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: June 28,
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 July 31, 2008: 34,519,183          TABLE OF CONTENTS PAR PHARMACEUTICAL
COMPANIES, INC. FORM 10-Q FOR THE FISCAL QUARTER
ENDED JUNE 28, 2008  PAGE  PART I FINANCIAL
INFORMATION   Item 1. Condensed
Consolidated Financial Statements (unaudited)  Condensed
Consolidated Balance Sheets as of June 28, 2008 and December
31, 2007 3  Condensed
Consolidated Statements of Operations for the three months and six months ended
June 28, 2008 and June 30, 2007 4  Condensed
Consolidated Statements of Cash Flows for the six months ended
June 28, 2008 and June 30, 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 41   Item4. Controls
and Procedures 42   PART II OTHER
INFORMATION  Item1. Legal
Proceedings 43  Item1A. Risk
Factors 47  Item2. Unregistered
Sales of Equity Securities and Use of Proceeds 48  Item 4. Submission
of Matters to a Vote of Security Holders 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) June 28,

December 31,2008

2007ASSETSCurrent assets:Cash and cash
equivalents

$177,656

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

115,306

85,375Accounts receivable, net

61,284

64,182Inventories

51,774

84,887Prepaid expenses and other
current assets

15,684

14,294Deferred income tax
assets

54,868

56,921Income taxes
receivable

21,715

17,516Total current assets

498,287

523,307Property, plant and
equipment, at cost less accumulated depreciation
and amoriization
84,771

82,650Available for sale debt and
marketable equity securities

5,156

6,690Investment in joint
venture

-

6,314Other investments

2,500

2,500Intangible assets,
net

55,350

36,059Goodwill

63,729

63,729Deferred financing costs
and other assets

2,085

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

59,252

57,730Total assets

$771,130

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

$200,000

$200,000Accounts payable

27,850

32,200Payables due to
distribution agreement partners

44,885

36,479Accrued salaries and
employee benefits

8,807

16,596Accrued expenses and other
current liabilities

31,196

27,518Total current
liabilities

312,738

312,793Long-term debt, less current portion

-

-Other long-term liabilities

32,108

30,975Commitments and contingencies

-

-Stockholders' equityPreferred Stock, par value
$0.0001 per share, authorized 6,000,000 shares; noneissued
and outstanding

-

-Common Stock, par value
$0.01 per share, authorized 90,000,000 shares; issued37,187,155
and 36,460,461 shares

372

364Additional paid-in
capital

282,033

274,963Retained earnings

212,718

230,195Accumulated other
comprehensive loss

(1,235)

(1,362)Treasury stock, at cost
2,666,226 and 2,604,977 shares

(67,604)

(66,405)Total stockholders'
equity

426,284

437,755Total liabilities and stockholders equity

$771,130

$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

Six Months
EndedJune 28,

June 30,

June 28,

June 30,2008

2007

2008

2007Revenues:Net product sales
$108,289

$160,014

$259,526

$382,603Other product related
revenues
4,648

7,626

8,339

19,247Total revenues
112,937

167,640

267,865

401,850Cost of goods sold
87,829

111,085

193,236

257,606Gross margin
25,108

56,555

74,629

144,244Operating expenses:Research and
development
15,955

14,277

33,113

28,316Selling, general and
administrative
36,690

33,999

68,037

66,556Settlements, net
-

-

-

(578)Total operating expenses
52,645

48,276

101,150

94,294Gain on sale of product rights and other
(500)

-

(2,125)

(20,000)Operating (loss) income
(27,037)

8,279

(24,396)

69,950Other (expense) income, net
-

(30)

-

(49)Equity in loss of joint venture
(310)

(80)

(330)

(228)Loss on marketable securities and other
investments, net
(433)

(6,040)

(433)

(4,643)Interest income
2,129

3,901

5,143

6,585Interest expense
(1,667)

(1,727)

(3,334)

(3,445)(Loss) income from continuing operations before
provision for income taxes
(27,318)

4,303

(23,350)

68,170(Benefit) provision for income taxes
(7,523)

1,505

(6,081)

23,858(Loss) income from continuing operations
(19,795)

2,798

(17,269)

44,312Discontinued operations:Gain from discontinued operations
-

-

505

-Provision for income taxes
268

-

713

-Loss from discontinued operations
268

-

208

-Net (loss) income
($20,063)

$2,798

($17,477)

$44,312Basic (loss) earnings per share of common
stock:(Loss) income from continuing operations
$(0.59)

$0.08

$(0.52)

$1.28Loss from discontinued operations
(0.01)

-

(0.01)

-Net (loss) income
$(0.60)

$0.08

$(0.53)

$1.28Diluted (loss) earnings per share of common
stock:(Loss) income from continuing operations
$(0.59)

$0.08

$(0.52)

$1.27Loss from discontinued operations
(0.01)

-

(0.01)

-Net (loss) income
$(0.60)

$0.08

$(0.53)

$1.27Weighted average number of common shares
outstanding:Basic
33,304

34,676

33,262

34,647Diluted
33,304

34,943

33,262

34,970 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)  Six Months EndedJune 28,
June 30,2008
2007Cash flows from operating activities:Net (loss) income
$(17,477)
$44,312Deduct: Loss from discontinued operations, net of
tax
208
-(Loss) income from continuing operations
$(17,269)
$44,312Adjustments to reconcile net income to net cash
provided by operating activities:Deferred income
taxes
441
-Depreciation and
amortization
11,473
13,940Loss on marketable
securities and other investments, net
433
4,643Equity in loss of
joint venture
330
228Allowances against
accounts receivable
(47,141)
(12,477)Share-based
compensation expense
7,152
9,420Loss on disposal of fixed
assets
162
30Excess tax benefits
on exercise of nonqualified stock options
(197)
(362)Other
(55)
184Changes in assets
and liabilities:Decrease in accounts
receivable
50,039
64,397Decrease in
inventories
33,113
22,543Decrease (increase)
in prepaid expenses and other assets
2,823
(5,262)Decrease in accounts
payable, accrued expenses and other liabilities
(14,894)
(6,517)Increase (decrease)
in payables due to distribution agreement partners
8,406
(15,831)(Increase) decrease
in net income taxes receivable
(4,245)
4,328Net
cash provided by operating activities
30,571
123,576Cash flows from investing activities:Capital
expenditures
(8,656)
(3,599)Purchases of
intangibles
(20,000)
(600)Purchases of
available for sale debt securities
(81,710)
(124,013)Proceeds
from maturity and sale of available for sale debt and marketable equity
securities
56,430
62,066Proceeds
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
(728)
(1,392)Proceeds from sale of
fixed assets
-
14Net
cash used in investing activities
(52,997)
(55,936)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
304
211Proceeds
from the issuance of common stock under the Employee Stock Purchase
Program
143
-Excess tax
benefits on exercise of nonqualified stock options
197
362Purchase of
treasury stock
(1,199)
(1,333)Payments of
short-term debt related to financed insurance premiums
-
(3,600)Principal
payments under long-term and other borrowings
-
(33)Net
cash used in financing activities
(555)
(4,393)Net (decrease) increase in cash and cash
equivalents
(22,476)
63,247Cash and cash equivalents at beginning of
period
200,132
120,991Cash and cash equivalents at end of
period
$177,656
$184,238   5      Supplemental disclosure of cash flow
information:Cash (received) paid during the period for:Income taxes, net
$(2,276)
$19,530Interest
$2,875
$2,986Non-cash transactions:Increase in
fair value of available for sale debt and marketable equity
securities
$217
$4,906Capital expenditures incurred but not
yet paid
$1,963
$224Available for sale debt securities acquired but funds not
yet disbursed
$5,000
$-Nonmonetary 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 June 28, 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 June 28, 2008 and for the three-month and
six-month periods ended June 28, 2008 and June 30, 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 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   7     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 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   8     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 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, $197 and $362 of excess tax benefits for the six months ended
June 28, 2008 and June 30, 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 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 June 28, 2008, there were
approximately 5.6 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 six
For the sixmonths ended
months ended
months ended
months endedJune 28,
June 30,
June 28,
June 30,2008
2007
2008
2007Risk-free interest rate
-
4.7%
3.0%
4.6%Expected life (in years)
-
6.3
6.3
6.2Expected Volatility
-
51.3%
48.5%
53.7%Dividend
-
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   9     June 28, 2008.  The weighted average per share fair
values of options granted in the three month period ended June 30, 2007 was
$15.38.  The weighted average per share fair values of options granted in
the six month periods ended June 28, 2008 and June 30, 2007 were $9.92 and
$13.95, respectively.  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 six-month periods ended June 28, 2008 and
June 30, 2007:  For the three months
ended

For the six months
endedJune 28,

June 30,

June 28,

June 30,2008

2007

2008

2007Cost of sales

$76

$190

$138

$358Research and development

190

474

346

896Selling, general and
administrative

686

1,709

1,246

3,227Total, pre-tax

$952

$2,373

$1,730

$4,481Tax benefit of share-based
compensation

(362)

(925)

(658)

(1,747)Total, net of tax

$590

$1,448

$1,072

$2,734  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 June 28, 2008 and
June 30, 2007, respectively, and $0.03 and $0.08 for the six-month periods ended
June 28, 2008 and June 30, 2007, respectively.  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

(43)

7.10Forfeited

(153)

40.59Balance at June 28, 2008

4,331

$34.82

5.3

$1,316Exercisable at June 28, 2008

3,567

$37.31

4.7

$1,237Vested and expected to vest at June 28, 2008

4,244

$35.08

5.0

$1,295 The total fair value of shares vested
during the three-month periods ended June 28, 2008 and June 30, 2007 was
$751­­­­­ and $2,794, respectively.  The total fair
value of shares vested during the six-month periods ended June 28, 2008 and June
30, 2007, was $6,004 and $9,295, respectively.  As of June 28, 2008, the
total compensation cost related to all non-vested stock options granted to
employees but not yet recognized was approximately $7,957.  This cost will
be amortized on a straight-line basis over the remaining weighted average
vesting period of 2.1 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
60 and 67 outstanding non-vested restricted shares in connection with the
termination of certain executives in the three-month and six-month periods ended
June 30, 2007, respectively.  The effect of this acceleration resulted in
additional compensation expense of $1,328 and $1,482 in the three-month and
six-month periods ended June 30, 2007, respectively.  The impact on the Companys results of
operations of recording share-based compensation from restricted stock for the
three-month and six-month periods ended June 28, 2008 and June 30, 2007 was as
follows:  For the three months
ended

For the six months
endedJune 28,

June 30,

June 28,

June 30,2008

2007

2008

2007Cost of sales

$160

$163

$324

$278Research and development

399

406

809

694Selling, general and
administrative

1,435

2,776

2,910

3,967Total, pre-tax

$1,994

$3,345

$4,043

$4,939Tax benefit of stock-based
compensation

(758)

(1,305)

(1,537)

(1,927)Total, net of tax

$1,236

$2,040

$2,506

$3,012   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

325

21.44Vested

(164)

29.50Forfeited

(29)

25.57Non-vested balance at June 28,
2008

830

$23.83

$13,349  The following
is a summary of the Companys restricted stock unit activity (shares in
thousands): Weighted

AggregateAverage

IntrinsicShares

Grant Price

ValueNon-vested balance at December 31,
2007

173

$23.53Granted

32

22.31Vested

(17)

29.01Forfeited

(9)

21.68Non-vested balance at June 28,
2008

179

$22.89

$2,870  As of June 28, 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 $20.4
million; this cost will be amortized on a straight-line basis over the remaining
weighted average vesting period of approximately 2.7 years.  At June 28,
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 Conditions In the first quarter of 2008, the
Company issued restricted stock grants with market conditions.  Restricted
stock grants issued to certain employees of the Company have a three-year cliff
vesting schedule and are contingent upon multiple market conditions that are
factored into the fair value of the restricted stock at grant date.
 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
six-month periods ended June 28, 2008 and June 30, 2007: For the three months
ended

For the six months
endedJune 28,

June 30,

June 28,

June 30,2008

2007

2008

2007Cost of sales

$ 59

$ -

$ 110

$ -Research and development

149

-

276

-Selling, general and
administrative

535

-

993

-Total, pre-tax

$ 743

$ -

$ 1,379

$ -Tax benefit of stock-based
compensation

(282)

-

(524)

-Total, net of tax

$ 461

$ -

$ 855

$ -  As
of June 28, 2008, $7.5 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 2.5 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

(4)

24.78Non-vested balance at June 28,
2008

380

$24.78

$6,111  The total
grant date fair value of restricted stock grants with market conditions during
the six-month period ended June 28, 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 4 shares and 8 shares
during the three-month and six-month periods ended June 28, 2008.  There
was no Program activity during the three-month and six-month periods ended June
30, 2007 as the Program was suspended by the Company from July 2006 to December
2007.     12     Note 4- Available for Sale Debt and Marketable
Equity Securities:  At June 28,
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 June
28, 2008: EstimatedUnrealized

FairCost

Gain

(Loss)

ValueSecurities issued by government agencies

$56,297

$ -

($241)

$56,056Debt securities issued by various state and local
municipalities and agencies

36,237

112

-

36,349Other debt securities

28,169



(1,862)

26,307Available for sale debt
securities

120,703

112

(2,103)

118,712Marketable
equity securities available for sale - Hana Biosciences, Inc.

1,750

-

-

1,750Total

$122,453

$112

($2,103)

$120,462  Of the $2.1 million of unrealized loss
as of June 28, 2008, $1.7 million 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 security will be collected and its
ability and intent to hold the related debt security for a reasonable period of
time sufficient for a recovery of fair value up to (or beyond) the cost of the
investment.  As a result, the Company has classified this debt security
that matures in 2015 as a noncurrent asset on its condensed consolidated balance
sheet as of June 28, 2008 due to its intent to hold the investment for a period
of time greater than 12 months.  All other available for sale debt
securities are classified as current. The Company
recorded a loss of $2.1 million in the condensed consolidated statement of
operations for the quarter 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 unrealized loss and the duration
of the period that the investment has been in an unrealized 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 June 28, 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 in the three months ended June 30,
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 months 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)

89,415   13      Marketable 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.  The following is a summary of the contractual
maturities of the Companys available for sale debt securities at June 28,
2008: June 28, 2008Estimated FairCost

ValueLess than one year

$27,456

$27,425Due between 1-2 years

57,213

57,144Due between 2-5 years

30,971

30,737Due after 5 years

5,063

3,406Total

$120,703

$118,712   Note 5- Other Investments: Balance at June 28,
2008

Carrying ValueIntelliPharmaCeutics Ltd.

$2,500Total other investments

$2,500**Balance at December 31,
2007**

**Carrying
Value**IntelliPharmaCeutics Ltd.

$2,500Total other investments

$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 $5.0 million 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 $2.5 million based on the Companys
assessment of the fair value of its investment and charged $2.5 million, 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 June 28, 2008 and December 31, 2007, the Company
believed the carrying values of its cost method investment were not
otherthan-temporarily impaired.     14     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. June 28,

December 31,2008

2007Gross trade accounts
receivable

$166,288

$216,327Chargebacks

(31,129)

(46,006)Rebates and incentive programs

(23,814)

(42,859)Returns

(38,898)

(47,102)Cash discounts and other

(11,144)

(16,158)Doubtful accounts

(19)

(20)Accounts receivable, net

$61,284

$64,182   Allowance for doubtful accountsFor the six-month period
endedJune 28, 2008

June 30, 2007Balance at beginning of period

($20)

($2,465)Additions  charge to expense

-

-Adjustments and/or deductions

1

2,444Balance at end of period

($19)

($21)  The following tables summarize the
activity for the six months ended June 28, 2008 and June 30, 2007, respectively,
in the accounts affected by the estimated provisions described below:  For the six months ended June 28,
2008Accounts receivable reserves

Beginning balance

Provision recorded for current
period sales

(Provision) reversal recorded for
prior period sales

Credits processed

Ending balanceChargebacks

$(46,006)

$(198,996)

$(539)
(1)
$214,412

$(31,129)Rebates and incentive programs

(42,859)

(42,513)

(1,571)
(3)
63,129

(23,814)Returns

(47,102)

(8,323)

4,293
(4)
12,234

(38,898)Cash discounts and other

(16,158)

(23,777)

349

28,442

(11,144)Total

$(152,125)

$(273,609)

$2,532

$318,217

$(104,985)Accrued liabilities(2)

$(17,684)

$(13,966)

$(192)

$8,183

$(23,659)    15      For the six months ended June 30,
2007Accounts receivable reserves

Beginning balance

Provision recorded for current
period sales

(Provision) reversal recorded for
prior period sales

Credits processed

Ending balanceChargebacks

$(51,891)

$(168,087)

$    -
(1)
$179,301

$(40,677)Rebates and incentive programs

(85,888)

(100,867)

2,699

110,448

(73,608)Returns

(42,905)

(22,573)

(3,164)

14,235

(54,407)Cash discounts and other

(18,038)

(33,439)

211

31,269

(19,997)Total

$(198,722)

$(324,966)

$(254)

$335,253

$(188,689)Accrued liabilities(2)

$(10,583)

$(8,611)

$   -

$3,416

$(15,778)  (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, including Medicaid rebates.
 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), June 30, 2007 ($573) 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 incentive programs are principally comprised of the finalization of contract
negotiations with a certain customer(s) that resulted in an adjustment to our
rebates and incentive programs for sales made to that customer in the fourth
quarter of 2007. (4) The changes in
accounts receivable reserves recorded for prior period sales related to returns
principally comprised of the successful resolution in the six-month period ended
June 28, 2008 of a customer dispute over invalid customer deductions taken in
prior periods, 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
six-month period ended June 28, 2008.  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 price to the wholesaler and the contract price through
which the product is resold to health care providers.  Approximately 68%
and 60%of the Companys net product sales were derived from the
wholesale distribution channel for the three months ended June 28, 2008 and June
30, 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   16     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 and consequently, as a matter of business strategy, may lose
future sales volume to competitors rather than reduce its pricing.  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.  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.    17     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 35%, 26%,
12% and 3%, respectively, of the gross accounts receivable balance at June 28,
2008 and approximately 31%, 21%, 17%, and 7%, respectively, of the gross
accounts receivable balance at December 31, 2007.   Note 7- Inventories: June 28,

December 31,2008

2007Raw materials and supplies

$16,445

$22,815Work-in-process

3,838

2,630Finished goods

31,491

59,442$51,774

$84,887  Inventory write-offs (inclusive of
pre-launch inventories detailed below) were $1.8 million and $7.7 million for
the quarters ended June 28, 2008 and June 30, 2007, respectively.
  Inventory write-offs were $4.9 million and $12.3 million for the
year-to-date periods ended June 28, 2008 and June 30, 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.  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 June 28, 2008, the Company had inventories
related to products that were not yet available to be sold of $3.4 million. The amounts in
the table below are also included in the total inventory balances presented
above.  Pre-Launch Inventories

June 28,

December 31,2008

2007Raw materials and supplies

$468

$1,183Work-in-process

110

153Finished goods

2,832

5,086$3,410

$6,422 Pre-launch
inventories were mainly comprised of a specific partnered product ($2.7 million
at June 28, 2008 and $5.1 million at December 31, 2007), respectively.
 Should the launch of the specific partnered product anticipated for 2008
be delayed, inventory write-offs may occur, as early as the third quarter of
2008,  to the extent the Company is unable to recover the carrying value of
such inventory.   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 June 28, 2008 and
December 31, 2007, on an individual basis.  Write-offs of pre-launch
inventories, net of allocation to a partner, were $1.0 million and $0.03 million
for the quarters ended June 28, 2008 and June 30, 2007, respectively.
  Write-offs of pre-launch inventories, net of allocation to a
partner, were $2.0 million and $0.6 million for the year-to-date periods ended
June 28, 2008 and June 30, 2007, respectively.     18     Note 8  Property, Plant and Equipment,
net: June 28,

December 31,2008

2007Land

$1,882

$1,882Buildings

25,985

25,947Machinery and equipment

51,001

49,302Office equipment, furniture and
fixtures

5,564

5,476Computer software and hardware

30,534

28,989Leasehold improvements

14,784

14,865Construction in progress

12,113

8,205141,863

134,666Less accumulated depreciation and
amortization

57,092

52,016$84,771

$82,650  Depreciation and amortization expense
related to property, plant and equipment was $3,084 and $3,288 for the three
months ended June 28, 2008 and June 30, 2007, respectively, and $6,942 and
$6,831 for the six months ended June 28, 2008 and June 30, 2007,
respectively.   Note 9- Intangible Assets, net: June 28,

December 31,2008

2007Trademark
licensed from Bristol-Myers Squibb Company, net of accumulated
amortization of $2,870 and $2,155

$7,131

$7,846Teva
Pharmaceutical Industries, Inc. Asset Purchase Agreement, net of
accumulated amortization of $3,540 and $3,193

4,947

5,294Ivax License Agreement, net of accumulated
amortization of $6,178 and $5,068

1,822

2,932Paddock Licensing Agreement, net of accumulated
amortization of $1,750 and $1,250

4,250

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 $7,222 and
$6,860

3,612

3,973SVC Pharma,
Inc. License and Distribution Agreement, net of accumulated amortization
of $0

3,822

-Bristol-Myers
Squibb Company Asset Purchase Agreement, net of accumulated amortization
of $10,585 and $9,749

1,114

1,950FSC Laboratories Agreement, net of accumulated
amortization of $4,064 and $3,814

1,757

2,008Intellectual property, net of accumulated
amortization of $1,077 and $940

1,614

1,751Other intangible assets, net of
accumulated amortization of $4,967 and $4,693

281

555$55,350

$36,059  The Company recorded amortization
expense related to intangible assets of $4,531 and $7,109, respectively, for the
six month periods ended June 28, 2008 and June 30, 2007, and such expense is
included in cost of goods sold. During the
three-month period ended June 28, 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 will be permitted to sell
generic versions of certain sumatriptan injection products with an expected
launch date no later than November 2008.  This agreement will be amortized
over a useful life of three years commencing with the launch of the product. During the
three-month period ended June 28, 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. Amortization
expense related to the intangible assets currently being amortized is expected
to total approximately $12,151 for the remainder of 2008, $18,075 in 2009,
$13,075 in 2010, $7,806 in 2011, $3,492 in 2012 and $751 thereafter.    19     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.  As of June 28, 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
June 28, 2008 and December 31, 2007 consisted of temporary differences primarily
related to accounts receivable reserves.  Non-current deferred income tax
assets at June 28, 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 June 28, 2008 and June 30, 2007
were 28% and 35%, respectively.  The Companys effective tax rates for the
six months ended June 28, 2008 and June 30, 2007 were 26% and 35%,
respectively.   Note 11 -
Long-Term Debt: Long-Term Debt June 28,

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 June 28, 2008, the senior subordinated convertible notes
had a quoted market value of approximately $180,500.  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 June
28, 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.     20     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 six-month period ended June 28, 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

-

-

-

127Exercise of stock options

43

-

304

-Tax benefit from exercise of stock options

-

-

197

-Tax deficiency related to vesting of restricted
stock

-

-

(664)

-Issuance of
common stock under the Employee Stock Purchase Program

-

-

143

-Forfeitures of restricted stock

(34)

-

-

-Issuances of restricted stock

717

8

(8)

-Compensatory arrangements

-

-

7,152

-Other

-

-

(54)

-Balance, June 28, 2008

37,187

$372

$282,033

$(1,235)  Three months ended

Six months endedJune 28,

June 30,

June 28,

June 30,2008

2007

2008

2007Comprehensive Income:Net (loss) income

$(20,063)

$2,798

$(17,477)

$44,312Other comprehensive income:Unrealized gain (loss) on available
for sale securities, net of tax

445

(683)

127

2,957Comprehensive (loss) income

$(19,618)

$2,115

$(17,350)

$47,269  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 June 28, 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

Six months endedJune 28,

June 30,

June 28,

June 30,2008
2007
2008
2007(Loss) income from continuing operations

$(19,795)

$2,798

$(17,269)

$44,312Loss from discontinued operations

-

-

505

-Provision for income taxes

268

-

713

-Loss from discontinued operations

268

-

208

-Net (loss) income

$(20,063)

$2,798

$(17,477)

$44,312   21      Basic:Weighted average number of common shares
outstanding

33,304

34,676

33,262

34,647(Loss) income from continuing operations

$(0.59)

$0.08

$(0.52)

$1.28Loss from discontinued operations

(0.01)

-

(0.01)

-Net (loss) income per share of common stock

$(0.60)

$0.08

$(0.53)

$1.28Assuming dilution:Weighted average number of common shares
outstanding

33,304

34,676

33,262

34,647Effect of dilutive securities

-

267

-

323Weighted average number of common and common
equivalent shares outstanding

33,304

34,943

33,262

34,970(Loss) income from continuing operations

$(0.59)

$0.08

$(0.52)

$1.27Loss from discontinued operations

(0.01)

-

(0.01)

-Net (loss) income per share of common stock

$(0.60)

$0.08

$(0.53)

$1.27  Outstanding options of 4,103 and 3,887
as of June 28, 2008 and June 30, 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 six months ended
June 28, 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 June 28, 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 June 28, 2008 and June 30,
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.  The case has been scheduled for a mediation that will occur
on or before October 31, 2008.  A bench trial before a Magistrate Judge has
been scheduled to commence on December 8, 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.    22     Corporate Litigation The Company and certain of its
executive officers have been named as defendants in several purported
stockholder class action lawsuits filed on behalf of purchasers of common stock
of the Company between April 29, 2004 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 have been consolidated and are pending in the
United States District Court, District of New Jersey. The Court has appointed
co-lead plaintiffs and co-lead counsel. Co-lead plaintiffs filed a Consolidated
Amended Complaint on April 30, 2007, purporting to represent purchasers of
common stock of the Company between July 23, 2001 and July 5, 2006. 
Defendants filed a motion to dismiss the Amended Complaint on June 29, 2007.
 On June 24, 2008, the Court dismissed the Amended Complaint without
prejudice with leave to re-file no later than 30 days from the date of the
order.  On July 24, 2008,
co-lead plaintiffs filed a Second Consolidated Amended Complaint, again
purporting to represent purchasers of common stock of the Company between July
23, 2001 and July 5, 2006.  The Company intends, and the members of
management named as defendants have stated their intentions to vigorously defend
the lawsuits and any additional lawsuits that may hereafter be filed with
respect to the restatement.  On August 14, 2006, individuals
claiming to be stockholders of the Company filed a derivative action in the U.S.
District Court for the Southern District of New York, 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 allege 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
have 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
has been transferred to 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.  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
provides for, among other things, the Company to implement and/or maintain
various corporate governance measures 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 on
October 14, 2008, to determine:  (a) whether the proposed settlement is
fair, reasonable, adequate and in the best interests of the Company and its
shareholders and whether the settlement should be finally approved by the
Court; (b) whether the Judgment as provided for under the terms of the
Stipulation of Settlement should be entered, dismissing the action with
prejudice and to determine whether releases should be provided to the Released
Parties, as defined and set forth in the stipulation; and (c) to rule upon such
other matters as the Court may deem appropriate.  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.   23     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 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   24     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.  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 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.  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 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   25     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
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.  On June 25, 2008, the court rescheduled the claim
construction hearing to October 21, 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, 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.   26     The case brought by the state of Mississippi will be
litigated in the Chancery Court of the First Judicial District of Hinds 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, Texas, 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 Michigan,
Florida, Virginia, and Tennessee have 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. 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 on June 30, 2008, and as
such, no sales were recorded during the three months ended June 28, 2008.   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 as of June 28, 2008 which represents the
Companys share of the net proceeds of the sale transaction.  The $505 has
been classified as discontinued operations on the condensed consolidated
statement of operations for the six months ended June 28, 2008.     27     Note 17- Segment Information: Starting in
the third quarter of 2005, 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

Six months
endedJune 28,

June 30,

June 28,

June 30,2008

2007

2008

2007Revenues:Generic

$92,901

$146,044

$222,785

$360,779Strativa

20,036

21,596

45,080

41,071Total revenues

$112,937

$167,640

$267,865

$401,850Gross margin:Generic

$9,228

$40,904

$39,360

$114,386Strativa

15,880

15,651

35,269

29,858Total gross margin

$25,108

$56,555

$74,629

$144,244Operating (loss) income:Generic

$(26,119)

$11,345

$(24,440)

$55,191Strativa

(918)

(3,066)

44

14,759Total operating (loss) income

$(27,037)

$8,279

$(24,396)

$69,950Other (expense)
income, net

-

(30)

-

(49)Equity in loss of
joint venture

(310)

(80)

(330)

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

(433)

(6,040)

(433)

(4,643)Interest
income

2,129

3,901

5,143

6,585Interest
expense

(1,667)

(1,727)

(3,334)

(3,445)(Benefit) provision
for income taxes

(7,523)

1,505

(6,081)

23,858(Loss) income from continuing
operations

$(19,795)

$2,798

$(17,269)

$44,312  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.    28     Total revenues of the Companys top
selling products were as follows: Three months
ended

Six months
endedJune 28,

June 30,

June 28,

June 30,Product

2008

2007

2008

2007GenericMetoprolol succinate ER (Toprol-XL®)

$39,011

$17,276

$82,309

$29,618Fluticasone (Flonase®)

10,529

50,338

28,291

100,268Cabergoline (Dostinex®)

4,613

7,387

12,595

18,782Propranolol HCl ER (Inderal LA®)

3,469

10,383

8,924

41,635Various amoxicillin products (Amoxil®)

3,201

537

8,789

20,248Megestrol oral suspension (Megace®)

2,754

3,308

4,819

4,114Ibuprofen Rx (Advil®, Nuprin®, Motrin®)

2,551

3,527

5,831

7,814Methimazole (Tapazole®)

2,204

2,911

5,223

5,720Cholestyramine Powder (Questran®)

1,681

701

3,917

1,783Hydralazine Hydrochloride (Apresoline®)

1,618

1,106

4,204

3,752Nabumetone (Relafen®)

1,357

3,340

3,199

5,225Fluoxetine (Prozac®)

1,357

3,950

3,374

7,275Tramadol HCl and acetaminophen tablets
(Ultracet®)

563

1,173

472

6,860Meclizine Hydrochloride (Antivert®)

(87)

451

6,426

2,307Ranitidine HCl Syrup (Zantac®)

(1,150)

2,324

713

6,475Other product related revenues (2)

2,006

5,126

3,054

14,247Other (1)

17,224

32,206

40,645

84,656Total Generic Revenues

$92,901

$146,044

$222,785

$360,779StrativaMegace® ES

$17,394

$19,096

$39,795

$36,071Other product related revenues (2)

2,642

2,500

5,285

5,000Total Strativa Revenues

$20,036

$21,596

$45,080

$41,071  (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 six-month periods ended June 28, 2008 or June 30,
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 first and second quarters
of 2008, the Company recognized a gain on the sale of product rights of $1,000
and $500, 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.     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 million and will make a subsequent payment of
up to $30 million 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   29     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.  The
Company made an initial payment of $1,250 to MonoSol for the delivery of product
prototype and may make subsequent payments of up to $4,750, 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 June 28,
2008

Level 1

Level 2

Level 3Securities issued by government agencies (Note
4)

$56,056

$ -

$56,056

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

36,349

-

36,349

-Other debt securities (Note 4)

26,307

-

26,307

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

1,750

1,750

-

-Total investments in debt and marketable equity
securities

$120,462

$1,750

$118,712

$ - The Companys Level 2 assets are
valued at the quoted market price from broker or dealer quotations.       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.  The Company, through its
internal generic development program and various strategic alliances and
relationships, seeks to introduce new products that have less competition and to
broaden its product list.  The Company plans to continue to invest in its
generic internal research and development efforts, brand marketing strategy and
its strategic alliances and relationships throughout 2008 and beyond.
 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 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 second quarter and year-to-date
periods ending June 28, 2008, the Companys generic business net revenues and
gross margin were concentrated in a few products and the Company experienced
significant pricing pressure on it generic base business product portfolio, and
had no new product introductions in the period.  The lack of new product
introductions and continued pricing pressure on the Companys products
negatively impacted the Companys revenue and profitability in the second
quarter and year-to-date periods ending June 28, 2008 and could significantly
impact the Companys future revenue growth and profitability. In November
2008, the Company expects to launch 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. 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. 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., ranitidine HCl syrup, pursuant to a supply and
distribution agreement with GSK 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 investment
in its generic first-to-file development strategy 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 several
circumstances, 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.  In addition, the Company has a growing
pipeline and a strong track record of first-to-file drugs.  Looking ahead,
the Company will strive to average six to ten first-to-file applications per
year with a goal of more than half of its products coming from internal
development in future periods. STRATIVA For Strativa,
the Company will continue to accelerate its brand growth through products
primarily focused on supportive care.  The Company also intends to continue
to grow Megace® ES and leverage its existing infrastructure as the
Company prepares to expand its branded drug portfolio. 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). 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. The Company has progressed on its business plan during 2007 by acquiring
the rights to additional branded products currently in Phase III clinical
trials. The
Company anticipates the following four potential new product filings for
Strativa, thus contributing to its goal of generating annualized brand total
revenues in excess of $250 million by the end of 2010. 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. 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 following successful development and
approval, 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 also announced that it has entered into an agreement with   32     NovaDel, to collaborate in the
reformulation of ZensanaTM.  Following completion of
reformulation, the Company will reconfirm the product's pharmacokinetic profile
and resubmit the NDA to the FDA. 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 and its territories for Onconase® (ranpirnase).  Onconase®
is in Phase III development for the treatment of unresectable malignant
mesothelioma, a rare cancer affecting the lungs usually associated with exposure
to asbestos.  Onconase® was previously granted orphan drug status as well
as fast-track development status by the FDA for the treatment of malignant
mesothelioma.  The Company announced that 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. 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.  Bioequivalancy studies are expected to begin by the end of 2008.  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 six months ended June 28, 2008 and June 30, 2007: Three months
ended

Six months
endedJune 28,

June 30,

June 28,

June 30,2008

2007

2008

2007Revenues:Generic

$92,901

$146,044

$222,785

$360,779Strativa

20,036

21,596

45,080

41,071Total revenues

$112,937

$167,640

$267,865

$401,850Gross margin:Generic

$9,228

$40,904

$39,360

$114,386Strativa

15,880

15,651

35,269

29,858Total gross margin

$25,108

$56,555

$74,629

$144,244   33      Operating (loss) income:Generic

$(26,119)

$11,345

$(24,440)

$55,191Strativa

(918)

(3,066)

44

14,759Total operating (loss) income

$(27,037)

$8,279

$(24,396)

$69,950  Revenues  Three
Months Ended June 28, 2008 Total revenues for the three months
ended June 28, 2008 were $112,937, decreasing $54,703, or 32.6%, from total
revenues of $167,640 for the three months ended June 30, 2007.  Revenues
for generic products for the three months ended June 28, 2008 were $92,901,
decreasing $53,143, or 36.4%, from generic revenues of $146,044 for the three
months ended June 30, 2007.  Lower generic revenues in 2008 were primarily
due to pricing pressure, including for fluticasone, which decreased $39,809,
propranolol, which decreased $6,914, ranitidine HCl syrup, which decreased
$3,474, cabergoline, which decreased $2,774, and a decline in many of the
Companys other products due to pricing pressures, as well as lower royalties
from ondansetron, which decreased by $3,120.  Partially offsetting these
decreases were increased sales of metoprolol resulting from the launch of
additional strengths in the third quarter of 2007 (increase of $21,735) and
various amoxicillin products, which increased by $2,664.  Net sales of
distributed products were approximately $67,456 or 59% of the Companys total
product revenues for the three month period ended June 28, 2008, and $88,693 or
53% of the Companys total revenues for the three month period ended June 30,
2007.  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 $20,036 for the three months ended June 28, 2008, decreasing $1,560
, or 7.2%, from Strativa revenues of $21,596 for the three months ended June 30,
2007, due to decreased net sales of Megace® ES.  Revenues  Six
Months Ended June 28, 2008 Total revenues
for the six months ended June 28, 2008 were $267,865, decreasing $133,985, or
33.3%, from total revenues of $401,850 for the six months ended June 30, 2007.
 Revenues for generic products for the six months ended June 28, 2008 were
$222,785, decreasing $137,994, or 38.2%, from generic revenues of $360,779 for
the six months ended June 30, 2007.  Lower generic revenues in 2008 were
primarily due to pricing pressure, including for fluticasone, which decreased
$71,977, propranolol, which decreased $32,711, various amoxicillin products,
which decreased $11,459, cabergoline, which decreased $6,187, tramadol, which
decreased $6,388, ranitidine HCl syrup, which decreased $5,762, and a decline in
many of the Companys other products due to pricing pressures, as well as lower
royalties from ondansetron, which decreased by $11,193.  These decreases
were partially offset by higher sales of metoprolol, which increased by $52,691,
resulting from the launch of additional strengths in the third quarter of 2007.
 Increased competition adversely affected both the volume and pricing on
these existing products.  Net sales of distributed products, which consist
of products manufactured under contract and licensed products, were
approximately $155,565 or 58% of the Companys total revenues for the six months
ended June 28, 2008, and $207,523 or 52% of the Companys total revenues for the
six months ended June 30, 2007.  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 $45,080 for the six months ended
June 28, 2008, increasing $4,009 , or 9.8%, from Strativa revenues of $41,071
for the six months ended June 30, 2007, primarily due to increased sales of
Megace® ES.  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 $553,102 for the six months ended June 28, 2008 compared to
$735,681 for the six months ended June 30, 2007.  Deductions from gross
revenues were $285,237 for the six months ended June 28, 2008 compared to
$333,831 for the six months ended June 30, 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 51.6% for the six months ended June 28, 2008 compared
to 45.4% for the six months ended June 30, 2007, primarily due to increased
pricing pressure for key products including metoprolol and lower royalty income
in 2008, tempered by lower returns and a trend toward customer net pricing
programs.   34     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 six months ended June 28, 2008 and June 30, 2007 in the
accounts affected by the estimated provisions described below: For the six months ended June 28,
2008Accounts receivable reserves

Beginning balance

Provision recorded for current
period sales

(Provision) reversal recorded for
prior period sales

Credits processed

Ending balanceChargebacks

$(46,006)

$(198,996)

$(539)
(1)
$214,412

$(31,129)Rebates and incentive programs

(42,859)

(42,513)

(1,571)
(3)
63,129

(23,814)Returns

(47,102)

(8,323)

4,293
(4)
12,234

(38,898)Cash discounts and other

(16,158)

(23,777)

349

28,442

(11,144)Total

$(152,125)

$(273,609)

$2,532

$318,217

$(104,985)Accrued liabilities(2)

$(17,684)

$(13,966)

$(192)

$8,183

$(23,659)   For the six months ended June 30,
2007Accounts receivable reserves

Beginning balance

Provision recorded for current
period sales

(Provision) reversal recorded for
prior period sales

Credits processed

Ending balanceChargebacks

$(51,891)

$(168,087)

$    -
(1)
$179,301

$(40,677)Rebates and incentive programs

(85,888)

(100,867)

2,699

110,448

(73,608)Returns

(42,905)

(22,573)

(3,164)

14,235

(54,407)Cash discounts and other

(18,038)

(33,439)

211

31,269

(19,997)Total

$(198,722)

$(324,966)

($254)

$335,253

$(188,689)Accrued liabilities(2)

$(10,583)

$(8,611)

$   -

$3,416

$(15,778)  (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, including Medicaid rebates.
 The Company included additional amounts that were part of accrued expenses
and other current liabilities on the condensed   35     consolidated balance sheets as of
December 31, 2006 ($171), June 30, 2007 ($573) 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
to our rebates and incentives programs for sales made to that customer in the
fourth quarter of 2007. (4) The changes in
accounts receivable reserves recorded for prior period sales related to returns
principally comprised of the successful resolution in the six-month period ended
June 28, 2008 of a customer dispute over invalid customer deductions taken in
prior periods, 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
six-month period ended June 28, 2008.  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 June
28, 2008  The Companys gross margin of $25,108
(22.2% of total revenues) for the three months ended June 28, 2008 decreased
$31,447 from $56,555 (33.7% of total revenues) for the three months ended June
30, 2007.  This decrease in gross margin is attributed to the decreased
sales of existing products resulting from pricing pressure and lower royalty
income.  The generic products gross margin of $9,228 (9.9% of generic
revenues) for the three months ended June 28, 2008 decreased $31,676 from
$40,904 (28.0% of generic revenues) for the three months ended June 30, 2007
primarily due to higher sales of lower margin products driven by metoprolol, and
lower sales of fluticasone, propranolol, 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 three months ended June 28, 2008.
 Strativa gross margin of $15,880 (79.3% of Strativa revenues)for
the three months ended June 28, 2008 increased by $229 from $15,651 (72.5% of
Strativa revenues) for the three months ended June 30, 2007 due to price
improvement coupled with lower royalty payments, tempered by increased rebates
for Megace® ES.  The Companys gross margin percentage decreased from 33.7%
to 22.2% driven primarily by the increased sales of lower margin metoprolol,
lower royalty income and lower sales of higher margin products such as
propranolol which launched in February of 2007.  The overall decrease is
mitigated by the relative impact of higher margin Megace® ES, which represented
61% of total gross margin for three months ended June 28, 2008 as compared to
28% of total gross margin for the three months ended June 30, 2007.
 Strativas gross margin percentage improved due mainly to a 2007 mid-year
price increase and lower royalty payments, tempered by increased rebates.  Gross Margin  Six Months Ended June 28,
2008  The Companys gross margin of $74,629
(27.9% of total revenues) in the first six months of 2008 decreased $69,615 from
$144,244 (35.9% of total revenues) in the corresponding period of 2007.
 This decrease in gross margin is attributed to pricing pressure, increased
sales of products with lower gross margin and decreased royalty income primarily
from ondansetron tablets.  Generic product gross margins of $39,360 (17.7%
of generic revenues) in the six months ended June 28, 2008 decreased $75,026
from $114,386 (31.7% 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, and
lower sales of fluticasone, propranolol, 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 six months ended June 28, 2008. Strativa
gross margin of $35,269 (78.2% of branded revenues)for the six months
ended June 28, 2008 increased by $5,411 from $29,858 (72.7% of branded revenues)
for the six months ended June 30, 2007 due to price improvement coupled with
higher script volume and corresponding sales of Megace® ES.  The Companys
gross margin percentage decreased from 35.9% to 27.9%.  The decreased
percentage is attributed to increased pricing pressure, increased sales of lower
margin products and decreased royalty   36     income.  These decreases are partially offset by
higher sales of higher margin Megace® ES.  Strativa gross margin percentage
improved due mainly to a 2007 mid-year price increase and lower royalty
payments, tempered by increased rebates.  Operating Expenses  Research and Development  Three Months
Ended June 28, 2008 The Companys
research and development expenses of $15,955 (14.1% of total revenues) for the
three months ended June 28, 2008 increased $1,678, or 11.8%, from $14,277 (8.5%
of total revenues) for the three months ended June 30, 2007 due to development
costs associated with the expansion of the Companys generic portfolio which
increased $2,265, partially offset by lower Strativa related research and
development expenses detailed below. In June 2008,
the Company entered into an exclusive licensing agreement under which it has
acquired the commercialization rights in the United States to the thin film
formulation of ondansetron from MonoSol for its brand pharmaceutical segment.
 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
payment of $1,250 to MonoSol, which was included in research and development
expense.  In addition, Strativa incurred $1,053 related to the development
of ZensanaTM, an oral spray formulation of ondansetron, which was
acquired in the latter half of 2007.  These increases were tempered by the
non-recurrence of $3,000 paid and expensed in the second quarter of 2007 to
acquire rights to late stage compounds.  Research and Development  Six Months Ended June
28, 2008 The Companys
research and development expenses of $33,113 (12.4% of total revenues) for the
six months ended June 28, 2008 increased $4,797, or 16.9%, from $28,316 (7.0% of
total revenues) for the six months ended June 30, 2007.  The increase in
expense is primarily attributable to costs incurred in support of the Companys
strategy to expand Strativa ($3,956), principally through in-licensing compounds
in late-stage development and development costs associated with the expansion of
the Companys generic portfolio which increased $842. 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 and its territories.  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 payment of $5 million in
cash to Alfacell, which was included in research and development expense.
 Additionally, as mentioned above, the Company acquired the rights to the
thin film formulation of ondansetron ($1,250) and continued to develop
ZensanaTM, an oral spray formulation of ondansetron ($1,153).
 These increases were tempered by the non-recurrence of $3,000 paid and
expensed in the second quarter of 2007 to acquire rights to late stage
compounds. Although there
can be no such assurance, 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 June 28,
2008 Total selling, general and
administrative (SG&A) expenses of $36,690 (32.5% of total revenues) for
the three months ended June 28, 2008 increased $2,691 or 7.9% from $33,999
(20.3% of total revenues) for the three months ended June 30, 2007. The increase
was mainly driven by legal fees ($6,185).  This increase was tempered by
the non-recurrence of severance costs that were incurred in the second quarter
of 2007 ($1,723), lower expenses related to sales and marketing of
Megace® ES ($1,632) and lower bonus and share-based compensation
($715).  Selling,
General and Administrative Expenses  Six months ended June 28, 2008 Total selling, general and
administrative expenses of $68,037 (25.4% of total revenues) for the six months
ended June 28, 2008 increased $1,481, or 2.2%, from $66,556 (16.6% of total
revenues) for the six months ended June 30, 2007.  The increase in 2008 was
primarily due to legal fees ($8,755).  These expenses were tempered by
lower expenses related to sales and marketing of Megace® ES ($3,958),
the non-recurrence of severance costs that were incurred in the second quarter
of 2007 ($1,723) and lower bonus and share-based compensation ($2,000).  Although there can be no such assurance,
SG&A expenses, excluding the impact of Strativa spending for potential
pre-launch activities, in 2008 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.    37     Settlements,
net 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 six months ended June
30, 2007.  In September 1999, the Company entered
into an agreement to develop, manufacture and market the pharmaceutical
formulation naturbinol with Resolution Chemicals Limited (Resolution).
 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 six months ended June 30, 2007.  Gain on Sale of Product
Rights and other During the first and second quarters
of 2008, the Company recognized a gain on the sale of product rights of $1,000
and $500, 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
$310 and $80 for the three months ended June 28, 2008 and June 30, 2007,
respectively, and $330 and $228 for the six months ended June 28, 2008 and June
30, 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 $2.1 million for the quarter ended June 28, 2008, which represented an
other-than-temporary impairment of the Companys investment in Hana Biosciences,
Inc. (Hana).  The Company continues to hold its investment in Hana as a
noncurrent asset on its condensed consolidated balance sheet as of June 28, 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 in the three months ended June 30,
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 months 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 in the second quarter of 2008. In February 2007, the Company sold
approximately 1.1 million shares of its investment in Optimer stock for
approximately $6.8 million and recognized a pre-tax gain of approximately $1.4
million for the three month period ended March 31, 2007.  Interest Income  Interest income was $2,129 and $3,901
for the three months ended June 28, 2008 and June 30, 2007, respectively, and
$5,143 and $6,585 for the six months ended June 28, 2008 and June 30, 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 $1,727
for the three months ended June 28, 2008 and June 30, 2007, respectively, and
$3,334 and $3,445 for the six months ended June 28, 2008 and June 30, 2007,
respectively.  Interest expense principally includes interest payable on
the Companys senior subordinated convertible notes due 2010.   38      Income
Taxes The Company recorded a benefit for
income taxes of $7,523 and a provision for income taxes of $1,505 for the three
months ended June 28, 2008 and June 30, 2007, respectively.  The Companys
effective tax rates for continuing operations for the three months ended June
28, 2008 and June 30, 2007 were 28% and 35%, respectively.  For the
six-month periods ended June 28, 2008 and June 30, 2007, the Company recorded a
benefit for income taxes of $6,081 and a provision for income taxes of $23,858,
respectively. The Companys effective tax rates for the six months ended June
28, 2008 and June 30, 2007 were 26% and 35%, respectively.  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 as of June 28, 2008 which represents the
Companys share of the net proceeds of the sale transaction.  The $505 has
been classified as discontinued operations on the condensed consolidated
statement of operations for the six months ended June 28, 2008.   FINANCIAL CONDITION  Liquidity and Capital Resources  Cash and cash equivalents of
$177,656 at June 28, 2008 decreased $22,476 from $200,132 at December 31,
2007.  Cash provided by operations was $30,571 for the six months ended
June 28, 2008, which reflects continuing operations as adjusted primarily for
depreciation and amortization of $11,473, and share-based compensation of $7,152
and was driven by the liquidation of working capital, mainly lower inventory
levels, which declined $33,113 due to lower sales demand for certain products
and timing of receipt of certain purchased finished goods.  The lower net
accounts receivable balance of $2,898 was driven primarily by lower sales in
2008 offset by timing of customer collections while payables due to distribution
agreement partners increased $8,406 from higher sales of partnered products,
mainly metoprolol.  Cash flows used in investing activities of $52,997 were
driven by net investments of $25,280 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 $8,656.  The Companys working capital, current
assets minus current liabilities, of $185,549 at June 28, 2008 decreased $24,965
from $210,514 at December 31, 2007.  The working capital ratio, which is
calculated by dividing current assets by current liabilities, was1.59x at June 28, 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.  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 June
28, 2008.  In addition to
its cash and cash equivalents, the Company had $115,306of available for sale debt securities
classified as current assets on the condensed consolidated balance sheet as of
June 28, 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 business, increasing its generic
research and development activities, entering into product license arrangements,
potentially acquiring other complementary businesses and products and for
general corporate purposes.  As of June 28,
2008, the Company had payables due to distribution agreement partners of $44,885related primarily to amounts due under
profit sharing agreements, particularly 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 third 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.   39      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.  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 $58,000 as of June 28, 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 June 28, 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 June 28,
2008.  Refer to Notes to condensed consolidated financial statements  Note
14  Commitments, Contingencies and Other Matters.  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 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
June 28, 2008, the Company had pre-launch inventories of $3.4 million, of which
$2.7 million was for a specific partnered product anticipated to launch in 2008.
 Should the launch be delayed, inventory write-offs may occur, as early as
the third quarter of 2008, to the extent the Company is unable to recover
the full value of its inventory investment.  For the pre-launch inventory
related to the specific partnered product, product expiration dates are
disbursed over the period from January 2009 to October 2009.  The
recoverability of the cost of pre-launch inventories related to this specific
partnered product with a limited shelf life was evaluated based on the specific
facts and circumstances surrounding the anticipated product launch, including
the Companys expected number of competitors during the 6-month period
subsequent to the anticipated product launch.  Further, the Company
believes that the inventory balance at June 28, 2008   40     related to the specific partnered
product is recoverable based on the anticipated launch in 2008 and the related
expected demand for this lower priced generic product that may be substituted
for the referenced branded product 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 becomes 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 assets and liabilities did not have a material impact on its condensed
consolidated financial statements.    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 June 28, 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 Company does not have
any financial obligations exposed to variability in interest rates.   41     The following table summarizes the
available for sale securities that subject the Company to market risk at June
28, 2008 and December 31, 2007: June 28,

December 31,2008

2007Securities issued by government agencies
$56,056

$46,201Debt securities issued by various state and local
municipalities and agencies
36,349

24,223Other debt securities
26,307

13,991Marketable equity securities available for
sale
1,750

2,650Auction rate securities
-

5,000Total
$120,462

$92,065  Marketable equity securities available for
sale In addition to
the investments described above, the Company is also subject to market risk in
respect to its investment in Hana.  In August 2007, the Company made an
equity investment in Hana for $5.0 million at a contractually agreed premium to
the prevailing market price.  Of this amount, $1.2 million was charged to
research and development expense in the third quarter of 2007.  The Company
recorded a realized loss of $2.1 million for the quarter ended June 28, 2008,
which represented an other-than-temporary impairment of the Companys investment
in Hana.  The Company evaluated the near-term prospects of Hana in relation
to the severity and duration of the period that the investment has been in an
unrealized loss position.  Based on that evaluation, the Company has
determined that the investment is other-than-temporarily impaired at June 28,
2008 and, as such, has recorded a write-down of the carrying value of the
investment in the amount of $2.1 million as of June 28, 2008.  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 June 28, 2008
due to its intent to hold the investment for a period of time greater than 12
months.  A ten percent adverse change in the market price of Hanas common
stock as of June 28, 2008 would have reduced the fair value of the investment by
approximately $0.2 million.    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
June 28, 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 June 28, 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 June 28, 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.    42     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.
 The case has been scheduled for a mediation that will occur on or before
October 31, 2008.  A bench trial before a Magistrate Judge has been
scheduled to commence on December 8, 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 several purported
stockholder class action lawsuits filed on behalf of purchasers of common stock
of the Company between April 29, 2004 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 have been consolidated and are pending in the
United States District Court, District of New Jersey. The Court has appointed
co-lead plaintiffs and co-lead counsel. Co-lead plaintiffs filed a Consolidated
Amended Complaint on April 30, 2007, purporting to represent purchasers of
common stock of the Company between July 23, 2001 and July 5, 2006. 
Defendants filed a motion to dismiss the Amended Complaint on June 29, 2007.
 On June 24, 2008, the Court dismissed the Amended Complaint without
prejudice with leave to re-file no later than 30 days from the date of the
order.  On July 24, 2008,
co-lead plaintiffs filed a Second Consolidated Amended Complaint, again
purporting to represent purchasers of common stock of the Company between July
23, 2001 and July 5, 2006.  The Company intends, and the members of
management named as defendants have state their intentions to vigorously defend
the lawsuits and any additional lawsuits that may hereafter be filed with
respect to the restatement.  On August 14, 2006, individuals
claiming to be stockholders of the Company filed a derivative action in the U.S.
District Court for the Southern District of New York, 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 allege 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
have 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
has been transferred to 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.  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
provides for, among other things, the Company to implement and/or maintain
various corporate governance measures 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 on
October 14, 2008, to determine:  (a) whether the proposed settlement is
fair, reasonable, adequate and in the best interests of the Company and its
shareholders and whether the settlement should be finally approved by the
Court; (b) whether the Judgment as provided for under the terms of the
Stipulation of Settlement should be entered, dismissing the action with
prejudice and to determine whether releases should be provided to the Released
Parties, as defined and set forth in the stipulation; and (c) to rule upon such
other matters as the Court may deem appropriate.  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,   43     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 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   44     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. 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 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   45     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.  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 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
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.  On June 25, 2008, the court rescheduled the claim
construction hearing to October 21, 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.   46     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, 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 the First
Judicial District of Hinds 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, Texas, 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 Michigan, Florida, Virginia, and
Tennessee have 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.    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.  The risks described in our Annual
Report 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.      47     ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS Issuer Purchases of Equity
Securities(1) Quarter Ending June
28, 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)March
30, 2008 through April 26, 2008

1,486

N/A

-

-April
27, 2008 through May 24, 2008

1,044

N/A

-

-May
25, 2008 through June 28, 2008

5,361

N/A

-

2,708,892Total

7,891

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 June 28, 2008.  The repurchase program has no expiration
date. (2) The total number of shares purchased
represents 7,891 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 $16.08 at June 27,
2008.   ITEM 4.SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS  The Company held its Annual Meeting of
Stockholders on May 20, 2008.  The following matters were voted upon at the
Annual Meeting of Stockholders.  PROPOSAL 1  The stockholders voted in favor of the
proposal to elect the three Company nominees for Class III directors for a term
expiring at the Annual Meeting of Stockholders to be held in 2011.  VOTES
VOTESFOR
WITHHELDPatrick G. LePore
28,266,560
827,298Ronald M. Nordmann
27,572,443
1,521,415Joseph E. Smith
27,569,051
1,524,807  PROPOSAL 2  The firm of Deloitte & Touche LLP
was ratified as the Companys independent registered public accounting firm for
the 2008 fiscal year.  28,911,927 shares voted in favor of the ratification
of the selection of Deloitte & Touche LLP, 161,405 shares voted against, and
20,525 shares abstained.      48     ITEM
6.  EXHIBITS  10.1 Asset
Purchase Agreement, dated as of May 6, 2008, between Spectrum Pharmaceuticals,
Inc. and Par Pharmaceutical, Inc. (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:
 August 7, 2008 /s/ Patrick G.
LePore Patrick G. LePore Chairman, President
and Chief Executive Officer     Date:
 August 7, 2008 /s/ Veronica A.
Lubatkin Veronica A.
Lubatkin Executive Vice
President and Chief Financial Officer     50     EXHIBIT INDEX   Exhibit
Number Description   10.1 Asset
Purchase Agreement, dated as of May 6, 2008, between Spectrum Pharmaceuticals,
Inc. and Par Pharmaceutical, Inc. (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