2007.  The 392
patent is also the subject of a reexamination proceeding.  As of July 10,
2008, the PTO has rejected with finality all claims pending in both the 392 and
981 patents.  CIMA has moved to stay this lawsuit pending the outcome of
the reexamination proceedings and to consolidate this lawsuit with another
lawsuit in the same district involving the same patents (CIMA Labs, Inc. et al.
v. Actavis Group hf et al.). The Company intends to vigorously defend this
lawsuit and pursue its counterclaims. The Company
entered into a licensing agreement with developer Paddock Laboratories, Inc.
(Paddock) to market testosterone 1% gel, a generic version of Unimed
Pharmaceuticals, Inc.s (Unimed) product Androgel®.  Pursuant to this
agreement, the Company is responsible for management of any litigation and
payment of all legal fees associated with this product.  The product, if
successfully brought to market, would be manufactured by Paddock and marketed by
the Company.  Paddock has filed an ANDA (that is pending with the FDA) for
the testosterone 1% gel product.  As a result of the filing of the ANDA,
Unimed and Laboratories Besins Iscovesco (Besins), co-assignees of the
patent-in-suit, filed a lawsuit against Paddock in the United States District
Court for the Northern District of Georgia, alleging patent infringement on
August 22, 2003.  The Company has an economic interest in the outcome of
this litigation by virtue of its licensing agreement with Paddock.  Unimed
and Besins sought an injunction to prevent Paddock from manufacturing the
generic product.  On November 18, 2003, Paddock answered the complaint and
filed a counterclaim, seeking a declaration that the patent-in-suit is invalid
and/or not infringed by Paddocks product.  On September 13, 2006, the
Company acquired from Paddock all rights to the ANDA for testosterone 1% gel, a
generic version of Unimeds product Androgel® for $6 million.  The lawsuit
was resolved by settlement.  The settlement and license agreement
terminates all on-going litigation and permits the Company to launch the generic
version of the product no earlier than August 31, 2015 and no later than
February 28, 2016, assuring the Companys ability to market a generic version of
Androgel® well before the expiration of the patents at issue.  On March 7,
2007, the Company was issued a Civil Investigative Demand seeking information
and documents in connection with the court-approved settlement in 2006 of the
patent infringement case, Unimed v. Paddock, in the U.S. District Court for
Northern District of Georgia.  The Bureau of Competition for the Federal
Trade Commission (FTC) is investigating whether the settlement of the
litigation constituted unfair methods of competition in a potential violation of
Section 5 of the FTC Act.  The Company believes it has complied with all
applicable laws in connection with the court-approved settlement and it intends
to co-operate with the FTC in this matter.   45   On October
4, 2006, Novartis Corporation, Novartis Pharmaceuticals Corporation, and
Novartis International AG (collectively Novartis) filed a lawsuit against the
Company in the United States District Court for the District of New Jersey.
Novartis alleged that the Company and Kali infringed U.S. Patent No. 6,162,802
(the 802 patent) by submitting a Paragraph IV certification to the FDA for
approval of amlodipine and benazepril hydrochloride combination capsules. The
Company and its subsidiaries denied Novartis allegation, asserting that the
802 patent is not infringed and is invalid. The parties are currently engaged
in discovery regarding the claims.  The Company submitted a claim
construction brief on September 5, 2008 and its rebuttal brief on October 8,
2008.  The Company intends to defend vigorously this action and pursue its
counterclaims against Novartis.  On December 19, 2006, Reliant
Pharmaceuticals, Inc. (Reliant) filed a lawsuit against the Company in the
United States District Court for the District of Delaware.  Reliant
alleged, in its Complaint, that the Company infringed U.S. Patent No. 5,681,588
(the 588 patent) by submitting a Paragraph IV certification to the FDA for
approval to market generic 325 mg Propafenone HCl SR capsules.  On January
26, 2007, Reliant amended its complaint to add the additional allegation that
the Company infringed the 588 patent by submitting a Paragraph IV certification
to the FDA for approval to market generic 225 mg and 425 mgin addition to the
325 mgPropafenone HCl SR capsules.  The Company has answered and
counterclaimed denying Reliants infringement allegations, and asserting that
the 588 patent is invalid and unenforceable.  The parties are presently
engaged in discovery.  The Company intends to vigorously defend this
lawsuit and pursue its counterclaims.  On May 9, 2007, Purdue Pharma Products
L.P. (Purdue), Napp Pharmaceutical Group Ltd. (Napp), Biovail Laboratories
International SRL (Biovail), and Ortho-McNeil, Inc. (Ortho-McNeil) filed a
lawsuit against the Company in the United States District Court for the District
of Delaware.  The complaint alleges infringement of U.S. Patent No.
6,254,887 (the 887 patent) because the Company submitted a Paragraph IV
certification to the FDA for approval of 200mg extended release tablets
containing tramadol hydrochloride.  On May 30, 2007, the Company filed its
answer and counterclaim to the complaint seeking a declaration of
noninfringement and invalidity of the '887 patent.  A subsequent complaint
was served on July 2, 2007 in the same District Court.  The new complaint
alleges that the Company's 100mg and 200mg extended release tablets containing
tramadol hydrochloride infringe the 887 patent.  The Company filed its
answer and counterclaim on July 23, 2007 and will assert all available defenses
in addition to seeking a declaration of noninfringement and invalidity of the
'887 patent.  On October 24, 2007, plaintiffs filed an amended complaint in
the Delaware District Court in view of the Company's amendment of its ANDA to
include the 300 mg strength of extended release tramadol. A scheduling order has
been entered in the case requiring that fact discovery be completed by May 15,
2008; expert discovery completed by August 15, 2008; a Markman hearing be held
July 2008; and a trial date set for November 10, 2008.  On June 18, 2008,
the parties agreed to extend the deadline for fact discovery.  On July 24,
2008, the Court announced that the Markman hearing would have to be postponed to
September 2008; however, no other key dates in the case were changed.  On
August 29, 2008, the Court postponed the Markman hearing originally scheduled
for September 5, 2008 to October 8, 2008.  The presiding judge for the case
has been replaced by an appeals court judge.  Due to this substitution, the
pre-trial order is now due December 5, 2008, the pre-trial conference is to be
held December 18, 2008, and the 6-day bench trial is to be held January 9, 2009.
 The Company intends to defend this action vigorously and pursue its
counterclaims against Purdue, Napp, Biovail and Ortho-McNeil.  On July 6, 2007, Sanofi-Aventis and
Debiopharm, S.A. filed a lawsuit against the Company and its development
partner, MN Pharmaceuticals ("MN"), in the United States District Court for the
District of New Jersey.  The complaint alleges infringement of U.S. Patent
Nos. 5,338,874 and 5,716,988 because the Company and MN submitted a Paragraph IV
certification to the FDA for approval of 50 mg/10 ml, 100 mg/20 ml, and 200
mg/40 ml oxaliplatin by injection.  The Company and MN filed their answer
and counterclaims on October 10, 2007.  On January 14, 2008, following MN's
amendment of its ANDA to include oxaliplatin injectable 5 mg/ml, 40 ml vial,
Sanofi-Aventis filed a complaint asserting infringement of the '874 and the '998
patents.  The Company and MN filed their answer and counterclaim on
February 20, 2008.  The court has set a tentative discovery deadline of
December 31, 2008.  The Court has scheduled a status conference for all of
the parties for February 11, 2009, with all motions due by June 15, 2009.
 The Company and MN intend to defend these actions vigorously and pursue
their counterclaims against Sanofi and Debiopharm.  On September 21, 2007, Sanofi-Aventis
and Sanofi-Aventis U.S., LLC (Sanofi-Aventis) filed a lawsuit against the
Company and its development partner, Actavis South Atlantic LLC ("Actavis"), in
the United States District Court for the District of Delaware.  The
complaint alleges infringement of U.S. Patent Nos. 4,661,491 and 6,149,940
because the Company and Actavis submitted a Paragraph IV certification to the
FDA for approval of 10 mg alfuzosin hydrochloride extended release tablets. The
Company has filed an answer to the complaint and counterclaims that the patents
asserted are not infringed and are invalid.  On April 3, 2008, the judge
ordered all actions in the case stayed pending the plaintiffs motion for
transfer and consolidation under the rules governing multi-district litigation.
 On June 9, 2008, the Multi-District Litigation Panel granted plaintiffs
motion for transfer and consolidation and lifted the stay of litigation.
 The Company intends to defend this action vigorously and pursue its
counterclaims against Sanofi-Aventis.  On October 1, 2007, Elan
Corporation, PLC (Elan) filed a lawsuit against the Company and its
development partner, IntelliPharmaCeutics Corp., and IntelliPharmaCeutics Ltd.
("IPC") in the United States District Court for the District of Delaware.
 On October 5, 2007, Celgene Corporation (Celgene) and Novartis filed a
lawsuit against IPC in the United States District Court for the District of New
Jersey.  The complaint in the Delaware case alleged infringement of U.S.
Patent Nos. 6,228,398 and 6,730,325 because the Company submitted a Paragraph IV
certification to the FDA for approval of 5, 10, 15, and 20 mg dexmethylphenidate   46   hydrochloride extended release
capsules.  The original complaint in the New Jersey case alleged
infringement of U.S. Patent Nos. 6,228,398; 6,730,325; 5,908,850; 6,355,656;
6,528,530; 5,837,284; and 6,635,284 because the Company and IPC submitted a
Paragraph IV certification to the FDA for approval of 5, 10, 15, and 20 mg
dexmethylphenidate extended release capsules.  The Company and IPC filed an
answer and counterclaims in both the Delaware case and the New Jersey case.
 Elan filed a motion to consolidate the cases on January 2, 2008, and on
February 20, 2008, the judge in the Delaware litigation consolidated all four
related cases pending in Delaware and entered a scheduling order providing for
April 15, 2009 as the deadline for all discovery and August 17, 2009 as the date
for a bench trial.  A Rule 16 conference was held for the New Jersey
litigation on March 4, 2008 setting a deadline of December 12, 2008 for all
discovery.  The Company intends to defend these actions vigorously and
pursue its counterclaims against Elan, Celgene and Novartis.  On September 13, 2007, Santarus, Inc.
(Santarus), and The Curators of the University of Missouri (Missouri) filed
a lawsuit against the Company in the United States District Court for the
District of Delaware.  The complaint alleges infringement of U.S. Patent
Nos. 6,699,885; 6,489,346; and 6,645,988 because the Company submitted a
Paragraph IV certification to the FDA for approval of 20 mg and 40 mg
omeprazole/sodium bicarbonate capsules.  The Company filed its answer and
counterclaims on October 17, 2007.  A scheduling conference was held
February 11, 2008, setting September 8, 2008 as the date for the claim
construction hearing and July 13, 2009 as the first day of the bench trial.
 On March 4, 2008, the cases pertaining to the Companys ANDAs for
omeprazole capsules and omeprazole oral suspension (see below) were consolidated
for all purposes.  The Company filed its claim construction brief on August
22, 2008, and its answering brief on September 22, 2008, as the Court
rescheduled the Markman hearing to October 21, 2008.  On October 21, 2008,
the Markman hearing was postponed to November 5, 2008.  The Company intends
to defend this action vigorously and pursue its counterclaims against Santarus
and Missouri.  On December
11, 2007, AstraZeneca Pharmaceuticals, LP, AstraZeneca UK Ltd., IPR
Pharmaceuticals, Inc. and Shionogi Seiyaku Kabushiki Kaisha filed a lawsuit
against the Company in the United States District Court for the District of
Delaware.  The complaint alleges patent infringement because the Company
submitted a Paragraph IV certification to the FDA for approval of 5 mg, 10 mg,
20 mg and 40 mg rosuvastatin calcium tablets.  The Company filed an answer
and counterclaims, and on April 11, 2008, the court held a scheduling conference
setting the Markman hearing for March 10, 2009, the pretrial conference for
January 11, 2010, and a bench trial for February 15, 2010. The Company intends
to defend these actions vigorously and pursue its counterclaims against
AstraZeneca Pharmaceuticals, LP, AstraZeneca UK Ltd., IPR Pharmaceuticals, Inc.
and Shionogi Seiyaku Kabushiki Kaisha. On December 20, 2007, Santarus, Inc.
(Santarus), and The Curators of the University of Missouri (Missouri) filed
a lawsuit against the Company in the United States District Court for the
District of Delaware.  The complaint alleges infringement of U.S. Patent
Nos. 6,699,885; 6,489,346; 6,780,882; and 6,645,988 because the Company
submitted a Paragraph IV certification to the FDA for approval of 20 mg and 40
mg omeprazole/sodium bicarbonate powders for oral suspension.  The Company
has filed an answer and counterclaims, and on March 4, 2008, the cases
pertaining to the Companys ANDAs for omeprazole capsules (see above) and
omeprazole oral suspension were consolidated for all purposes. The Company
intends to defend this action vigorously against Santarus and Missouri.  Industry Related
Matters  Beginning in September
2003, the Company, along with numerous other pharmaceutical companies, has been
named as a defendant in actions brought by state Attorneys General and a number
of municipal bodies within the state of New York, as well as a federal qui
tamaction brought on behalf of the United States by the pharmacy Ven-A-Care
of the Florida Keys, Inc. ("Ven-A-Care") alleging generally that the defendants
defrauded the state Medicaid systems by purportedly reporting Average Wholesale
Prices (AWP) and or Wholesale Acquisition Costs that exceeded the actual
selling price of the defendants prescription drugs.  To date, the Company
has been named as a defendant in substantially similar civil law suits filed by
the Attorneys General of Alabama, Alaska, Hawaii, Idaho, Illinois, Iowa,
Kentucky, Massachusetts, Mississippi, South Carolina, Texas and Utah, and also
by the city of New York, 46 counties across New York State and Ven-A-Care.
 These cases generally seek some combination of actual damages, and/or
double damages, treble damages, civil penalties, disgorgement of excessive
profits, restitution, counsel fees and costs, investigative costs, injunctive
relief, punitive damages, imposition of a constructive trust, accounting of
profits or gains derived through the alleged conduct, expert fees, interest and
other relief that the court deems proper. Several of these cases have been
transferred to the AWP multi-district litigation proceedings pending in the U.S.
District Court for the District of Massachusetts for pretrial proceedings.
 The case brought by the state of Mississippi will be litigated in the
Chancery Court of Rankin County, Mississippi and the federal case brought by
Ven-A-Care will be litigated in the United States District of Massachusetts.
 The other cases will likely be litigated in the state or federal courts in
which they were filed.  In the Utah and federal Ven-A-Care actions the time
for responding to the complaint has not yet elapsed.  In each of the
remainder of these matters, the Company has either moved to dismiss the
complaints or answered the complaints denying liability.  The Company
intends to defend each of these actions vigorously. In addition,
at various times between 2006 and 2008, the Attorneys General of Florida and
Virginia issued subpoenas, and the Attorneys General of Michigan, Tennessee and
Indiana issued civil investigative demands, to the Company.  The demands
generally request documents and information relating to sales and marketing
practices that allegedly caused pharmacies to dispense higher priced drugs when
presented with prescriptions for certain products.  The Company has
provided the requested documents and   47   information
to the respective Attorneys Generaland will continue to cooperate with
the Attorneys General in these investigations if it is called upon to do so. Other The Company
is, from time to time, a party to certain other litigations, including product
liability litigations.  The Company believes that these litigations are
part of the ordinary course of its business and that their ultimate resolution
will not have a material adverse effect on its financial condition, results of
operations or liquidity. The Company intends to defend or, in cases where the
Company is plaintiff, to prosecute these litigations vigorously.    ITEM 1A.  RISK FACTORS In addition to the other information
set forth in this Report, you should carefully consider the factors discussed in
the Risk Factors section of our Annual Report on Form 10-K for the year ended
December 31, 2007, which could materially affect our business, results of
operations, financial condition or liquidity.  The risks described in our
Annual Report on Form 10-K for the year ended December 31, 2007 have not
materially changed, except as provided below.  The Companys plan to resize its generic unit as part
of its ongoing strategic assessment of its business may not yield the desired
results. In October
2008, the Company announced that it plans to resize its generic products
division as part of an ongoing strategic assessment of its businesses, including
by decreasing its internal research and development expenditures, focusing on
completing products currently in development, continuing to look for product
development opportunities with external partners, and trimming its current
generic product portfolio to retain only those marketed products that deliver
acceptable profit to the Company.  See Note 20  Subsequent Events.
 The Companys resizing of its generic unit may not yield the desired
results of increasing profitability or optimizing its current generic product
portfolio or generic product pipeline.  In addition, decreasing the
Companys research and development expenditures may limit the number of new
products that the Company is able to develop internally, and the Company may not
be able to find sufficient or acceptable external product development
opportunities.  The continuation of a low trading price of the
Companys common shares might suggest that its goodwill is impaired and / or
result in future charges to earnings for an impairment of its goodwill. Subsequent to
September 27, 2008, the Companys market capitalization began trading in a range
that is below its historical book value.  The global economy is currently
undergoing a period of unprecedented volatility, and the future economic
environment may continue to be less favorable than that of recent years. This
has led, and could further lead, to reduced consumer spending in the foreseeable
future, and this may include spending on healthcare.  The Companys sales
and profitability could be negatively affected if consumers curtail their
spending on pharmaceutical products.  In addition, reduced consumer
spending may lead the Companys competitors to decrease prices.  These
conditions may adversely affect the Companys industry, business and results of
operations and may cause the market value of our common stock to decline
further.  The Companys goodwill relates solely to its generic unit.
 The Company tests goodwill for possible impairment on an annual basis and
at any other time events occur or circumstances indicate that the carrying
amount of goodwill may be impaired.  The Company intends to evaluate its
goodwill for impairment during the fourth quarter of 2008.  The Company
will assess the fair value of its goodwill via multiple discounted cash flows
and market approaches.  Impairment of goodwill is determined to exist when
the fair value is less than the carrying value of the net assets being tested.  The risks described in our Annual
Report and above are not the only risks facing us.  Additional risks and
uncertainties not currently known to us or that we currently believe are
immaterial also may materially adversely affect our business, results of
operations, financial condition or liquidity.      48   ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS Issuer Purchases of Equity
Securities(1) Quarter Ending
September 27, 2008 Period

Total
Number of Shares of Common Stock Purchased (2)

Average
Price Paid per Share of Common Stock

Total
Number of Shares of Common Stock Purchased as Part of Publicly Announced
Plans or Programs

Maximum
Number of Shares of Common Stock that May Yet Be Purchased Under the Plans
or Programs (3)June
29, 2008 through July 26, 2008

-

N/A

-

-July
27, 2008 through August 23, 2008

7,448

N/A

-

-August
24, 2008 through September 27, 2008

1,530

N/A

-

3,432,544Total

8,978

N/A

- (1) In April 2004, the Board authorized
the repurchase of up to $50.0 million of the Companys common stock.
 Repurchases are made, subject to compliance with applicable securities
laws, from time to time in the open market or in privately negotiated
transactions, whenever it appears prudent to do so.  Shares of common stock
acquired through the repurchase program are available for reissuance for general
corporate purposes.  On September 28, 2007, the Company announced that its
Board approved an expansion of its share repurchase program allowing for the
repurchase of up to $75 million of the Companys common stock, inclusive of the
$17.8 million remaining from the April 2004 authorization.  The authorized
amount remaining for stock repurchases under the repurchase program was $43.6
million, as of September 27, 2008.  The repurchase program has no
expiration date. (2) The total number of shares purchased
represents 8,978 shares surrendered to the Company to satisfy tax withholding
obligations in connection with the vesting of restricted stock issued to
employees. (3) Based on the closing price of the
Companys common stock on the New York Stock Exchange of $12.69 at September 26,
2008.    ITEM
6.  EXHIBITS  10.1 Separation
Agreement and Release by and between Par Pharmaceutical, Inc. and Gerard
Martino, dated as of November 5, 2008 (filed herewith). 31.1 Certification of the Principal Executive Officer (filed
herewith). 31.2 Certification of the Principal Financial Officer (filed
herewith). 32.1 Certification
by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (attached hereto). 32.2 Certification by the Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (attached hereto).   49     SIGNATURES     Pursuant to the
requirements of the Securities Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.    PAR PHARMACEUTICAL
COMPANIES, INC. (Registrant)     Date:
 November 6, 2008 /s/ Patrick G.
LePore Patrick G. LePore Chairman, President
and Chief Executive Officer     Date:
 November 6, 2008 /s/ Veronica A.
Lubatkin Veronica A.
Lubatkin Executive Vice
President and Chief Financial Officer     50   EXHIBIT
INDEX   Exhibit
Number Description   10.1 Separation
Agreement and Release by and between Par Pharmaceutical, Inc. and Gerard
Martino, dated as of November 5, 2008 (filed herewith). 31.1 Certification of the Principal Executive Officer (filed
herewith). 31.2 Certification of the Principal Financial Officer (filed
herewith). 32.1 Certification
by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (attached hereto). 32.2 Certification by the Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (attached hereto).    51