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

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

                                    FORM 10-Q

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

                For the quarterly period ended September 30, 2002

                         COMMISSION FILE NUMBER 1-10827


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


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


 ONE RAM RIDGE ROAD, SPRING VALLEY, NEW YORK                           10977
  (Address of principal executive offices)                        (Zip Code)


       Registrant's telephone number, including area code: (845) 425-7100



      Indicate by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the  preceding  twelve  months (or for such shorter  period that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes 3 No


                                   32,769,517
      Number of shares of Common Stock outstanding as of November 8, 2002.




<PAGE>
                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS
                         PHARMACEUTICAL RESOURCES, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (In Thousands, Except Share Data)
                                   (Unaudited)

                                                       SEPTEMBER       DECEMBER
                     ASSETS                            30, 2002        31, 2001
                     ------                            --------        --------

Current assets:
  Cash and cash equivalents                           $33,782          $67,742
  Accounts receivable, net of allowances of
   $41,355 and $47,168                                64,880           38,009
  Inventories                                         48,217           31,458
  Prepaid expenses and other current assets           5,686            4,156
  Deferred income tax assets                          45,171           34,485
                                                      --------         --------
    Total current assets                              197,736          175,850

Property, plant and equipment, net of
 accumulated depreciation and amortization            28,062           24,345

Other assets                                          13,618           8,426

Intangible assets, net of accumulated
amortization                                          24,787           8,305

Goodwill                                              24,643           -
                                                      --------         --------
   Total assets                                       $288,846         $216,926
                                                      ========         ========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
  Current portion of long-term debt                   $207             $239
  Accounts payable                                    22,504           18,007
  Payables due to distribution agreement partners     19,251           32,295
  Accrued salaries and employee benefits              5,038            2,859
  Accrued expenses and other current liabilities      6,477            4,817
  Income taxes payable                                29,041           14,766
                                                      --------         --------
     Total current liabilities                        82,518           72,983

Long-term debt, less current portion                  922              1,060

Accrued pension liability                             331              331

Deferred income tax liabilities, net                  3,843            4,129

Commitments and contingencies

Shareholders' equity:
  Common Stock, par value $.01 per share;
authorized 90,000,000 shares;
    issued and outstanding 32,703,674 and
32,035,189 shares                                     327              320
  Additional paid-in capital                          117,629          115,610
  Retained earnings                                   83,276           22,493
                                                      --------         --------
    Total shareholders' equity                        201,232          138,423
                                                      --------         --------
Total liabilities and shareholders' equity            $288,846         $216,926
                                                      ========         ========



The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                     --2--
<PAGE>
<TABLE>
                                                   PHARMACEUTICAL RESOURCES, INC.
                                              CONSOLIDATED STATEMENTS OF OPERATIONS AND
                                               RETAINED EARNINGS (ACCUMULATED DEFICIT)
                                              (In Thousands, Except Per Share Amounts)
                                                             (Unaudited)

<CAPTION>
                                                         NINE MONTHS ENDED                THREE MONTHS ENDED
                                                         -----------------                ------------------
                                                                     (*RESTATED)                       (*RESTATED)
                                                      SEPT. 30,       SEPT. 29,          SEPT. 30,      SEPT. 29,
                                                        2002            2001               2002           2001
                                                        ----            ----               ----           ----
<S>                                                   <C>            <C>                 <C>            <C>
Net sales                                             $282,500       $182,925            $100,237       $127,924
Cost of goods sold                                     149,858        111,448              53,285         75,996
                                                       -------        -------             -------        -------
       Gross margin                                    132,642         71,477              46,952         51,928
Operating expenses:
   Research and development                             10,590          7,436               3,653          3,779
   Selling, general and administrative                  27,457         15,928              11,094          6,974
                                                       -------        -------             -------        -------
       Total operating expenses                         38,047         23,364              14,747         10,753
                                                       -------        -------             -------        -------
       Operating income                                 94,595         48,113              32,205         41,175
Settlements                                              9,051              -                   -              -
Other (expense) income                                  (4,492)           431                (112)            67
Interest income (expense)                                  490           (580)                109           (138)
                                                       -------        -------             -------        -------
Income before provision for income taxes                99,644         47,964              32,202         41,104
Provision for income taxes                              38,861         10,532              12,559          7,372
                                                       -------        -------             -------        -------
NET INCOME                                              60,783         37,432              19,643         33,732
Retained earnings (accumulated deficit):
Beginning of period                                     22,493        (31,429)             63,633        (27,729)
                                                       -------        -------             -------        -------
End of period                                          $83,276         $6,003             $83,276         $6,003
                                                       =======        =======             =======        =======

NET INCOME PER SHARE OF COMMON STOCK:
   BASIC                                                 $1.89          $1.24                $.60          $1.09
                                                       =======        =======             =======        =======
   DILUTED                                               $1.84          $1.17                $.59          $1.04
                                                       =======        =======             =======        =======

WEIGHTED AVERAGE NUMBER OF
   COMMON SHARES OUTSTANDING:
   BASIC                                                32,194        30,106               32,476         30,871
                                                       =======        =======             =======        =======
   DILUTED                                              32,962        31,902               33,152         32,428
                                                       =======        =======             =======        =======


* Restated as described in Notes to Consolidated Financial Statements.



                      The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                                               --3--
<PAGE>
<TABLE>
                                                   PHARMACEUTICAL RESOURCES, INC.
                                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                           (In Thousands)
                                                             (Unaudited)
<CAPTION>
                                                                                         NINE MONTHS ENDED
                                                                                         -----------------
                                                                                                     (*RESTATED)
                                                                                      SEPT. 30,       SEPT. 29,
                                                                                        2002            2001
                                                                                        ----            ----
<S>                                                                                     <C>           <C>
Cash flows from operating activities:
   Net income                                                                           $60,783        $37,432

   Adjustments to reconcile net income to net cash provided by operating
     activities:
     Deferred income taxes                                                              (10,972)      (10,721)
     Depreciation and amortization                                                        3,857          2,481
     Write-off of inventories                                                             3,085          1,195
     Allowances against accounts receivable                                              (5,813)        12,987
     Settlements                                                                         (9,051)             -
     Tax effect from exercise of stock options                                             (159)        11,254
     Other                                                                                  (23)           146

 Changes in assets and liabilities:
     Increase in accounts receivable                                                    (20,802)      (103,564)
     Increase in inventories                                                            (19,776)        (4,919)
     Increase in prepaid expenses and other assets                                       (9,343)        (3,848)
     Increase in accounts payable                                                         4,398          1,143
     (Decrease) increase in payables due to distribution agreement partners             (13,044)        52,150
     Increase in accrued expenses and other current liabilities                           3,916          3,078
     Increase in income taxes payable                                                    14,275          8,693
                                                                                        -------        -------
       Net cash provided by operating activities                                          1,331          7,507
                                                                                        -------        -------
Cash flows from investing activities:
     Capital expenditures                                                                (4,736)        (2,743)
     Acquisition of FineTech, net of cash acquired                                      (32,598)             -
     Proceeds from sale of fixed assets                                                      28             19
                                                                                        -------        -------
       Net cash used in investing activities                                            (37,306)        (2,724)
                                                                                        -------        -------
 Cash flows from financing activities:
     Proceeds from issuances of Common Stock                                              2,185          7,362
     Net proceeds from revolving credit line                                                  -         (9,646)
     Principal payments under long-term debt and other borrowings                          (170)          (212)
                                                                                        -------        -------
       Net cash provided by financing activities                                          2,015        (2,496)
                                                                                        -------        -------

Net (decrease) increase in cash and cash equivalents                                    (33,960)         2,287
Cash and cash equivalents at beginning of period                                         67,742            222
                                                                                        -------        -------
Cash and cash equivalents at end of period                                              $33,782         $2,509
                                                                                        -------        -------


Supplemental disclosure of cash flow information Cash paid during the year for:
   Taxes                                                                                $35,717         $1,653
                                                                                        -------        -------
   Interest                                                                                $102           $587
                                                                                        -------        -------


* Restated as described in Notes to Consolidated Financial Statements.


                       The accompanying notes are an integral part of these consolidated financial statements.

</TABLE>

                                                               --4--
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

      Pharmaceutical   Resources,   Inc.  (the  "Company"  or  "PRX")  operates,
primarily through its wholly owned subsidiary, Par Pharmaceutical, Inc. ("Par"),
in  one  business   segment,   the  manufacture  and   distribution  of  generic
pharmaceuticals in the United States. Marketed products are principally in solid
oral dosage form (tablet,  caplet and two-piece hard-shell capsule). The Company
also  distributes  one  product in the  semi-solid  form of a cream and one oral
suspension.

BASIS OF PREPARATION:

      The accompanying  consolidated  financial statements at September 30, 2002
and for the  nine-month  and  three-month  periods ended  September 30, 2002 and
September  29, 2001 are  unaudited;  however,  in the  opinion of the  Company's
management,  such consolidated statements include all adjustments (consisting of
normal  recurring  accruals)  necessary  to  present  a  fair  statement  of the
information  presented therein.  The consolidated  balance sheet at December 31,
2001 was derived from the Company's audited consolidated financial statements at
such date.

      On April 17, 2002, the Company purchased FineTech Ltd. ("FineTech"), which
is based in Haifa,  Israel from International  Specialty  Products ("ISP").  The
acquisition  was  accounted  for as a  purchase  under  Statement  of  Financial
Accounting  Standards  ("SFAS")  No.  141,  "Business  Combinations",   and  the
accompanying  consolidated financial statements include the operating results of
FineTech from the date of acquisition.

      Pursuant  to  accounting  requirements  of  the  Securities  and  Exchange
Commission   ("SEC")   applicable  to  quarterly   reports  on  Form  10-Q,  the
accompanying  consolidated  financial  statements and these notes do not include
all  disclosures  required by accounting  principles  generally  accepted in the
United States for audited financial  statements.  Accordingly,  these statements
should  be read in  conjunction  with  the  accounting  policies  and  Notes  to
Consolidated  Financial  Statements included in the Company's most recent annual
financial statements.

      The  results  of  operations  for  interim  periods  are  not  necessarily
indicative of those that may be achieved for a full fiscal year.

RESTATEMENT OF PRIOR YEAR RESULTS

      Certain items in the  consolidated  financial  statements for the nine and
three-month  periods ended September 29, 2001 have been restated due to a change
in the manner the  Company  accounted  for its  transactions  with Merck KGaA in
fiscal year 1998. In June 1998, the Company sold to Merck KGaA 10,400,000 shares
of its Common Stock,  and entered into a  distribution  agreement (the "Genpharm
Distribution Agreement"),  dated March 1998, with Genpharm, Inc. ("Genpharm"), a
Canadian subsidiary of Merck KGaA. The Company previously accounted for the sale
of the Common Stock and the distribution agreement as separate transactions.  In
restating its consolidated  financial statements,  the Company accounted for the
two  transactions  as a single  transaction  under  Emerging  Issues  Task Force
("EITF") Issue No. 96-18  "Accounting for Equity  Instruments that are Issued to
Other than  Employees for  Acquiring,  or in  Conjunction  with Selling Goods or
Services".  Under EITF Issue 96-18,  the fair value of the Common Stock sold, to
the extent it exceeded the cash consideration received for such Common Stock, is
attributed to the distribution  agreement.  Under the  restatement,  the Company
determined  the  fair  value  of the  Common  Stock  sold  to  Merck  KGaA to be
$27,300,000,  which exceeded the cash  consideration of $20,800,000  received by
the  Company  by  $6,500,000.  That  $6,500,000  was  assigned  to the  Genpharm
Distribution  Agreement,  with a corresponding increase in shareholders' equity.
Additionally,  the Company recorded a deferred tax liability of $4,333,000 and a
corresponding  increase in the  financial  reporting  basis of the  distribution
agreement to account for the  difference  between the basis in the  distribution
agreement  for  financial  reporting and income tax purposes as required by SFAS
No. 109,  "Accounting  for Income  Taxes"  ("SFAS  109").  The  aggregate  value
assigned  to  the  Genpharm  Distribution  Agreement  of  $10,833,000  is  being
amortized on a  straight-line  basis over fifteen  years  beginning in the third
quarter of fiscal 1998, and the net amount is included in intangible assets. The
amortization  is  included  as  a  non-cash  charge  in  selling,   general  and
administrative expenses.


                                     --5--
<PAGE>
                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

      In  addition,  certain  items  in  the  Company's  consolidated  financial
statements  have been  restated  to reflect the  reversal of a price  protection
reserve  originally  recorded  in the  third  quarter  of  2001  related  to the
Company's fluoxetine  (Prozac(R)) product launch in August 2001. The Company had
intended to record the effect of the total  projected price  protection  reserve
anticipated  upon  competition  entering the market at the end of the  Company's
exclusivity period in late-January 2002 over the entire exclusivity period based
on its net sales in each  period.  However,  because the total  projected  price
protection  reserve  was  based  on  customer  inventories  at  the  end  of the
exclusivity period, the accounting treatment requires that the entire reserve be
recorded  only in the periods in which the remaining  inventory  would have been
sold. As a result,  the Company  restated its results for the third quarter 2001
(reversing the reserve in such quarter) and recorded the entire price protection
reserve in the fourth quarter of 2001 and January 2002. The restatement  related
to price  protection  resulted in increases in net sales of  $28,200,000,  gross
margin of $10,365,000 and net income of $6,882,000 in the third quarter of 2001.

      The impact of the restatements  described above on the previously reported
results for the nine and  three-month  periods ended  September 29, 2001 were as
follows:

<TABLE>
<CAPTION>
                                                NINE MONTHS ENDED                     THREE MONTHS ENDED
CONSOLIDATED STATEMENTS OF                        SEPTEMBER 29,                          SEPTEMBER 29,
--------------------------                           2001                                   2001
                                        ----------------------------------     ----------------------------------
OPERATIONS AND RETAINED EARNINGS           REPORTED          RESTATED             REPORTED          RESTATED
--------------------------------        ----------------  ----------------     ----------------  ----------------
                                                                        (IN THOUSANDS)
<S>                                            <C>               <C>                   <C>              <C>
Net Sales                                      $154,725          $182,925              $99,724          $127,924

Gross margin                                     61,112            71,477               41,563            51,928

Selling, general and administrative              15,385            15,928                6,793             6,974

Operating income                                 38,291            48,113               30,991            41,175

Net income                                       30,912            37,432               26,850            33,732

Retained earnings (as of Sept. 29,                1,289             6,003                1,289             6,003
2001)

Net income per share of common stock:
  Basic                                           $1.03             $1.24                $0.87             $1.09
  Diluted                                         $0.97             $1.17                $0.83             $1.04
</TABLE>
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE:
                                                                                     SEPTEMBER 30,    DECEMBER 31,
                                                                                         2002            2001
                                                                                            (IN THOUSANDS)
<S>                                                                                   <C>              <C>
     Accounts receivable                                                              $106,235         $85,177
                                                                                       -------          ------
     Allowances:
     Doubtful accounts                                                                   1,006             998
     Returns and allowances                                                             16,112           4,847
     Price adjustments                                                                  24,237          41,323
                                                                                       -------          ------
                                                                                        41,355          47,168
                                                                                       -------          ------
     Accounts receivable,
     net of allowances                                                                 $64,880         $38,009


      The accounts  receivable  amounts above at September 30, 2002 and December 31, 2001 are net of provisions for customer rebates
of $17,822,000 and $14,081,000, and chargebacks of $102,195,000 and $41,830,000, respectively. Customer rebates are price reductions
generally given to customers as an incentive to increase sales volume.  This incentive is based on a customer's  volume of purchases
made during an applicable monthly, quarterly or annual period.
</TABLE>


                                                               --6--
<PAGE>
                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

Chargebacks are price adjustments given to the wholesale customer for product it
resells  to  specific  healthcare  providers  on the basis of prices  negotiated
between the Company and the provider.  The increased  chargebacks  are primarily
due to lower contract pricing on fluoxetine and a larger volume of sales through
the Company's wholesale customers, primarily due to new product awards and trade
show promotions.

      The accounts receivable  allowances include price adjustments that consist
of  cash  discounts,  sales  promotions  and  price  protection  or  shelf-stock
adjustments.  The  Company  generally  offers  price  protection,  also known as
shelf-stock adjustments, with respect to sales of new generic drugs for which it
has a market exclusivity period. Price protection accounts for the fact that the
price of such  drugs  typically  will  decline,  sometimes  substantially,  when
additional  generic  manufacturers  introduce  and market a  comparable  generic
product at the end of the exclusivity  period.  Such plans,  which are common in
the Company's industry, generally provide for a credit to customers with respect
to the customer's  remaining  inventory at the end of the exclusivity period for
the  difference  between  the  Company's  new  price  and the price at which the
Company originally sold the product.

      The Company's  exclusivity  period for fluoxetine,  the generic version of
Eli Lilly and Company's  Prozac(R),  ended in late-January 2002. With respect tO
fluoxetine,  the  Company  established  a price  protection  reserve  during the
exclusivity  period of  approximately  $34,400,000,  based on its estimate  that
between  eight and ten  additional  generic  manufacturers  would  introduce and
market  comparable  products for the 10 mg and 20 mg tablets and between one and
three additional  manufacturers  would introduce and market a comparable product
for the 40 mg  capsules.  As a result  of the  introduction  of these  competing
generic  products  during  the  first  quarter  of 2002,  the  sales  price  for
fluoxetine  substantially  declined  from the sales  price the  Company  charged
during the exclusivity  period.  Through  September 30, 2002, the Company issued
price protection credits of approximately $27,400,000 and reduced the reserve by
approximately  $5,800,000  for price  protection on the 40 mg that was no longer
necessary.  Pursuant to a distribution  agreement with a strategic partner,  the
reduction of the reserve had a favorable impact on the Company's gross margin of
approximately $1,160,000 in the second quarter of 2002. The Company expects that
the remaining price protection reserve of approximately  $1,200,000 at September
30, 2002 will be sufficient.

      The Company's  exclusivity  period for megestrol  acetate oral suspension,
the generic version of Bristol Myers Squibb's ("BMS") Megace(R) OraL Suspension,
ended in mid-January 2002. One generic competitor was granted U.S. Food and Drug
Administration  ("FDA")  approval to market another generic version of megestrol
acetate oral  suspension  and began  shipping the product to a limited number of
customers in the second quarter of 2002. In addition, a second potential generic
competitor  entered into a settlement  agreement  with BMS pursuant to which the
public  record  states that the  present  formulation  of the generic  company's
product infringes a BMS patent related to megestrol  acetate.  However,  at this
time the  Company has no  information  as to whether  the  settlement  agreement
provides  for the  generic  competitor  to enter the market at some point in the
future.  The Company has patents that cover its unique formulation for megestrol
acetate oral  suspension  and will avail  itself of all legal  remedies and will
take all of the necessary  steps to protect its  intellectual  property  rights.
Based on these factors,  the Company did not record a price  protection  reserve
for such product as of September 30, 2002. The Company will continue to evaluate
the effect of potential  competition and will record a price protection  reserve
when it deems necessary.

INVENTORIES:
                                                  SEPTEMBER 30,    DECEMBER 31,
                                                     2002             2001
                                                     ----             ----
                                                         (IN THOUSANDS)
     Raw materials and supplies                     $15,377         $11,574
     Work in process and finished goods              32,840          19,884
                                                     ------          ------
                                                    $48,217         $31,458
                                                     ======          ======


                                     --7--
<PAGE>
                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

OTHER ASSETS:

      Included in other assets are amounts paid for contractual  rights acquired
by the Company to a process,  product or other legal right that has  multiple or
alternative  future  uses which  support  its  realizability.  These  values are
capitalized  and  amortized  over the period in which the related cash flows are
generated.  All costs that are  capitalized  are subject to periodic  impairment
testing.

      In  November  2001,  the  Company  entered  into a joint  development  and
marketing  agreement with Breath Ltd. of the Arrow Group to pursue the worldwide
distribution of latanoprost  ophthalmic  solution 0.005%, the generic equivalent
of Pharmacia Corporation's ("Pharmacia") Xalatan(R), a glaucomA medication. As a
result of this agreement, Par filed an Abbreviated New Drug Application ("ANDA")
for  latanoprost,  including  a Paragraph  IV  certification  that the  existing
patents for the product will not be infringed by Par's generic product.  Par has
reason  to  believe  that its ANDA is the first to be filed for this drug with a
Paragraph IV certification. In December 2001, Pharmacia, among others, initiated
a patent  infringement  action against Par. Par intends to vigorously defend its
position in the pending  litigation with Pharmacia.  Pursuant to this agreement,
Par made payments of $2,500,000 in fiscal year 2001 and  $2,500,000 in the first
quarter of fiscal year 2002 to Breath  Ltd.,  which are included in other assets
on the consolidated balance sheets (see "-Legal Proceedings").

      In April 1999, the Company entered into an agreement with FineTech for the
right to use a process for the pharmaceutical bulk active latanoprost.  Pursuant
to this agreement,  the Company paid FineTech approximately $2,000,000 in fiscal
years  2000 and 2001,  which is  included  in other  assets on the  consolidated
balance sheets,  for a completed  process together with its technology  transfer
package and patent.  The Company will pay royalties to FineTech on gross margins
from sales of all products developed pursuant to this agreement.

      In April 2002,  the Company  entered into an agreement  (the  "Genpharm 11
Product Agreement") to expand its strategic product partnership with Merck KGaA.
Under the terms of the  Genpharm  11 Product  Agreement,  Par has  licensed  the
exclusive  rights  to  11  generic   pharmaceutical   products  currently  under
development and not included in any other  distribution  agreements  between the
Company and Genpharm (see "-Distribution  Agreements-Genpharm,  Inc."). Pursuant
to the  Genpharm  11 Product  Agreement,  Genpharm  has  agreed to  develop  the
products, submit all corresponding ANDAs to the FDA and subsequently manufacture
the products. Par has agreed to serve as exclusive U.S. marketer and distributor
of the  products,  pay a share of the  costs,  including  development  and legal
expenses  incurred  to obtain  final  regulatory  approval,  and pay  Genpharm a
percentage  of the gross  profits on all sales of  products  covered  under this
agreement.  Pursuant to the  Genpharm  11 Product  Agreement,  the Company  paid
Genpharm a non-refundable fee of $2,000,000 in the second quarter of 2002, which
is included in other assets on the consolidated  balance sheets,  for two of the
products,  loratadine  10 mg tablets and  mirtazapine  tablets,  which have been
tentatively  approved by the FDA and are expected to be marketed in fiscal years
2003 to 2004.  In addition,  the Company  will be required to pay an  additional
non-refundable  fee of up to $414,000  based upon FDA  acceptance of filings for
six of the nine remaining products.

INTANGIBLE ASSETS:
                                                      SEPTEMBER 30,DECEMBER 31,
                                                          2002        2001
                                                            (IN THOUSANDS)
     BMS Asset Purchase Agreement, net of
         accumulated amortization of $975                $10,725           -
     Genpharm Distribution Agreement, net of
         accumulated amortization of
         $3,070 and $2,528                                 7,763       8,305
     Intellectual property, net of
         accumulated amortization o f$281                  6,299           -
                                                          ------       -----
                                                         $24,787      $8,305
                                                          ======       =====

      Intangible   assets   include  the   estimated   fair  values  of  certain
distribution  rights of the Company to certain products of third parties and the
intellectual   property   acquired  with  the   acquisition   of  FineTech  (see
"-Acquisition  of  FineTech").   The  values  of  the  distribution  rights  are
capitalized and amortized on a straight-line  basis over the products  estimated
useful  lives  of 7 to 15  years.  The  values  of  the  intellectual  property,
consisting of trademarks,  patents,  product and core  technology,  and research
contracts,  are amortized on a straight-line  basis over their estimated  useful
lives of 6 to 10 years.

                                     --8--
<PAGE>
                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

      On March 5, 2002 the Company  entered into an agreement with BMS (the "BMS
Asset  Purchase  Agreement")  and acquired the United  States  rights to five of
BMS's brand products including the antihypertensives Capoten(R) anD Capozide(R),
the  cholesterol-lowering  medications  Questran(R) and QuestRan  Light(R),  and
Sumycin(R),  an antibiotic.  Pursuant to the BMS Asset PurchAse  Agreement,  the
Company  paid  approximately  $1,024,000  in  March  2002,  agreed  to  make  an
additional payment of approximately $1,025,000 in the first quarter of 2003, and
terminated its outstanding  litigation  against BMS involving  megestrol acetate
oral suspension and buspirone.  The Company  determined,  through an independent
third party appraisal,  the fair value of the BMS Asset Purchase Agreement to be
$11,700,000,  which exceeded the cash consideration of $2,049,000 and associated
costs of  $600,000  by  $9,051,000.  The  $9,051,000  value was  assigned to the
litigation settlements and included in settlement income in the first quarter of
2002.  The fair value of the BMS Asset  Purchase  Agreement  is  amortized  on a
straight-line basis over seven years beginning in March 2002, and the net amount
is included in intangible  assets.  The  amortization  is included as a non-cash
charge in cost of goods sold.

      The Company recorded  amortization expense related to intangible assets of
$1,798,000  and $767,000,  respectively,  for the nine and  three-month  periods
ended  September  30,  2002.  Annual  amortization   expense  related  to  these
intangible  assets in each of the next five years is expected  to be  $3,070,000
per year.

ACQUISITION OF FINETECH:

      On March 15, 2002, the Company  announced the  termination of negotiations
with ISP  related to the  Company's  purchase  of the entire ISP  FineTech  fine
chemical business,  based in Haifa, Israel and Columbus, Ohio. At that time, the
Company  discontinued  negotiations  with ISP as a result of various  events and
circumstances that occurred after the announcement of the proposed  transaction.
Pursuant to the  termination of the purchase,  the Company paid ISP a $3,000,000
break-up  fee in March 2002,  which was subject to certain  credits and offsets,
and incurred  approximately  $1,254,000 in related  acquisition  costs,  both of
which are included in other expense in fiscal year 2002.

      The Company subsequently purchased FineTech,  based in Haifa, Israel, from
ISP in April  2002 for  approximately  $32,000,000  and  $1,217,000  in  related
acquisition  costs  financed  by its  cash-on-hand.  The  Company  acquired  the
physical facilities,  intellectual property and patents of FineTech and retained
all of FineTech employees. FineTech specializes in the design and manufacture of
proprietary  synthetic  chemical  processes  used in the  production  of complex
organic compounds for the  pharmaceutical  industry.  FineTech also manufactures
complex synthetic active pharmaceutical ingredients for companies in the branded
and generic  pharmaceutical  industries at its manufacturing  facility in Haifa,
Israel. This facility operates in compliance with FDA current good manufacturing
practices (cGMP) standards. FineTech had revenues of approximately $6,000,000 in
fiscal  year 2001;  however,  the  purchase  is not  expected to have a material
effect on the  Company's  earnings in fiscal year 2002.  The Company  expects to
transfer a portion of  FineTech's  personnel  and  technological  resources to a
laboratory facility in the northeastern  United States.  FineTech is operated as
an  independent,  wholly-owned  subsidiary  of PRX and  will  provide  immediate
chemical synthesis  capabilities and strategic  opportunities to the Company and
other customers.

      The  purchase  price  for  FineTech  has  been  allocated  to  assets  and
liabilities based on management's estimates of fair value through an independent
third party valuation firm. The following table sets forth the allocation of the
purchase price (in thousands):

            Current assets                                $971
            Property, plant and equipment                1,045
            Intellectual property                        6,580
            Goodwill                                    24,643
                                                        ------
              Total assets acquired                     33,239

            Current liabilities                             22
                                                            --
              Total liabilities assumed                     22
                                                            --

            Net assets acquired                        $33,217
                                                        ======


                                     --9--
<PAGE>
                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

      In accordance with SFAS No. 142,  "Goodwill and Other Intangible  Assets",
the goodwill will not be amortized,  but will be tested for  impairment  using a
fair value approach at least annually.

CHANGES IN SHAREHOLDERS' EQUITY:

      Changes in the  Company's  Common  Stock and  additional  paid-in  capital
accounts during the nine months ended September 30, 2002 were as follows:

<TABLE>
<CAPTION>
                                                                                ADDITIONAL
                                                   COMMON STOCK                  PAID-IN
                                            SHARES              AMOUNT           CAPITAL
                                            ------              ------           -------
<S>                                      <C>                   <C>             <C>
     Balance, December 31, 2001          32,035,189            $320,000        $115,610,000
      Exercise of stock options             662,546               7,000           2,020,000
      Compensatory arrangements               5,939              -                   (1,000)

     Balance, September 30, 2002         32,703,674            $327,000        $117,629,000
                                         ==========            ========        ============
</TABLE>

RESEARCH AND DEVELOPMENT VENTURES:

      The Company is committed  to  developing  new  products  that have limited
competition and longer product life cycles. To augment its internal  development
program, the Company seeks to enter into research and development ventures where
it can share development costs while using the expertise of its partners.  As of
September  30,  2002,  the Company had entered into the  following  research and
development ventures.

  RHODES TECHNOLOGIES, INC.:
      In  April  2002,  the  Company  entered  into  an  agreement  with  Rhodes
Technologies,  Inc.  ("RTI"),  an  affiliated  company of Purdue Pharma L.P., to
establish  a joint  venture  partnership  in the  United  States.  The new joint
venture will be named SVC Pharma and will be owned equally by both parties.  SVC
Pharma will utilize, on a case-by-case basis, advanced technologies and patented
processes  to  develop,  manufacture,  market  and  distribute  certain  unique,
proprietary pharmaceutical products. Under the terms of the agreement, when both
partners  agree to pursue a  specific  project,  each  partner  will  contribute
resources to the new enterprise.  RTI will provide  scientific and technological
expertise in the development of non-infringing,  complex molecules.  In addition
to providing chemical synthesis capabilities, RTI will provide the manufacturing
capacity for sophisticated  intermediate and active pharmaceutical  ingredients.
Par  will  provide  development  expertise  in  dosage  formulation  and will be
responsible  for  marketing,  sales and  distribution.  The companies will share
equally in expenses and profits.  SVC Pharma has identified  several  candidates
for drug development, the first of which has the potential to be marketed by the
Company in fiscal  year 2004.  The  Company  expects to begin  funding the first
project pursuant to the agreement in the fourth quarter of fiscal year 2002. The
Company will account for the expenses of SVC Pharma as a joint  venture and will
charge its portion of those expenses to research and development as incurred.

  GENERICS (UK) LTD.:
      The Company,  Israel  Pharmaceutical  Resources L.P. ("IPR"), and Generics
(UK) Ltd.  ("Generics"),  a subsidiary of Merck KGaA,  entered into an agreement
(the "Development  Agreement"),  dated as of August 11, 1998,  pursuant to which
Generics  agreed to fund one-half the costs of the operating  budget of IPR, the
Company's  research and  development  operation  in Israel,  in exchange for the
exclusive distribution rights outside of the United States to products developed
by IPR after the date of the Development Agreement. In addition, Generics agreed
to pay IPR a perpetual  royalty for all sales of the products by Generics or its
affiliates  outside  the United  States.  To date,  no such  products  have been
brought to market by  Generics  and no royalty  has been paid.  The  Development
Agreement  has an  initial  term of five  years  and  automatically  renews  for
additional  periods of one year subject to earlier  termination upon six months'
notice in certain circumstances. Pursuant to the Development Agreement, Generics
funded  $788,000  for fiscal year 2001 and $577,000 for the first nine months of
fiscal year 2002,  fulfilling their funding  requirements  through September 30,
2002.  Under the  Development  Agreement,  Generics is not required to fund more
than  $1,000,000 in any one calendar  year.  The expenses of IPR are included in
research and development as incurred, net of the funding from Generics.


                                     --10--
<PAGE>
                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

PRODUCT DEVELOPMENT AGREEMENTS:

      In addition to research and  development  ventures,  the Company  seeks to
enter into other  development  agreements with third parties with respect to the
development of new products and  technologies.  To date, the Company has entered
into  several  of these  types  of  agreements  and  advanced  funds to  several
non-affiliated companies for products in various stages of development.  Amounts
related to contractual rights acquired by the Company to products which have not
yet been approved by the FDA where the Company has no alternative future use for
the product, are expensed as research and development costs. Similarly,  funding
by the Company of the research and development  efforts of others are charged to
research and development  expense. In fiscal year 2002, the Company entered into
the following product development agreements it believes are significant.

  THREE RIVERS PHARMACEUTICALS, LLC.
      In July 2002,  the Company and Three Rivers  Pharmaceuticals,  LLC ("Three
Rivers") entered into a license and distribution agreement, which was amended in
October  2002,  (the  "Three  Rivers  Distribution  Agreement")  to  market  and
distribute  ribavirin 200 mg capsules,  the generic version of Schering-Plough's
Rebetol(R).  Ribavirin, a synthetic nucleoside analogue witH antiviral activity,
is indicated for the treatment of hepatitis C, a chronic  condition  suffered by
approximately  4  million  Americans.  Under  the  terms  of  the  Three  Rivers
Distribution Agreement,  Three Rivers will supply the product and be responsible
for managing the  regulatory  process and ongoing  patent  litigation.  Upon FDA
approval and final  marketing  clearance,  Par will have the exclusive  right to
sell the  product in  non-hospital  markets  and will be  required  to pay Three
Rivers a  percentage  of the gross  profits  as  defined  in the  agreement.  In
addition,  the Company paid Three Rivers  $1,000,000 in November 2002 and agreed
to pay Three Rivers $500,000 at such time Par commercially launches the product.
Three  Rivers filed an ANDA with a Paragraph  IV  certification  with the FDA in
August 2001 and is currently in litigation with the patent holders. According to
current FDA practice,  Par believes it may be entitled to co-exclusively  market
the generic  product  ribavirin  for up to 180 days,  during which time only one
other company could be approved to market another  generic  version of the drug.
If successful, Par could introduce ribavirin in the 2003 to 2004 timeframe.

  NORTEC DEVELOPMENT ASSOCIATES, INC.:
      In May 2002, the Company entered into an agreement with Nortec Development
Associates,  Inc. (a Glatt  company)  ("Nortec") to develop an extended  release
generic version of a currently marketed branded extended release  pharmaceutical
product.  Under the terms of the  agreement,  the Company  obtained the right to
utilize  Nortec/Glatt's  CPS(TM)  Technology  in iTs  ANDA  submission  for  the
potential  product covered in the agreement.  If formulation and development are
successful,  the ANDA for the drug will be submitted to the FDA in 2003 and will
include  a  Paragraph  IV  certification.  CPS(TM)  Technology  is  Glatt's  new
proprietary  drug delivery  system for tHe  development  and  production of drug
pellets with controlled release  properties.  The Company and Nortec have agreed
to  collaborate  on the  formulation,  while  Par will  serve  as the  exclusive
marketer and distributor of the product.

      In June 2002,  the  Company  expanded  its  collaboration  with  Nortec to
develop an  extended  release  generic  version of another  currently  marketed,
branded  extended  release  pharmaceutical  product.  Under the terms of the new
agreement,  Par also  obtained  the  right  to  utilize  Nortec/Glatt's  CPS(TM)
Technology  in its ANDA  submission  for the  potential  product  covered in the
agreement.  If successful in development,  the Company expects to submit an ANDA
to the FDA for the  product  in 2003.  The  Company  and Nortec  have  agreed to
collaborate on the formulation,  while Par will serve as the exclusive  marketer
and distributor of the product.

      Pursuant to these agreements with Nortec, the Company made  non-refundable
payments  totaling  $1,000,000,  which was charged to research  and  development
expenses in fiscal year 2002. In addition,  the Company agreed to pay a total of
$800,000  in  various   installments  related  to  the  achievement  of  certain
milestones in the  development  of the two  potential  products and $600,000 for
each  product on the day of the first  commercial  sale.  In  addition  to these
payments,  the  Company  agreed  to pay  Nortec a  royalty  on net  sales of the
products, as defined in the agreements.


                                     --11--
<PAGE>
                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

DISTRIBUTION AND SUPPLY AGREEMENTS:

      A  significant  portion  of the  Company's  product  line  is  made  up of
distributed products,  which consist of products manufactured under contract and
licensed  products,  sold  through  various  distribution  agreements  with  its
strategic partners. The Company's significant distribution and supply agreements
as of September 30, 2002, include the following agreements.

  DR. REDDY'S LABORATORIES LTD.
      In April 2001, the Company and Dr. Reddy's Laboratories Ltd. ("Reddy"),  a
producer  of bulk  active  ingredients  for the  pharmaceutical  industry  and a
developer and  manufacturer of finished  dosage forms located in India,  entered
into  a  broad-based   co-marketing   and  development   agreement  (the  "Reddy
Development  and Supply  Agreement")  covering  up to 14 generic  pharmaceutical
products,  three of which have been filed with, and are awaiting  approval from,
the FDA,  to be  marketed  exclusively  by Par in the United  States and certain
other  United  States  territories.   Reddy  is  required  to  use  commercially
reasonable  efforts to develop the products covered by the Reddy Development and
Supply Agreement,  and is responsible for the completion of product  development
and for obtaining all applicable  regulatory  approvals.  To date, three of such
products have obtained FDA approval,  two of which are currently  being marketed
by Par. The products  covered by the Reddy  Development and Supply Agreement are
in addition to four products currently being marketed by the Company under prior
agreements with Reddy. Pursuant to these agreements with Reddy, the Company pays
Reddy a certain  percentage of the gross profits,  as defined in each agreement,
on sales of all products covered under such agreements.

  GENPHARM, INC.
      Pursuant  to the  Genpharm  Distribution  Agreement,  the  Company has the
exclusive  distribution rights within the United States and certain other United
States territories to approximately 40 generic pharmaceutical products. To date,
18 of such products have obtained FDA approval and are currently  being marketed
by Par. The remaining products are either being developed,  have been identified
for  development,  or have been  submitted to the FDA for  approval.  Currently,
there are seven ANDAs for potential products (two of which have been tentatively
approved) that are covered by the Genpharm Distribution  Agreement pending with,
and awaiting  approval from, the FDA.  Genpharm is required to use  commercially
reasonable efforts to develop the products and is responsible for the completion
of product development and obtaining all applicable  regulatory  approvals.  The
Company  pays  Genpharm a  percentage  of the gross  profits,  as defined in the
agreement,  on all  sales  of  products  covered  by the  Genpharm  Distribution
Agreement.

      On July 31,  2001,  Alphapharm  Pty  Ltd.  ("Alphapharm"),  an  Australian
subsidiary of Merck KGaA,  was granted final  approval by the FDA for flecainide
acetate  tablets,  the generic  version of  Minnesota  Mining and  Manufacturing
Companys'  ("3Ms'")  Tambocor(R).  In June  2002,  the  Company  begaN  shipping
flecainide acetate, covered under the Genpharm Distribution Agreement,  which is
indicated for the prevention of paroxysmal supraventricular  tochycardias (PSUT)
and  documented  ventricular  arrhythmia.   Although  the  FDA  awarded  generic
marketing  exclusivity for flecainide acetate to Par through October 2002, Par's
launch of  flecainide  acetate is under  license  from 3M. Under the terms of an
agreement  with 3M, Par will pay a licensing  fee to 3M based on a percentage of
Par's flecainide  sales. The parties have also agreed to dismiss all outstanding
claims in settling patent litigation between them and counter claims between the
parties,  thereby  allowing  Par to ship  flecainide  without risk of any future
litigation from 3M.

      The  Company and  Genpharm  entered  into a  distribution  agreement  (the
"Genpharm Additional Product  Agreement"),  dated November 27, 2000, pursuant to
which  Genpharm  granted the Company  exclusive  distribution  rights within the
United States and certain other United States  territories  with respect to five
generic pharmaceutical products not included in the Company's other distribution
agreements  with  Genpharm.  To date,  two of such  products  have  obtained FDA
approval and are currently  being  marketed by Par. The  remaining  products are
either being developed or have been identified for development. Genpharm and the
Company are sharing the costs of  developing  the products and for obtaining all
applicable regulatory  approvals.  The Company will pay Genpharm a percentage of
the gross profits, as defined in the agreement, on all sales made by the Company
of products included in the Genpharm Additional Product Agreement.

                                     --12--
<PAGE>
                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

      Under the  Genpharm  11  Product  Agreement,  Genpharm  will  develop  the
products, submit all corresponding ANDAs to the FDA and subsequently manufacture
the products.  Par will serve as exclusive U.S.  marketer and distributor of the
products,  pay a share of the costs,  including  development  and legal expenses
incurred to obtain final regulatory  approval,  and pay Genpharm a percentage of
the gross  profits  on all  sales of  products  covered  under  this  agreement.
Currently  there are three  ANDA's  for  potential  products  covered  under the
Genpharm  11 Product  Agreement,  two of which have been  tentatively  approved,
pending with, and awaiting approval from, the FDA.

  BASF CORPORATION:
      In April 1997, Par entered into a Manufacturing  and Supply Agreement (the
"BASF Supply  Agreement")  with BASF  Corporation  ("BASF"),  a manufacturer  of
pharmaceutical products. Under the BASF Supply Agreement, Par agreed to purchase
minimum  quantities of certain  products  manufactured by BASF, and to phase out
Par's  manufacturing  of  those  products.  As  part  of  the  agreement,   BASF
discontinued  its direct sale of those  products.  The  agreement had an initial
term of three years and would have renewed automatically for successive two-year
periods  until  December 31, 2005, if Par had met certain  purchase  thresholds.
Since Par did not meet the minimum  purchase  requirement  of one product in the
third and final  year of the  agreement,  BASF had the  right to  terminate  the
agreement  with a notice period of one year.  BASF has not given Par such notice
and to ensure continuance of product supply, BASF and the Company have agreed to
continue to operate under terms similar to those of the BASF Supply Agreement.

SHORT-TERM DEBT:

     In December 1996, Par entered into a Loan and Security Agreement (the "Loan
Agreement")  with  General  Electric  Capital  Corporation  ("GECC").  The  Loan
Agreement,  as amended,  provides Par with a revolving  line of credit  expiring
March 2005. Pursuant to the Loan Agreement, Par is permitted to borrow up to the
lesser of (i) the borrowing  base  established  under the Loan Agreement or (ii)
$30,000,000.  The  borrowing  base  is  limited  to  85%  of  eligible  accounts
receivable  plus 50% of eligible  inventory of Par, each as determined from time
to time by GECC. As of September 30, 2002, the borrowing base was  approximately
$27,000,000. The interest rate charged on the line of credit is based upon a per
annum  rate of 2.25%  above the  30-day  commercial  paper  rate for  high-grade
unsecured notes adjusted monthly. The line of credit with GECC is collateralized
by the assets of Par, PRX and certain  subsidiaries,  other than real  property,
and is guaranteed  by PRX and certain of its  subsidiaries.  In connection  with
such  facility,  Par,  PRX  and  their  subsidiaries  have  established  a  cash
management  system pursuant to which all cash and cash  equivalents  received by
any of such  entities are deposited  into a lockbox  account over which GECC has
sole  operating  control  if there  are  amounts  outstanding  under the line of
credit.  The  deposits  would  then be  applied  on a daily  basis to reduce the
amounts  outstanding under the line of credit.  The revolving credit facility is
subject to covenants based on various  financial  benchmarks.  In November 2002,
GECC waived certain events of default related to financial covenants and amended
the financial  covenants in the Loan Agreement.  To date, no debt is outstanding
under the Loan Agreement.

INCOME TAXES:

      The Company accounts for income taxes in accordance with the provisions of
SFAS 109,  which  requires  the  Company to  recognize  deferred  tax assets and
liabilities for the future tax consequences  attributable to differences between
the financial  statement carrying amounts of existing assets and liabilities and
their  respective  tax bases.  At September 30, 2002 and December 31, 2001,  the
Company  had  deferred  income  tax  assets  of  $45,171,000  and   $34,485,000,
respectively, consisting of temporary differences, primarily related to accounts
receivable  reserves,  and net deferred income tax liabilities of $3,843,000 and
$4,129,000,   respectively,  primarily  related  to  the  Genpharm  Distribution
Agreement.  The  increase  in the  deferred  tax  asset is  primarily  due to an
increase  in  the  Company's   provision   for   chargebacks   (see   "-Accounts
Receivable").


                                     --13--
<PAGE>
                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

EARNINGS PER SHARE:

      The Company  presents  earnings per share data in accordance with SFAS No.
128,  "Earnings Per Share" ("SFAS 128"), which establishes the standards for the
computation and presentation of basic and diluted earnings per share data. Under
SFAS 128, the dilutive  effect of stock options is excluded from the calculation
of basic earnings per share but included in diluted earnings per share except in
periods of net loss where inclusion would be  anti-dilutive.  The following is a
reconciliation  of the amounts used to calculate basic and diluted  earnings per
share:

<TABLE>
<CAPTION>
                                                           NINE MONTHS ENDED              THREE MONTHS ENDED
                                                           -----------------              ------------------
                                                                     (*RESTATED)                       (*RESTATED)
                                                        SEPT. 30,      SEPT. 29,         SEPT. 30,      SEPT. 29,
                                                          2002           2001              2002           2001
                                                          ----           ----              ----           ----
                                                                (In Thousands, Except Per Share Amounts)
<S>                                                      <C>             <C>              <C>            <C>
NET INCOME                                               $60,783         $37,432          $19,643        $33,732

BASIC:
Weighted average number of common
  shares outstanding                                      32,194          30,106           32,476         30,871

NET INCOME PER SHARE OF COMMON STOCK                       $1.89           $1.24             $.60          $1.09
                                                         =======         =======          =======        =======

ASSUMING DILUTION:
Weighted average number of common
  shares outstanding                                      32,194          30,106           32,476         30,871
Effect of dilutive options                                   768           1,796              676          1,557
                                                         -------         -------          -------        -------
Weighted average number of common and common
   equivalent shares outstanding                          32,962          31,902           33,152         32,428

NET INCOME PER SHARE OF COMMON STOCK                       $1.84           $1.17             $.59          $1.04
                                                         =======         =======          =======        =======
</TABLE>

* Restated as described in Notes to Consolidated Financial Statements.

      The Company had outstanding  options of 2,107,958 and 2,088,828 at the end
of the nine-month and three-month periods ended September 30, 2002 that were not
included in the  computation of diluted  earnings per share because the exercise
prices were greater  than the average  market price of the Common Stock for such
period. As of September 29, 2001, none of the Company's  outstanding options and
warrants was excluded from the computation of diluted  earnings per share due to
their exercise price. As of September 30, 2002 and 2001, all incremental  shares
from assumed  conversions of the Company's  outstanding  options and warrants in
the three and  nine-month  periods were included in the  computation  of diluted
earnings per share.

NEW ACCOUNTING STANDARDS:

      In June 2002, the Financial  Accounting  Standards  Board ("FASB")  issued
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS 146"), which is effective for the Company as of January 1, 2003. SFAS 146
addresses  financial  accounting and reporting for costs associated with exit or
disposal  activities and nullifies EITF Issue No. 94-3,  "Liability  Recognition
for Certain  Employee  Termination  Benefits and Other Costs to Exit an Activity
(including  Certain  Costs  Incurred  in  a  Restructuring)."   The  Company  is
evaluating  the impact of the adoption of SFAS 146, but does not believe it will
have a material impact on the Company's financial position, result of operations
or cash flows.

                                     --14--
<PAGE>
                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:

  COMMITMENTS:
      In December  2001,  Par entered  into an agreement  with Elan  Transdermal
Technologies,  Inc.  ("Elan") to develop a range of modified  release drugs over
the next five  years.  Under  the terms of the  agreement,  the  companies  will
identify two drug  candidates  for  development  at the  beginning of each year,
commencing  in the  first  quarter  of 2002.  Elan will be  responsible  for the
development and  manufacture of all products,  while Par will be responsible for
marketing,  sales and  distribution.  Par will  reimburse  Elan for research and
development costs and Elan will receive a royalty from the sale of the products.
Pursuant to the agreement,  Par will pay Elan up to $1,500,000 per calendar year
in  monthly  installments  beginning  on the  date  of the  commencement  of the
development  program for each product.  The Company paid Elan $1,000,000,  which
was charged to research and  development  expenses,  for products  covered under
this  agreement in the first nine months of 2002.  In addition,  the Company has
commitments  under other  product  research and  development,  distribution  and
supply agreements, which are described elsewhere in this Form 10-Q.

  LEGAL PROCEEDINGS:
      Par has filed an ANDA  (currently  pending  with the FDA) for  latanoprost
(Xalatan(R)),  which was developed by Breath Ltd. of the Arrow Group pursuant to
a joint manufacturing and marketing agreement with the Company, seeking approval
to engage in the commercial manufacture, sale and use of the latanoprost product
in the United States.  Par's ANDA includes a Paragraph IV certification that the
existing  patents in connection  with Xalatan(R) are invalid,  unenforceable  or
will not be infringed by Par's generic  product.  Par has reason to believe that
its  ANDA  is  the  first  to be  filed  for  this  drug  with  a  Paragraph  IV
certification.  As a result of the  filing of the ANDA,  Pharmacia  Corporation,
Pharmacia AB, Pharmacia Enterprises,  S.A., Pharmacia and Upjohn Company and the
Trustees of Columbia  University in the City of New York filed lawsuits  against
the Company on December  14, 2001 in the United  States  District  Court for the
District of  Delaware  and on December  21, 2001 in the United  States  District
Court for the District of New Jersey alleging patent infringement. Pharmacia and
Columbia are seeking an  injunction  to prevent the Company from  marketing  its
generic  product prior to the expiration of their patents.  On February 8, 2002,
Par  answered  the  complaint  brought in the District of New Jersey and filed a
counterclaim,  which seeks a declaration that the  patents-in-suit  are invalid,
unenforceable  and/or  not  infringed  by  Par's  products.  Par  also  seeks  a
declaratory  judgment  that the  extension  of the term of one of the patents is
invalid. All parties are seeking to recover their respective attorneys' fees. On
February 25, 2002, the lawsuit brought in the District of Delaware was dismissed
pursuant to a stipulation of the parties. The case in the District of New Jersey
is currently in fact discovery. Par intends to vigorously defend the lawsuit. At
this time,  it is not  possible  for the  Company to predict  the outcome of the
plaintiffs' motion for injunctive relief or their claim for attorneys' fees.

      Par,  among others,  is a defendant in three  lawsuits filed in the United
States  District  Court for the  Eastern  District of North  Carolina  (filed on
August 1, 2001,  October  30,  2001 and  November  16,  2001,  respectively)  by
aaiPharma Inc., involving patent infringement  allegations  connected to a total
of three patents  related to polymorphic  forms of fluoxetine  (Prozac(R)).  Par
intends to  vigorously  defend these cases.  While the outcome of  litigation is
never certain, Par believes that it will prevail in these litigations.

      On August 1, 2001 Alpharma USPD, Inc. ("Alpharma"") filed a lawsuit in the
U.S. District Court for the District of Maryland seeking a declaratory  judgment
that Alpharma's  megestrol acetate formulation does not infringe U.S. Patent No.
6,028,065  (the `065 patent)  granted to the Company and/or that the `065 patent
is  invalid.  The  Company  moved to  dismiss  Alpharma's  declaratory  judgment
complaint on the grounds that the court lacked subject matter jurisdiction,  and
the Maryland court granted the Company's motion. On February 7, 2002 the Company
commenced a lawsuit against Alpharma in the U.S. District Court for the Southern
District of New York for  infringement  of the `065  patent and U.S.  Patent No.
6,268,356  B1 granted to the  Company.  Alpharma  filed a  counterclaim  in that
action  for a  declaration  that  its  megestrol  acetate  formulation  does not
infringe the Company's patents and/or that the asserted patents are invalid. One
of Alpharma's invalidity challenges is based on its alleged earlier invention of
the subject matter described and claimed in the Company's asserted patents. Both
the Company and Alpharma seek payment of their  attorneys'  fees in the lawsuit.
The parties currently are engaged in discovery in that matter. While the outcome
of litigation is uncertain,  the Company believes its position in the litigation
is strong based,  among other things, on the findings of the Patent Office Board
of  Appeals  and   Interferences  in  its  October  18,  2002  decision  in  the
interference  proceeding  involving the Company and Alpharma  (see  "-Subsequent
Events").  Alpharma  currently  does not have FDA approval to sell its megestrol


                                     --15--
<PAGE>

acetate  formulation  and is not  currently  marketing a megestrol  acetate oral
suspension.

      The Company is involved in certain  other  litigation  matters,  including
product  liability and patent actions,  as well as actions by former  employees,
and believes  these  actions are  incidental  to the conduct of its business and
that the ultimate  resolution thereof will not have a material adverse effect on
its financial condition, results of operations or liquidity. The Company intends
to vigorously defend these actions.

  OTHER MATTERS:
      In December 2001, the Company made the first installment of a total agreed
equity  investment  of up to  $2,437,000  to be made  over a  period  of time in
HighRapids,  Inc. ("HighRapids"),  a Delaware Corporation and software developer
and owner of patented rights to an artificial intelligence generator. HighRapids
is the  surviving  corporation  of a merger with  Authorgenics,  Inc., a Florida
corporation.  HighRapids  will utilize the  Company's  cash infusion for working
capital  and  operating  expenses.  Through  September  30, 2002 the Company had
invested $591,000 in High Rapids.  The remainder of the investment is subject to
the Company's  ongoing  evaluation of HighRapids  operations.  Due to HighRapids
current  operating  losses  and  the  Company's  evaluation  of  its  short-term
prospects  for  profitability,  the  investment  was  expensed as  incurred  and
included in other  expense on the  consolidated  statements of  operations.  The
Company has the exclusive right to market to the pharmaceutical industry certain
regulatory  compliance  and  laboratory  software  currently in  development  by
HighRapids.  PRX's Chief Executive  Officer and a director of the Company,  each
holds  shares of  HighRapids  common stock (less than 1%),  which were  acquired
prior to the Company acquiring its interest in HighRapids.

SUBSEQUENT EVENTS:
      The Company has prevailed  against Alpharma in an interference  proceeding
before the United States Patent and Trademark  Office  concerning  the Company's
patents  and  applications   relating  to  megestrol   acetate  oral  suspension
formulations. The decision was issued on October 18, 2002 by a three-judge panel
of  the  Patent  Office  Board  of  Patent  Appeals  and  Interferences.  In the
interference  proceeding,  Alpharma  was alleging  earlier  invention of subject
matter described and claimed in the Company's issued U.S. Patent Nos. 6,028,065,
and 6,268,356 and related  patent  application.  The  interference  was declared
earlier this year based on a competing patent application filed by Alpharma. The
Patent  Office Board  determined  that the Company had priority of the invention
over  Alpharma.   The  Company's  patents  relating  to  its  megestrol  acetate
formulation  remain  valid  and in force.  On  February  7,  2002,  the  Company
commenced a lawsuit against Alpharma for  infringement of the Company's  patents
in the United States District Court for the Southern District of New York.

      In November 2001,  the FDA granted  Genpharm,  a strategic  partner of the
Company,  180  days'  marketing  co-exclusivity  for 10 mg and  20 mg  doses  of
omeprazole,  the generic version of Astra Zeneca's  ("Astra")  Prilosec(R).  The
exclusivity  allowed only Genpharm and/or Andrx  Corporation  ("Andrx") to enter
the market during the exclusivity period.  Under a profit sharing agreement with
Genpharm,  the Company was entitled to receive at least 30% of profits generated
by  Genpharm  based on the  sale of  omeprazole.  The  timing  and  value of the
arrangement  depended on the final  outcome of litigation  between  Genpharm and
Astra, among other factors.

     In  November  2002,  the  Company  announced  that  Genpharm  and  Andrx in
conjunction  with KUDCo,  a  subsidiary  of Schwarz  Pharma AG of  Germany,  had
relinquished  its  exclusivity  rights  for 10 mg and 20 mg doses of  omeprazole
allowing KUDCo to enter the market with a generic version of  Prilosec(R).  As a
result,  KUDCo has  received  final ANDA  approval  from the FDA for its generic
version of Prilosec(R).  The terms of the agreement initially provide Genpharm a
15% share of KUDCo's  profits with a subsequent  reduction over a period of time
based on a number of factors. The Company reduced its share of Genpharm's profit
derived from  omeprazole  from 30% to 25%. KUDCo has announced that they plan to
launch  omeprazole "at risk" before the end of fiscal year 2002 because Astra is
appealing the court's patent infringement  decision.  The full extent of KUDCo's
omeprazole  launch on the  Company's  revenues  is unclear  since,  among  other
things,  Astra has  introduced  a new drug,  Nexium(R),  in an attempt to switch
consumers using  Prilosec(R) and Astra's  decision to market a  non-prescription
form of Prilosec(R) along with Proctor & Gamble, all of which may reduce generic
sales of omeprazole.


                                     --16--
<PAGE>

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

      CERTAIN  STATEMENTS  IN THIS  FORM  10-Q MAY  CONSTITUTE  "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE  SECURITIES  LITIGATION REFORM ACT
OF 1995,  INCLUDING THOSE CONCERNING  MANAGEMENT'S  EXPECTATIONS WITH RESPECT TO
FUTURE FINANCIAL  PERFORMANCE AND FUTURE EVENTS,  PARTICULARLY RELATING TO SALES
OF CURRENT  PRODUCTS AND THE  INTRODUCTION OF NEW  MANUFACTURED  AND DISTRIBUTED
PRODUCTS.  SUCH STATEMENTS  INVOLVE KNOWN AND UNKNOWN RISKS,  UNCERTAINTIES  AND
CONTINGENCIES,  MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY, WHICH COULD
CAUSE ACTUAL  RESULTS AND  OUTCOMES TO DIFFER  MATERIALLY  FROM THOSE  EXPRESSED
HEREIN.  THESE  STATEMENTS ARE OFTEN,  BUT NOT ALWAYS,  MADE TYPICALLY BY USE OF
WORDS  OR  PHRASES  SUCH  AS  "ESTIMATE,"  "PLANS,"  "PROJECTS,"  "ANTICIPATES,"
"CONTINUING,"  "ONGOING,"  "EXPECTS,"  "BELIEVES," OR SIMILAR WORDS AND PHRASES.
FACTORS THAT MIGHT AFFECT SUCH FORWARD-LOOKING STATEMENTS SET FORTH IN THIS FORM
10-Q INCLUDE,  AMONG OTHERS,  (I)  INCREASED  COMPETITION  FROM NEW AND EXISTING
COMPETITORS  AND  PRICING  PRACTICES  FROM  SUCH  COMPETITORS  (ESPECIALLY  UPON
COMPLETION OF EXCLUSIVITY  PERIODS),  (II) PRICING PRESSURES  RESULTING FROM THE
CONTINUED CONSOLIDATION BY THE COMPANY'S DISTRIBUTION CHANNELS, (III) THE AMOUNT
OF FUNDS  AVAILABLE  FOR  INTERNAL  RESEARCH  AND  DEVELOPMENT  AND RESEARCH AND
DEVELOPMENT  JOINT  VENTURES,  (IV) RESEARCH AND  DEVELOPMENT  PROJECT DELAYS OR
DELAYS  AND  UNANTICIPATED  COSTS  IN  OBTAINING   REGULATORY   APPROVALS,   (V)
CONTINUATION  OF  DISTRIBUTION  RIGHTS UNDER  SIGNIFICANT  AGREEMENTS,  (VI) THE
CONTINUED ABILITY OF DISTRIBUTED PRODUCT SUPPLIERS TO MEET FUTURE DEMAND,  (VII)
THE COSTS AND OUTCOME OF ANY THREATENED OR PENDING LITIGATION,  INCLUDING PATENT
AND  INFRINGEMENT   CLAIMS,   (VIII)   UNANTICIPATED   COSTS  IN  ABSORBING  ANY
ACQUISITIONS   AND  (IX)  GENERAL   INDUSTRY  AND   ECONOMIC   CONDITIONS.   ANY
FORWARD-LOOKING  STATEMENTS  INCLUDED  IN THIS FORM 10-Q ARE MADE ONLY AS OF THE
DATE  HEREOF,  BASED ON  INFORMATION  AVAILABLE  TO THE  COMPANY  AS OF THE DATE
HEREOF,  AND, SUBJECT TO APPLICABLE LAW TO THE CONTRARY,  THE COMPANY ASSUMES NO
OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS.

      PRIOR YEAR NUMBERS GIVE EFFECT TO THE  RESTATEMENT  DESCRIBED IN THE NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS.

RESULTS OF OPERATIONS

GENERAL

      The Company  experienced  significant  sales,  gross margin and net income
growth in the  nine-month  period ended  September 30, 2002 when compared to the
nine  months  ended  September  29,  2001.  Net  income of  $60,783,000  for the
nine-month  period of 2002 increased  $23,351,000  from $37,432,000 for the same
period of 2001.  The net income in the prior year includes the favorable  impact
of the reversal of a previously  established  valuation  allowance of $9,092,000
related to net operating loss ("NOL") carryforwards. Net sales were $282,500,000
in the most recent nine-month  period, an increase of $99,575,000,  or 54%, from
fiscal  year 2001.  The  increased  revenues  were  primarily  the result of new
product  introductions  in  fiscal  year  2002  and the  continuing  success  of
megestrol acetate oral suspension (Megace(R) Oral Suspension), introduced in the
third quarter of 2001. The revenue  increases were achieved  despite lower sales
of fluoxetine  (Prozac(R)) 10 mg and 20 mg tablets,  which were  introduced with
180-day  exclusivity  in August  2001 and have since  experienced  severe  price
competition in fiscal year 2002. The sales growth generated higher gross margins
of  $132,642,000,  or 47%  of net  sales,  in  fiscal  year  2002,  compared  to
$71,477,000,  or 39% of net sales, in the same period of the prior year. Results
for the nine months ended  September  30, 2002  included  increased  spending on
research and development  and selling,  general and  administrative  expenses of
$3,154,000 and $11,529,000,  respectively,  primarily due to increased  activity
with outside development  partners,  and additional  personnel costs,  marketing
programs,  shipping costs and legal fees associated  with new product  launches.
Additionally,  the Company  recorded net settlement  income of $9,051,000 in the
first quarter of 2002 related to the  termination of its litigation with BMS and
other  expense  of  $4,254,000  in  connection   with  its  termination  of  the
acquisition  of the entire ISP FineTech fine chemical  business  based in Haifa,
Israel and Columbus,  Ohio. The Company subsequently purchased FineTech based in
Haifa,  Israel,  from ISP in April 2002.  FineTech had revenues of approximately
$6,000,000  in 2001;  however,  the  purchase is not expected to have a material
effect on the Company's earnings in fiscal year 2002.

      The Company's  net income for the third  quarter ended  September 30, 2002
decreased  $14,089,000  to  $19,643,000  compared  to  $33,732,000  in the third
quarter of the prior year,  primarily due to lower sales of products launched in
the prior year with 180-days  exclusivity and increased operating  expenses.  In
addition,  net income in the third quarter of 2001 was favorably impacted by the
reversal of the valuation  allowance  related to NOL  carryforwards as described
above.   Third  quarter  2002  sales  and  gross  margins  of  $100,237,000  and
$46,952,000  (47% of net sales),  respectively,  decreased over prior year third
quarter  sales and gross margins of  $127,924,000  and  $51,928,000  (41% of net
sales).  The level of sales in last year's third  quarter,  reflect in part, the


                                     --17--
<PAGE>

initial inventory stocking associated with fluoxetine and megestrol acetate oral
suspension.  Research and development expenses of $3,653,000 for the most recent
three-month period were comparable to $3,779,000 incurred in the same quarter of
2001.  Selling,  general and  administrative  costs of  $11,094,000 in the third
quarter of 2002  increased  $4,120,000  from the same quarter of the prior year,
primarily  due to increased  legal fees,  and to a lesser  extent,  shipping and
personnel costs.

      In July 2001 and August  2001,  the FDA granted  approvals  for three ANDA
submissions,  one each by Par, Reddy and Alphapharm,  for megestrol acetate oral
suspension,  fluoxetine  40 mg capsules and  fluoxetine 10 mg and 20 mg tablets,
respectively,  which as  first-to-file  opportunities  entitled  the  Company to
180-days of marketing exclusivity for the products.  The Company began marketing
megestrol  acetate oral  suspension,  which is not subject to any profit sharing
agreements, in July 2001. In August 2001, the Company began marketing fluoxetine
40 mg capsules  covered  under the Reddy  Development  and Supply  Agreement and
fluoxetine 10 mg and 20 mg tablets covered under the Genpharm Additional Product
Agreement.  Generic  competitors  of the  Company  received  180-days  marketing
exclusivity  for the generic  version of  fluoxetine  10 mg and 20 mg  capsules,
which the Company also began selling in the first quarter of 2002  following the
end of such other party's  exclusivity  period. As expected,  additional generic
competitors,  with  comparable  products to all three strengths of the Company's
fluoxetine  products,  began  entering the market in the first  quarter of 2002,
severely  eroding  the  pricing  the  Company  received  during the  exclusivity
periods,  particularly on the 10 mg and 20 mg strengths. Despite another generic
approval for megestrol  acetate oral suspension in the first quarter of 2002, to
date the  Company  still  maintains a  significant  share of the market for this
product.  Although  megestrol  oral  suspension  and  fluoxetine  40 mg capsules
continue to contribute  significantly to the Company's overall performance,  the
rapid growth of the  Company's  product line through new product  introductions,
and to a lesser  extent,  increased  sales of  certain  existing  products  have
reduced its reliance on each of these key products  (see "Notes to  Consolidated
Financial Statements-Accounts Receivable" ).

      Critical to the continued growth of the Company is the introduction of new
manufactured   and   distributed   products  at  selling  prices  that  generate
significant gross margin. The Company,  through its internal development program
and  strategic  alliances,  is committed to  developing  new products  that have
limited  competition and longer product life cycles.  In addition to new product
introductions  expected as part of its various strategic alliances,  the Company
plans to continue to invest in its  internal  research and  development  efforts
while seeking additional products for sale through new and existing distribution
agreements,  additional first-to-file  opportunities,  vertical integration with
raw material  suppliers and unique  dosage forms and strengths to  differentiate
its products in the marketplace.  The Company is engaged in efforts,  subject to
FDA approval  and other  factors,  to introduce  new products as a result of its
research and development  efforts and  distribution  and development  agreements
with third  parties.  No assurance  can be given that the Company will obtain or
develop any additional  products for sale (see  "-Financial  Condition-Liquidity
and Capital Resources").

      The generic  drug  industry in the United  States  continues  to be highly
competitive.  The factors  contributing to the intense competition and affecting
both the  introduction of new products and the pricing and profit margins of the
Company,  include,  among other things:  (i)  introduction of other generic drug
manufacturer's  products in direct  competition  with the Company's  significant
products,   (ii)  consolidation  among  distribution  outlets  through  mergers,
acquisitions  and the  formation  of buying  groups,  (iii)  ability  of generic
competitors  to quickly  enter the market  after  patent or  exclusivity  period
expirations, diminishing the amount and duration of significant profits from any
one product, (iv) willingness of generic drug customers, including wholesale and
retail customers,  to switch among generic pharmaceutical  manufacturers and (v)
pricing and product deletions by competitors.

NET SALES

      Net sales of  $282,500,000  for the nine-month  period ended September 30,
2002 increased $99,575,000,  or 54%, from net sales of $182,925,000 for the same
period ended  September 29, 2001. The sales increase was primarily due to higher
sales of megestrol  acetate oral  suspension,  introduced in late July 2001, new
products introduced in fiscal year 2002, particularly tizanidine  (Zanaflex(R)),
metformin  (Glucophage(R)),  flecainide  (Tambocor(R)) and nizatidine (Axid(R)),
sold under distribution  agreements with Reddy or Genpharm,  and the addition of
five BMS brand products pursuant to the BMS Asset Purchase Agreement.  Net sales
of fluoxetine and megestrol acetate oral suspension for the first nine months of
2002 were approximately $71,635,000 and $62,709,000,  respectively,  compared to
$84,721,000 and $21,906,000,  respectively in the  corresponding  periods of the
prior  year.  Net sales of  distributed  products,  which  consist  of  products
manufactured  under contract and licensed  products,  were approximately 59% and
69%,  respectively,  of the Company's net sales in the nine-month  periods ended
September  30,  2002 and  September  29,  2001.  The  Company  is  substantially


                                     --18--
<PAGE>

dependent upon distributed products for its sales, and as the Company introduces
new products under its distribution  agreements,  it is expected that this trend
will  continue.  Any  inability  by  suppliers  to meet  expected  demand  could
adversely affect future sales.

      Third quarter 2002 net sales of  $100,237,000  decreased  $27,687,000,  or
22%,  from net sales of  $127,924,000  for the  corresponding  quarter  of 2001,
primarily due to much higher sales in last year's quarter from the  introduction
of fluoxetine with 180-day exclusivity in August 2001. A decrease of $70,138,000
in fluoxetine net sales, when compared to the same period of the prior year, was
partially  offset by the  introduction of new products as described  above.  Net
sales of distributed  products were approximately 62% of the Company's total net
sales in the most recent quarter compared to approximately  74% of the total for
the same quarter of last year.

      The Company's  exclusivity  period for  fluoxetine  ended in  late-January
2002.  The  Company  established  a price  protection  reserve  with  respect to
fluoxetine during the exclusivity period of approximately $34,400,000,  based on
its estimate that between eight and ten additional generic  manufacturers  would
introduce  and market  comparable  products  for the 10 mg and 20 mg tablets and
between one and three  additional  manufacturers  would  introduce  and market a
comparable  product for the 40 mg capsules.  As a result of the  introduction of
these  competing  generic  products  during the first quarter of 2002, the sales
price for  fluoxetine  has  substantially  declined  from the price the  Company
charged during the  exclusivity  period.  Accordingly,  the Company's  sales and
gross  margins  generated by  fluoxetine  in fiscal year 2002 have been and will
continue to be adversely  affected in future periods (see "Notes to Consolidated
Financial Statements-Accounts Receivable" ).

      The Company's  exclusivity  period for megestrol  acetate oral  suspension
ended in mid-January  2002.  One generic  competitor was granted FDA approval to
market another  generic  version of megestrol  acetate oral suspension and began
shipping the product to a limited  number of customers in the second  quarter of
2002.  In  addition,  a  second  potential  generic  competitor  entered  into a
settlement  agreement  with BMS pursuant to which the public  record states that
the present formulation of the generic company's product infringes a BMS patent.
However,  at  this  time  the  Company  has no  information  as to  whether  the
settlement  agreement provides for the generic competitor to enter the market at
some  point in the  future.  The  Company  has  patents  that  cover its  unique
formulation  for megestrol  acetate oral suspension and will avail itself of all
legal  remedies  and  will  take  all of the  necessary  steps  to  protect  its
intellectual  property rights.  Although competitors may be taking the necessary
steps to enter the market, the Company believes it will be difficult for them to
successfully  enter this market  because of patents owned by BMS or the Company.
Megestrol  acetate oral  suspension  is still  anticipated  to be a  significant
profit contributor for the remainder of fiscal year 2002 and beyond, despite the
potential of competition.  Based on these factors,  the Company did not record a
price protection  reserve for megestrol  acetate oral suspension as of September
30,  2002.  The  Company  will  continue  to  evaluate  the effect of  potential
competition and will record a price protection reserve when it deems necessary.

      Sales of the Company's  products are  principally  dependent  upon,  among
other things,  (i) pricing levels and competition,  (ii) market  penetration for
the existing  product  line,  (iii) the  continuation  of existing  distribution
agreements, (iv) introduction of new distributed products, (v) approval of ANDAs
and introduction of new manufactured  products,  including potential exclusivity
periods,  and (vi) the  level of  customer  service.  Although  there  can be no
assurance, the Company anticipates it will continue to introduce new products in
the future while  increasing  sales of certain  existing  products to offset the
loss of sales and  gross  margins  from  competition  on any of its  significant
products.  The Company will continue to implement measures to reduce the overall
impact of its top products, including adding additional products through new and
existing distribution agreements.

GROSS MARGIN

      The gross margin for the  nine-month  period ended  September  30, 2002 of
$132,642,000  (47% of net sales) increased  $61,165,000 from $71,477,000 (39% of
net  sales) in the  corresponding  period of the prior  year.  The gross  margin
improvement was achieved  primarily  through the additional  contributions  from
sales  of  higher  margin  new  products,   including   megestrol  acetate  oral
suspension,  and  to a  lesser  extent,  increased  sales  of  certain  existing
products.

Megestrol acetate oral suspension contributed approximately $34,515,000 to the
margin improvement in the nine-month period ended September 30, 2002. As
discussed above, additional generic drug manufacturers introduced comparable
fluoxetine products at the end of the Company's exclusivity period adversely
affecting the Company's sales volumes, selling prices and gross margins for such
products, particularly the 10 mg and 20 mg strengths. The affects of gross
margin declines from lower pricing on the fluoxetine 40 mg capsule have been
offset, however, by an increase in the Company's profit sharing percentage under


                                     --19--
<PAGE>
an agreement with Reddy. Although the aggregate sales of the fluoxetine products
in the comparable nine-month periods has declined, the increased profit sharing
percentage on the 40 mg capsule offset the lower margin contributions from the
10 mg and 20 mg strengths. The Company's gross margin for megestrol acetate oral
suspension could also decline if additional manufacturers enter the market with
comparable generic products.

      The gross margin for the third quarter of 2002 was $46,952,000 (47% of net
sales) compared to $51,928,000 (41% of net sales) in the  corresponding  quarter
of the prior year.  Additional gross margin contributions from higher margin new
products  partially  offset a decrease of  $22,504,000  in the aggregate  margin
contribution from all strengths of fluoxetine.

      Inventory   write-offs   amounted  to  $3,085,000  and  $343,000  for  the
nine-month  and  three-month  periods ended  September  30, 2002,  respectively,
compared to $1,195,000  and $729,000 in the  corresponding  periods of the prior
year. The increases were primarily attributable to normally occurring write-offs
resulting from increased  production to meet higher sales and inventory  levels.
In addition,  the nine-month period included both the write-off of inventory for
a product whose launch was delayed due to  unexpected  patent issues and certain
raw material not meeting the Company's quality control standards.  The inventory
write-offs,  taken in the normal  course of business,  are related  primarily to
work in process  inventory not meeting the Company's  quality control  standards
and the disposal of finished products due to short shelf lives.

OPERATING EXPENSES

  RESEARCH AND DEVELOPMENT
      Research and development expenses of $10,590,000 for the nine months ended
September  30,  2002  increased  $3,154,000,  or 42%,  from  $7,436,000  for the
corresponding  period of the prior  year.  The  increased  costs were  primarily
attributable to additional payments of $3,445,000 for development work performed
for the Company by unaffiliated  companies,  particularly  Elan,  related to the
development of a clonidine transdermal patch and other products and, to a lesser
extent,  higher costs for  personnel  and the  acquisition  of  FineTech.  These
expenses  were  partially  offset by lower  biostudy  costs  related to products
co-developed with Genpharm in fiscal year 2001.

      Total research and development  costs for fiscal year 2002 are expected to
exceed the total for fiscal year 2001 by approximately  35%. The Company expects
that as a result of its purchase of  FineTech,  increased  internal  development
activity and projects with third parties, research and development expenses will
continue to increase in fiscal year 2003.

      For  the  three-month  period  ended  September  30,  2002,  research  and
development  expenses of $3,653,000  were  comparable to $3,779,000 for the same
three-month  period of the prior year.  Increased costs for outside  development
work and the  acquisition  FineTech  were offset by lower costs for  bio-studies
related to products co-developed with Genpharm in fiscal year 2001.

      The Company purchased FineTech,  based in Haifa, Israel, from ISP in April
2002.  The Company has enjoyed a  long-standing  relationship  with FineTech for
more than seven years. One of the Company's  potential  first-to-file  products,
latanoprost,   resulted  from  the  Company's  relationship  with  FineTech.  In
addition, the Company and FineTech are currently collaborating on two additional
products  of which  ANDAs have  already  been filed with the FDA (see  "Notes to
Consolidated Financial Statements-Acquisition of FineTech").

      The  Company  currently  has nine  ANDAs  for  potential  products  (three
tentatively  approved)  pending with,  and awaiting  approval from, the FDA as a
result of its own  product  development  program.  The Company has in process or
expects to commence  biostudies for at least two additional  products during the
remainder of fiscal year 2002.

      Under the  Genpharm  11  Product  Agreement,  Genpharm  will  develop  the
products, submit all corresponding ANDAs to the FDA and subsequently manufacture
the products.  Par will serve as exclusive U.S.  marketer and distributor of the
products,  pay a share of the costs,  including  development  and legal expenses
incurred to obtain final regulatory  approval,  and pay Genpharm a percentage of
the gross  profits  on all  sales of  products  covered  under  this  agreement.
Currently  there are three  ANDA's  for  potential  products  covered  under the
Genpharm  11 Product  Agreement,  two of which have been  tentatively  approved,
pending with, and awaiting  approval  from, the FDA (see "Notes to  Consolidated
Financial Statements-Other Assets").

                                     --20--
<PAGE>

      Under the Genpharm Distribution Agreement,  Genpharm pays the research and
development   costs  associated  with  the  products  covered  by  the  Genpharm
Distribution Agreement.  Currently, there are seven ANDAs for potential products
(two  tentatively  approved)  that  are  covered  by the  Genpharm  Distribution
Agreement  pending  with,  and awaiting  approval  from,  the FDA. To date,  the
Company is marketing  18 products  under the  Genpharm  Distribution  Agreement.
Flecainide   acetate   tablets   (Tambocor(R)),   covered   under  the  Genpharm
Distribution  Agreement,  received  final approval from the FDA in July 2001 and
the Company began marketing the product in June 2002 (see "Notes to Consolidated
Financial Statements-Distribution and Supply Agreements-Genpharm, Inc.").

      Genpharm  and the  Company  share the  costs of  developing  the  products
covered under the Genpharm Additional Product Agreement. To date, the Company is
marketing two products  under the Genpharm  Additional  Product  Agreement  (see
"Notes   to   Consolidated   Financial    Statements-Distribution   and   Supply
Agreements-Genpharm, Inc.").

  SELLING, GENERAL AND ADMINISTRATIVE
      Selling,   general  and  administrative   costs  of  $27,457,000  for  the
nine-month   period  ended  September  30,  2002  increased   $11,529,000   from
$15,928,000 in the  corresponding  period ended September 29, 2001. The increase
as a percentage of net sales  however,  represents  only a 1% increase to 10% of
net sales in the current  nine-month  period  from 9% in last year's  nine-month
period. The increase in the current nine-month period was primarily attributable
to additional  legal fees,  marketing  programs,  personnel  and shipping  costs
associated with new product  introductions and higher sales volumes. The Company
anticipates it will continue to incur a high level of legal expenses  related to
the  costs  of  litigation   connected   with  certain   potential  new  product
introductions  (see  "Notes to  Consolidated  Financial  Statements-Commitments,
Contingencies and Other  Matters-Legal  Proceedings").  Although there can be no
assurance, selling, general and administrative costs in fiscal year 2003 are not
expected to increase substantially from fiscal year 2002.

      For the third quarter of 2002, selling,  general and administrative  costs
of $11,094,000  (11% of net sales)  increased  $4,120,000 from $6,974,000 (5% of
net sales) for the  corresponding  quarter  of the prior year  primarily  due to
higher legal fees,  and to a lesser  extent,  increased  shipping and  personnel
costs.

SETTLEMENTS

      On March 5, 2002 the Company entered into the BMS Asset Purchase Agreement
and acquired the United  States  rights to five  products from BMS. The products
include    the    antihypertensives     Capoten(R)    and    Capozide(R),    the
cholesterol-lowering   medications   Questran(R)  and  Questran  Light(R),   and
Sumycin(R),  an antibiotic,  which based on the Company's market  research,  are
expected to generate annual net sales of  approximately  $10,000,000.  To obtain
the rights to the five products,  the Company paid  approximately  $1,024,000 in
March 2002 and agreed to make an additional payment of approximately  $1,025,000
in the  first  quarter  of 2003.  The  Company  also  agreed  to  terminate  its
outstanding  litigation against BMS involving  megestrol acetate oral suspension
and  buspirone.  The  Company  determined,  through an  independent  third party
appraisal, the fair value of the BMS Asset Purchase Agreement to be $11,700,000,
which exceeded the cash  consideration  of $2,049,000  and  associated  costs of
$600,000 by  $9,051,000.  The  $9,051,000  value was assigned to the  litigation
settlements and included in settlement  income in the first quarter of 2002 (see
"Notes to Consolidated Financial Statements-Intangible Assets").

OTHER EXPENSE/INCOME

      Other  expenses  were  $4,492,000  and  $112,000  for the  nine-month  and
three-month  periods ended September 30, 2002,  respectively,  compared to other
income of  $431,000  and  $67,000 in the  corresponding  periods of 2001.  Other
expenses in the current  nine-month  period  included  approximately  $4,254,000
incurred  in  connection  with the  terminated  acquisition  of the  entire  ISP
FineTech fine chemical business in March 2002.

INTEREST INCOME/EXPENSE

      Interest   income  of  $490,000  and  $109,000  for  the   nine-month  and
three-month  periods  ended  September  30, 2002,  respectively,  was  primarily
derived from money market and other short-term investments.  Interest expense of
$580,000 and $138,000,  respectively,  in the corresponding nine and three-month
periods of 2001 was due to outstanding  balances on the Company's line of credit
with GECC in the prior year.


                                     --21--
<PAGE>

INCOME TAXES

      The  Company  recorded  provisions  for income  taxes of  $38,861,000  and
$10,532,000, respectively, and $12,559,000 and $7,372,000, respectively, for the
nine-month and  three-month  periods ended  September 30, 2002 and September 29,
2001 based on  applicable  federal and state tax rates.  The  provisions in both
periods of fiscal year 2001 were net of tax  benefits of  $9,092,000  related to
previously  unrecognized NOL carryforwards (see "Notes to Consolidated Financial
Statements-Income Taxes").

CRITICAL ACCOUNTING POLICIES ESTIMATES AND RISKS

      The Company's  critical  accounting  policies are set forth in it's Annual
0eport on Form 10-K for the year  ended  December  31,  2001.  There has been no
change,  update  or  revision  to the  Company's  critical  accounting  policies
subsequent to the filing of the Company's  Form 10-K for the year ended December
31, 2001.

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

      Cash and cash  equivalents  of $33,782,000 at September 30, 2002 decreased
$33,960,000 from $67,742,000 at December 31, 2001 due primarily to the Company's
use of funds to finance the acquisition of FineTech and, to a lesser extent,  to
fund other  capital  projects.  Working  capital,  which  includes cash and cash
equivalents increased to $115,218,000 at September 30, 2002 from $102,867,000 at
December 31, 2001. The working  capital ratio of 2.40x at September 30, 2002 was
comparable to 2.41x at December 31, 2001.

      The Company,  from time to time, enters into agreements with third parties
with respect to the development of new products and  technologies.  To date, the
Company has entered into agreements and advanced funds to several non-affiliated
companies for products in various stages of development. These types of payments
are expensed as incurred and included in research and development costs.  Annual
research  and  development   expenses,   including  payments  to  non-affiliated
companies,   some  of  which  are  described   below,   are  expected  to  total
approximately $15,000,000 for fiscal year 2002.

      In July 2002,  the Company and Three Rivers  entered into the Three Rivers
Distribution  Agreement,  as amended, to market and distribute  ribavirin 200 mg
capsules, the generic version of Schering-Plough's  Rebetol(R).  Under the terms
of the Three Rivers Distribution Agreement, Three Rivers will supply the product
and be  responsible  for  managing  the  regulatory  process and ongoing  patent
litigation.   Par  will  have  the  exclusive  right  to  sell  the  product  in
non-hospital  markets upon FDA approval and final  marketing  clearance  and pay
Three Rivers a percentage of the gross profits as defined in the agreement.  The
Company paid Three Rivers  $1,000,000  in November  2002 and agreed to pay Three
Rivers $500,000 at such time Par commercially launches the product.

      The Company made  non-refundable  payments totaling $1,000,000 pursuant to
its agreements  with Nortec  entered into in the second  quarter of 2002,  which
were  charged  to  research  and  development  expenses  during the  period.  In
addition,  the Company agreed to pay a total of $800,000 in various installments
related to the  achievement of certain  milestones in the development of the two
potential  products  and  $600,000  for  each  product  on the day of the  first
commercial sale.

      In April 2002, the Company entered into the Genpharm 11 Product  Agreement
pursuant  to  which  Genpharm  has  agreed  to  develop  products,   submit  all
corresponding  ANDAs to the FDA and subsequently  manufacture the products.  Par
has agreed to serve as exclusive U.S.  marketer and distributor of the products,
pay a share of the costs,  including  development and legal expenses incurred to
obtain final  regulatory  approval,  and pay Genpharm a percentage  of the gross
profits, as defined in the agreement, on all sales of the products covered under
this agreement.  Pursuant to the Genpharm 11 Product Agreement, the Company paid
Genpharm a  non-refundable  fee of $2,000,000 in the second  quarter of 2002 for
two of the  products.  In  addition,  the  Company  will be  required  to pay an
additional  non-refundable  fee of up to $414,000  based upon FDA  acceptance of
filings for six of the nine remaining products.


                                     --22--
<PAGE>

      On March 15, 2002, the Company  announced the  termination of negotiations
with ISP  related  to the  purchase  of the entire ISP  FineTech  fine  chemical
business,  based in Haifa, Israel and Columbus,  Ohio. At that time, the Company
discontinued   negotiations   with  ISP  as  a  result  of  various  events  and
circumstances that occurred since the announcement of the proposed  transaction.
Pursuant to the  termination of the purchase,  the Company paid ISP a $3,000,000
break-up  fee in March 2002,  which was subject to certain  credits and offsets,
and incurred  approximately  $1,254,000 in related  acquisition  costs,  both of
which were included in other  expense in the first quarter of 2002.  The Company
subsequently purchased FineTech, a portion of ISP's fine chemical business based
in Haifa,  Israel,  from ISP in April  2002 for  approximately  $32,000,000  and
$1,217,000 in related acquisition costs financed by its cash-on-hand (see-"Notes
to Consolidated Financial Statements-Acquisition of FineTech").

      As of  September  30, 2002 the Company had  payables  due to  distribution
agreement partners of $19,251,000,  related primarily to amounts due pursuant to
profit sharing  agreements with strategic  partners.  The Company expects to pay
these amounts out of its working capital in the fourth quarter of 2002.

      In December  2001,  Par entered into an  agreement  with Elan to develop a
range of modified release drugs over the next five years. Under the terms of the
agreement,  the companies will identify two drug  candidates for  development at
the beginning of each year,  commencing in the first quarter of 2002.  Elan will
be responsible for the  development  and manufacture of all products,  while Par
will be responsible for marketing,  sales and  distribution.  Par will reimburse
Elan for research and development costs and Elan will receive a royalty from the
sale of the  products.  Pursuant  to the  agreement,  Par  will  pay  Elan up to
$1,500,000  per calendar year in monthly  installments  beginning on the date of
the commencement of the development  program for each product.  The Company paid
Elan  $1,000,000  for products  covered  under this  agreement in the first nine
months of 2002.

      In December 2001, the Company made the first installment of a total agreed
equity  investment  of up to  $2,437,000  to be made  over a  period  of time in
HighRapids.  HighRapids  will utilize the  Company's  cash  infusion for working
capital and operating  expenses.  Through  September  30, 2002,  the Company had
invested $591,000 of its planned investment.  The remainder of the investment is
subject to the Company's ongoing evaluation of HighRapids operations (see-"Notes
to  Consolidated  Financial  Statements-Commitments,   Contingencies  and  Other
Matters-Other Matters").

      In November 2001, the Company entered into joint development and marketing
agreement  with  Breath  Ltd.  of  the  Arrow  Group  to  pursue  the  worldwide
distribution of latanoprost ophthalmic solution 0.005% (Xalatan(R)). Pursuant to
this  agreement,  Par paid  Breath  Ltd.  $2,500,000  in fiscal year 2001 and an
additional $2,500,000 in the first quarter of 2002.

      In  November  2001,  the Company  entered  into a license  agreement  with
Pentech  Pharmaceuticals,  Inc.  ("Pentech") to market paroxetine  hydrochloride
capsules.  Pursuant to this agreement,  Par paid Pentech $200,000 in fiscal year
2001 and will pay an additional  $400,000  based on the  achievement  of certain
milestones.  In addition, Par will pay all legal expenses up to $2,000,000 and a
share  thereafter,  as provided in the  agreement,  incurred in connection  with
Paragraph IV litigation related to the product.

      In April 2001, Par entered into a licensing  agreement with Elan to market
a  generic  clonidine   transdermal  patch  (Catapres  TTS(R)).   Elan  will  be
responsible for the development and manufacture of all products,  while Par will
be responsible for marketing, sales and distribution. Pursuant to the agreement,
the  Company  paid Elan  $1,167,000  in fiscal  year  2001 and  $833,000  in the
nine-month  ended September 30, 2002. In addition,  Par will pay Elan $1,000,000
upon FDA approval of the product and a royalty on all sales of the product.

      The Company,  IPR and Generics  entered  into the  Development  Agreement,
dated August 11, 1998, pursuant to which Generics agreed to fund one-half of the
costs of IPR's  operating  budget in  exchange  for the  exclusive  distribution
rights  outside of the United States to the products  developed by IPR after the
date of the  agreement.  In  addition,  Generics  agreed to pay IPR a  perpetual
royalty for all sales of the products by Generics or its affiliates  outside the
United States. To date, no such products have been brought to market by Generics
and no royalty  has been paid to IPR.  Pursuant  to the  Development  Agreement,
Generics  funded  $788,000  for fiscal year 2001 and $577,000 for the first nine
months of fiscal  year  2002,  fulfilling  their  funding  requirements  through
September 30, 2002. Under the Development Agreement, Generics is not required to
fund more than  $1,000,000 in any one calendar year (see "Notes to  Consolidated
Financial Statements-Research and Development Agreements").


                                     --23--
<PAGE>

      The  Company  expects  to fund  its  operations,  including  research  and
development  activities and its obligations under the existing  distribution and
development  arrangements  discussed herein,  out of its working capital and, if
necessary,  with available  borrowings  against its line of credit with GECC, if
and to  the  extent  available  (see  "-Financing").  Although  there  can be no
assurance,  the Company  anticipates it will continue to introduce new products,
while increasing sales of certain existing  products to offset the loss of sales
and gross  margins from  competition  on any of its  significant  products.  The
Company will continue to implement  measures to reduce the overall impact of its
top products,  including  adding  additional  products  through new and existing
distribution agreements.

FINANCING

      At September 30, 2002, the Company's  total  outstanding  long-term  debt,
including  the current  portion,  amounted to  $1,129,000.  The amount  consists
primarily of an  outstanding  mortgage  loan with a bank and capital  leases for
computer equipment.

     In December  1996,  Par entered into the Loan Agreement with GECC. The Loan
Agreement,  as amended,  provides Par with a revolving  line of credit  expiring
March 2005. Pursuant to the Loan Agreement, Par is permitted to borrow up to the
lesser of (i) the borrowing  base  established  under the Loan Agreement or (ii)
$30,000,000.  The  borrowing  base  is  limited  to  85%  of  eligible  accounts
receivable  plus 50% of eligible  inventory of Par, each as determined from time
to time by GECC. As of September 30, 2002, the borrowing base was  approximately
$27,000,000. The interest rate charged on the line of credit is based upon a per
annum  rate of 2.25%  above the  30-day  commercial  paper  rate for  high-grade
unsecured notes adjusted monthly. The line of credit with GECC is collateralized
by the assets of Par, PRX and certain  subsidiaries,  other than real  property,
and is guaranteed  by PRX and certain of its  subsidiaries.  In connection  with
such  facility,  Par,  PRX  and  their  subsidiaries  have  established  a  cash
management  system pursuant to which all cash and cash  equivalents  received by
any of such  entities are deposited  into a lockbox  account over which GECC has
sole  operating  control  if there  are  amounts  outstanding  under the line of
credit.  The  deposits  would  then be  applied  on a daily  basis to reduce the
amounts  outstanding under the line of credit.  The revolving credit facility is
subject to covenants based on various  financial  benchmarks.  In November 2002,
GECC waived certain events of default related to financial covenants and amended
the financial  covenants in the Loan Agreement.  To date, no debt is outstanding
under the Loan Agreement.

SUBSEQUENT EVENTS:

      The Company has prevailed  against Alpharma in an interference  proceeding
before the United States Patent and Trademark  Office  concerning  the Company's
patents  and  applications   relating  to  megestrol   acetate  oral  suspension
formulations. The decision was issued on October 18, 2002 by a three-judge panel
of  the  Patent  Office  Board  of  Patent  Appeals  and  Interferences.  In the
interference  proceeding,  Alpharma  was alleging  earlier  invention of subject
matter described and claimed in the Company's issued U.S. Patent Nos. 6,028,065,
and 6,268,356 and related  patent  application.  The  interference  was declared
earlier this year based on a competing patent application filed by Alpharma. The
Patent  Office Board  determined  that the Company had priority of the invention
over  Alpharma.   The  Company's  patents  relating  to  its  megestrol  acetate
formulation  remain  valid  and in force.  On  February  7,  2002,  the  Company
commenced a lawsuit against Alpharma for  infringement of the Company's  patents
in the United  States  District  Court for the  Southern  District  of New York.
Alpharma does not currently  have FDA approval and is not currently  marketing a
megestrol oral suspension.

      In November 2001,  the FDA granted  Genpharm,  a strategic  partner of the
Company,  180  days'  marketing  co-exclusivity  for  10  and  20  mg  doses  of
omeprazole, the generic version of Astra's Prilosec(R).  The exclusivity allowed
only Genpharm  and/or Andrx to enter the market during the  exclusivity  period.
Under a profit  sharing  agreement  with  Genpharm,  the Company was entitled to
receive  at least 30% of  profits  generated  by  Genpharm  based on the sale of
omeprazole.  The  timing  and  value of the  arrangement  depended  on the final
outcome of litigation between Genpharm and Astra, among other factors.

     In  November  2002,  the  Company  announced  that  Genpharm  and  Andrx in
conjunction  with KUDCo,  a  subsidiary  of Schwarz  Pharma AG of  Germany,  had
relinquished  its  exclusivity  rights  for 10 mg and 20 mg doses of  omeprazole
allowing KUDCo to enter the market with a generic version of  Prilosec(R).  As a
result,  KUDCo has  received  final ANDA  approval  from the FDA for its generic
version of Prilosec(R).  The terms of the agreement initially provide Genpharm a
15% share of KUDCo's  profits with a subsequent  reduction over a period of time
based on a number of factors. The Company reduced its share of Genpharm's profit
derived from  omeprazole  from 30% to 25%. KUDCo has announced that they plan to


                                     --24--
<PAGE>

launch  omeprazole "at risk" before the end of fiscal year 2002 because Astra is
appealing the court's patent infringement  decision.  The full extent of KUDCo's
omeprazole  launch on the  Company's  revenues  is unclear  since,  among  other
things,  Astra has  introduced  a new drug,  Nexium(R),  in an attempt to switch
consumers using  Prilosec(R) and Astra's  decision to market a  non-prescription
form of Prilosec(R) along with Proctor & Gamble, all of which may reduce generic
sales of omeprazole.


      ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      Not applicable.


                        ITEM 4. CONTROLS AND PROCEDURES.

      Pharmaceutical  Resources'  management,   including  the  Chief  Executive
Officer  and Chief  Financial  Officer,  have  conducted  an  evaluation  of the
effectiveness  of disclosure  controls and  procedures  pursuant to Exchange Act
Rule 13a-14. Based on that evaluation, as of a date within 90 days of the filing
of this  report,  the  Chief  Executive  Officer  and  Chief  Financial  Officer
concluded that the disclosure controls and procedures were effective in ensuring
that  material  information  relating to the Company  with respect to the period
covered by this  report was made known to them.  Subsequent  to the date of that
evaluation,  there have been no  significant  changes in the Company's  internal
controls or in other factors that could significantly affect internal controls.




                                     --25--
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.
------- ------------------

      Par has filed an ANDA  (currently  pending  with the FDA) for  latanoprost
(Xalatan(R)),  which was developed by Breath Ltd. of the Arrow Group pursuant to
a joint manufacturing and marketing agreement with the Company, seeking approval
to engage in the commercial manufacture, sale and use of the latanoprost product
in the United States.  Par's ANDA includes a Paragraph IV certification that the
existing  patents in connection  with Xalatan(R) are invalid,  unenforceable  or
will not be infringed by Par's generic  product.  Par has reason to believe that
its  ANDA  is  the  first  to be  filed  for  this  drug  with  a  Paragraph  IV
certification.  As a result of the  filing of the ANDA,  Pharmacia  Corporation,
Pharmacia AB, Pharmacia Enterprises,  S.A., Pharmacia and Upjohn Company and the
Trustees of Columbia  University in the City of New York filed lawsuits  against
the Company on December  14, 2001 in the United  States  District  Court for the
District of  Delaware  and on December  21, 2001 in the United  States  District
Court for the District of New Jersey alleging patent infringement. Pharmacia and
Columbia are seeking an  injunction  to prevent the Company from  marketing  its
generic  product prior to the expiration of their patents.  On February 8, 2002,
Par  answered  the  complaint  brought in the District of New Jersey and filed a
counterclaim,  which seeks a declaration that the  patents-in-suit  are invalid,
unenforceable  and/or  not  infringed  by  Par's  products.  Par  also  seeks  a
declaratory  judgment  that the  extension  of the term of one of the patents is
invalid. All parties are seeking to recover their respective attorneys' fees. On
February 25, 2002, the lawsuit brought in the District of Delaware was dismissed
pursuant to a stipulation of the parties. The case in the District of New Jersey
is currently in fact discovery. Par intends to vigorously defend the lawsuit. At
this time,  it is not  possible  for the  Company to predict  the outcome of the
plaintiffs' prayer for injunctive relief or their claim for attorneys' fees.

      Par, among others, is a defendant in three lawsuits filed in United States
District Court for the Eastern  District of North  Carolina  (filed on August 1,
2001,  October 30, 2001 and November 16, 2001,  respectively) by aaiPharma Inc.,
involving patent infringement  allegations connected to a total of three patents
related  to  polymorphic  forms  of  fluoxetine  (Prozac(R)).   Par  intends  to
vigorously  litigate  these  cases.  While the  outcome of  litigation  is never
certain, Par believes that it will prevail in these litigations.

      On August 1, 2001 Alpharma filed a lawsuit in the U.S.  District Court for
the  District  of  Maryland  seeking  a  declaratory  judgment  that  Alpharma's
megestrol  acetate  formulation does not infringe U.S. Patent No. 6,028,065 (the
`065 patent) granted to the Company and/or that the `065 patent is invalid.  The
Company  moved to  dismiss  Alpharma's  declaratory  judgment  complaint  on the
grounds  that the court lacked  subject  matter  jurisdiction,  and the Maryland
court granted the Company's  motion. On February 7, 2002 the Company commenced a
lawsuit against Alpharma in the U.S. District Court for the Southern District of
New York for  infringement of the `065 patent and U.S.  Patent No.  6,268,356 B1
granted to the  Company.  Alpharma  filed a  counterclaim  in that  action for a
declaration  that  its  megestrol  acetate  formulation  does not  infringe  the
Company's  patents  and/or  that  the  asserted  patents  are  invalid.  One  of
Alpharma's  invalidity  challenges is based on its alleged earlier  invention of
the subject matter described and claimed in the Company's asserted patents. Both
the Company and Alpharma seek payment of their  attorneys'  fees in the lawsuit.
The parties currently are engaged in discovery in that matter. While the outcome
of litigation is uncertain,  the Company believes its position in the litigation
is strong based,  among other things, on the findings of the Patent Office Board
of  Appeals  and   Interferences  in  its  October  18,  2002  decision  in  the
interference  proceeding involving the Company and Alpharma.  Alpharma currently
does not have FDA approval to sell its megestrol acetate  formulation and is not
currently marketing a megestrol acetate oral suspension.

      The Company is involved in certain  other  litigation  matters,  including
product  liability and patent actions,  as well as, actions by former employees,
and believes  these  actions are  incidental  to the conduct of its business and
that the ultimate  resolution thereof will not have a material adverse effect on
its financial condition, results of operations or liquidity. The Company intends
to vigorously defend these actions.

ITEM 5. OTHER INFORMATION.
------- ------------------

      In June 2002 the Company's Board of Directors ("Board")  determined it was
in the best  interests  of the  Company  and its  shareholders  to  request  the
withdrawal of the Company's  universal  shelf  registration  statement,  because
utilization of the shelf  registration  had become  unlikely.  Furthermore,  the
Company  believes  it now has  adequate  cash  resources  available  for general
corporate and other purposes.  The $110 million  registration  statement on Form


                                     --26--
<PAGE>

S-3 was  originally  filed with the SEC in December  2001. The Company filed its
request for withdrawal on Form RW with the SEC on June 20, 2002.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.
------   --------------------------------

     (a)  Exhibits:

10.18.12  Twelfth Amendment and Waiver to Loan and Security Agreement,  dated as
          of November 13,  2002,  among the Company,  General  Electric  Capital
          Corporation, and the other parties named herein.

10.41     License and Distribution  Agreement,  dated July 3, 2002,  between the
          Company and Three Rivers Pharmaceuticals, LLC. *

10.42     First Amendment to License and Distribution  Agreement,  dated October
          18, 2002, between the Company and Three Rivers Pharmaceuticals, LLC.

99.1      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.

99.2      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.

          * Certain  portions of this  exhibit  have been  omitted and have been
          filed with the SEC  pursuant to a request for  confidential  treatment
          thereof.

     (b)  Reports on Form 8-K:

          None.

                                     --27--
<PAGE>
                                    SIGNATURE




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

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




November 14, 2002                   /s/ Kenneth I. Sawyer
                                    -----------------------
                                    Kenneth I. Sawyer
                                    CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF
                                    THE BOARD OF DIRECTORS
                                    (Principal Executive Officer)




November 14, 2002                   /s/ Dennis J. O'Connor
                                    -----------------------
                                    Dennis J. O'Connor
                                    VICE PRESIDENT - CHIEF FINANCIAL
                                    OFFICER AND SECRETARY
                                    (Principal Accounting and Financial Officer)





                                     --28--
<PAGE>



     CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, Kenneth I. Sawyer, Chief Executive Officer of Pharmaceutical Resources,
Inc., certify that:

1.  I have  reviewed  this  quarterly  report  on Form  10-Q  of  Pharmaceutical
Resources, Inc.;

2.  Based on my  knowledge,  this  quarterly  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officer  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

    a) designed such disclosure  controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;

    b) evaluated the effectiveness of the registrant's  disclosure  controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

    c)  presented  in  this   quarterly   report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5.  The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

    a) all  significant  deficiencies  in the design or  operation  of  internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

    b) any fraud,  whether or not material,  that  involves  management or other
employees who have a significant role in the registrant's internal controls; and

6.  The  registrant's  other  certifying  officer and I have  indicated  in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002
                                              /s/ Kenneth I. Sawyer
                                              ---------------------------
                                                 Kenneth I. Sawyer
                                              Chief Executive Officer







                                     --29--
<PAGE>


     CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, Dennis J. O'Connor, Chief Financial Officer of Pharmaceutical Resources,
Inc., certify that:

1.  I have  reviewed  this  quarterly  report  on Form  10-Q  of  Pharmaceutical
Resources, Inc.;

2.  Based on my  knowledge,  this  quarterly  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officer  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

    a) designed such disclosure  controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;

    b) evaluated the effectiveness of the registrant's  disclosure  controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

    c)  presented  in  this   quarterly   report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5.  The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

    a) all  significant  deficiencies  in the design or  operation  of  internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

    b) any fraud,  whether or not material,  that  involves  management or other
employees who have a significant role in the registrant's internal controls; and

6.  The  registrant's  other  certifying  officer and I have  indicated  in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002
                                             /s/  Dennis J. O'Connor
                                             ---------------------------
                                                Dennis J. O'Connor
                                              Chief Financial Officer




                                     --30--
<PAGE>
                                  EXHIBIT INDEX
                                  -------------


    EXHIBIT NUMBER           DESCRIPTION
    --------------           -----------
      10.18.12               Twelfth  Amendment  and Waiver to Loan and Security
                             Agreement, dated as of November 13, 2002, among the
                             Company, General Electric Capital Corporation,  and
                             the other parties named herein.

      10.41                  License and Distribution  Agreement,  dated July 3,
                             2002,   between  the   Company  and  Three   Rivers
                             Pharmaceuticals, LLC. *

      10.42                  First   Amendment   to  License  and   Distribution
                             Agreement, dated October, 2002, between the Company
                             and Three Rivers Pharmaceuticals, LLC.

      99.1                   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.

      99.2                   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.


      * Certain  portions of this  exhibit have been omitted and have been filed
      with the SEC pursuant to a request for confidential treatment thereof.




                                     --31--


<PAGE>

                                                                EXHIBIT 10.18.12


                         TWELFTH AMENDMENT AND WAIVER TO
                           LOAN AND SECURITY AGREEMENT
                           ---------------------------


                  TWELFTH  AMENDMENT  AND WAIVER,  dated as of November 13, 2002
(this "AMENDMENT"),  to the Loan and Security Agreement referred to below by and
among GENERAL ELECTRIC CAPITAL CORPORATION,  a Delaware corporation  ("LENDER"),
PAR PHARMACEUTICAL, INC., a New Jersey corporation ("BORROWER"),  PHARMACEUTICAL
RESOURCES,  INC.,  a New Jersey  corporation  ("PARENT"),  and the other  Credit
Parties signatory thereto.

                               W I T N E S S E T H
                               - - - - - - - - - -

                  WHEREAS,  Lender,  Borrower and Credit  Parties are parties to
that  certain  Loan and  Security  Agreement,  dated as of December 15, 1996 (as
amended,  supplemented or otherwise modified prior to the date hereof, the "LOAN
AGREEMENT"); and

                  WHEREAS,  Lender,  Borrower and Credit  Parties have agreed to
amend the Loan  Agreement,  and Lender has agreed to waive the  violation of the
Minimum  Tangible  Net Worth  covenant  contained  in the Loan  Agreement in the
manner, and on the terms and conditions, provided for herein.

                  NOW THEREFORE,  in consideration of the premises and for other
good and valuable consideration,  the receipt, adequacy and sufficiency of which
are hereby acknowledged, the parties to this Amendment hereby agree as follows:

                  1. DEFINITIONS. Capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Loan Agreement.

                  2.  AMENDMENT  TO SECTION 5 OF THE LOAN  AGREEMENT.  As of the
Amendment Effective Date (as defined below),  SECTION 5(B) of the Loan Agreement
is hereby amended and restated in its entirety to read as follows:

                  "(b) except as  otherwise  permitted  in this Section 5 below,
                  make any investment (including any investment in or advance to
                  any other Person for research and  development) in, or make or
                  accrue  loans or advances of money to, any Person,  other than
                  (i)  investments for research and development in Persons which
                  are not Credit  Parties  which,  together  with the  aggregate
                  amount of  research  and  development  expenses  of the Credit
                  Parties,  do not in the aggregate  exceed (A)  $10,250,000 for
                  the Fiscal Year ending  December 31, 2001, (B) $22,500,000 for
                  the Fiscal Year ending  December 31, 2002, (C) $25,000,000 for
                  the Fiscal Year ending  December 31, 2003 and (D)  $25,000,000
                  for the  Fiscal  Year  ending  December  31,  2004;  and  (ii)
                  investments for working capital and general corporate purposes
                  in the form of  intercompany  loans or  capital  contributions
                  from  any  Credit  Party to any  other  Credit  Party  (except
                  Parent),  PROVIDED that (A) each Credit Party shall record all
                  intercompany transactions on its books and records in a manner
                  satisfactory  to  Lender,  (B) no  Default or Event of Default
                  would occur and be continuing  after giving effect to any such
                  proposed  intercompany loan or capital  contribution,  and (C)
                  the  aggregate  amount  outstanding  at any  time of all  such
                  intercompany  loans  and  capital  contributions  made  by any
                  Credit Party to another Credit Party other than Parent shall

<PAGE>

                  not exceed  $5,000,000  in any Fiscal Year (less any dividends
                  under Section 5(l)(iv) below made in such Fiscal Year);"

                  3.  AMENDMENT TO SCHEDULE F TO THE LOAN  AGREEMENT.  As of the
Amendment Effective Date, SCHEDULE F to the Loan Agreement is hereby amended and
restated in its entirety to read as set forth in SCHEDULE F hereto.

                  4. WAIVER.  Lender hereby waives as of the Amendment Effective
Date, all Events of Default under SECTION  8.1(B) of the Loan  Agreement  solely
arising  out of the failure of Parent and its  Subsidiaries  to  maintain,  on a
consolidated  basis,  the minimum  Tangible Net Worth required by SECTION 4.2 of
the Loan  Agreement and paragraph 2 of SCHEDULE F to the Loan  Agreement for the
Fiscal Quarters ended June 30, 2002 and September 30, 2002.

                  5.  REPRESENTATIONS AND WARRANTIES.  To induce Lender to enter
into this Amendment, each Credit Party hereby represents and warrants that:

                         A. The  execution,  delivery  and  performance  of this
                  Amendment  and  the  performance  of the  Loan  Agreement,  as
                  amended hereby (the "AMENDED LOAN AGREEMENT"),  by each Credit
                  Party: (i) are within their respective  corporate powers; (ii)
                  have been  duly  authorized  by all  necessary  corporate  and
                  shareholder  action; and (iii) are not in contravention of any
                  provision  of their  respective  certificates  or  articles of
                  incorporation or by-laws or other organizational documents.

                         B. This  Amendment has been duly executed and delivered
                  by or on behalf of each Credit Party.

                         C.  Each  of  this   Amendment  and  the  Amended  Loan
                  Agreement constitutes a legal, valid and binding obligation of
                  each Credit  Party  enforceable  against  each Credit Party in
                  accordance  with its terms,  except as  enforceability  may be
                  limited by applicable bankruptcy, insolvency,  reorganization,
                  moratorium  or  similar  laws  affecting   creditors'   rights
                  generally  and  by  general  equitable   principles   (whether
                  enforcement is sought by proceedings in equity or at law).

                         D. No Default (other than those waived pursuant hereto)
                  has  occurred and is  continuing  both before and after giving
                  effect to this Amendment.

                         E. No action, claim or proceeding is now pending or, to
                  the  knowledge of each Credit  Party,  threatened  against any
                  Credit  Party,  at law,  in equity or  otherwise,  before  any
                  court,  board,  commission,  agency or  instrumentality of any
                  federal,  state,  or  local  government  or of any  agency  or
                  subdivision  thereof,  or before  any  arbitrator  or panel of
                  arbitrators, which challenges any Credit Party's right, power,
                  or competence  to enter into this  Amendment or, to the extent
                  applicable,   perform  any  of  its  obligations   under  this
                  Amendment,  the  Amended  Loan  Agreement  or any  other  Loan
                  Document, or the validity or enforceability of this Amendment,
                  the Amended Loan  Agreement or any other Loan  Document or any
                  action taken under this Amendment,  the Amended Loan Agreement
                  or any other Loan Document.

                         F. The  representations  and  warranties  of the Credit
                  Parties  contained in the Loan  Agreement  and each other Loan
                  Document  shall be true and correct on and as of the Amendment
                  Effective Date with the same effect as if such representations
                  and  warranties  had been made on and as of such date,  except
                  that any such  representation  or warranty  which is expressly
                  made only as of a specified  date need be true only as of such
                  date.



                                       2
<PAGE>

                  6. NO OTHER AMENDMENT/WAIVERS. Except as expressly provided in
Sections  2 and 3  hereof,  the Loan  Agreement  shall be  unmodified  and shall
continue to be in full force and effect in accordance with its terms.  Except as
expressly  provided in Section 4 hereof,  this  Amendment  shall not be deemed a
waiver of any term or condition of any Loan  Document and shall not be deemed to
prejudice  any  right or  rights  which  Lender  may now have or may have in the
future under or in connection  with any Loan Document or any of the  instruments
or agreements referred to therein, as the same may be amended from time to time.

                  7.  OUTSTANDING  INDEBTEDNESS;  WAIVER OF CLAIMS.  Each Credit
Party hereby  acknowledges  and agrees that as of the date hereof the  aggregate
outstanding  principal amount of the Revolving Credit Loan is $0.00. Each Credit
Party hereby waives,  releases,  remises and forever  discharges Lender and each
other Indemnified Person from any and all Claims of any kind or character, known
or unknown,  which each Credit Party ever had, now has or might  hereafter  have
against Lender which relates,  directly or indirectly,  to any acts or omissions
of Lender or any other Indemnified  Person on or prior to the date hereof.  This
Amendment  shall  constitute  a Loan  Document  for  all  purposes  of the  Loan
Agreement and each other Loan Document.

                  8.  EXPENSES.   Borrower  hereby  reconfirms  its  obligations
pursuant to Section 10.2 of the Loan  Agreement to pay and reimburse  Lender for
all reasonable out-of-pocket expenses (including, without limitation, reasonable
fees of  counsel)  incurred in  connection  with the  negotiation,  preparation,
execution and delivery of this Amendment and all other documents and instruments
delivered in connection herewith.

                  9. EFFECTIVENESS.  This Amendment shall become effective as of
the date hereof (the "AMENDMENT  EFFECTIVE DATE") only upon satisfaction in full
in the judgment of the Lender of each of the following conditions on or prior to
November 13, 2002:

                         A.  AMENDMENT.  Lender shall have received two original
copies of this  Amendment  duly executed and delivered by Lender and each Credit
Party.

                         B.  PAYMENT OF  EXPENSES.  Borrower  shall have paid to
Lender all costs and expenses  owing in connection  with this  Amendment and the
other  Loan  Documents  and  due  to  Lender  (including,   without  limitation,
reasonable legal fees and expenses).

                         C. REPRESENTATIONS AND WARRANTIES.  The representations
and warranties of each Credit Party  contained in this  Amendment  shall be true
and correct on and as of the Amendment Effective Date.

                  10.  GOVERNING LAW. THIS  AMENDMENT  SHALL BE GOVERNED BY, AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

                  11.  COUNTERPARTS.  This  Amendment  may  be  executed  by the
parties  hereto  on  any  number  of  separate  counterparts  and  all  of  said
counterparts  taken  together  shall be  deemed to  constitute  one and the same
instrument.


                            (SIGNATURE PAGE FOLLOWS)


                                       3
<PAGE>

                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Amendment to be duly  executed and  delivered as of the day and year first above
written.

                                      BORROWER:
                                      ---------

                                      PAR PHARMACEUTICAL, INC.


                                      By:/s/ Dennis J. O'Connor
                                         ----------------------
                                      Name: Dennis J. O'Connor
                                      Title: Vice President-CFO


                                      LENDER:
                                      -------

                                      GENERAL ELECTRIC CAPITAL CORPORATION


                                      By:/s/ MICHAEL LUSTBADER
                                         ---------------------
                                      Name:Michael Lustbader
                                      Its: Duly Authorized Signatory


                                      PARENT:
                                      -------

                                      PHARMACEUTICAL RESOURCES, INC.


                                      By: Dennis J. O'Connor
                                          ------------------
                                      Name: Dennis J. O'Connor
                                      Title: Vice President-CFO


                       (SIGNATURES CONTINUED ON NEXT PAGE)


<PAGE>

                                      Subsidiary Guarantors:
                                      ----------------------

                                      NUTRICEUTICAL RESOURCES, INC.


                                      By: Dennis J. O'Connor
                                          ------------------
                                      Name: Dennis J. O'Connor
                                      Title: Vice President-CFO


                                      PARCARE, LTD.


                                      By: Dennis J. O'Connor
                                          ------------------
                                      Name: Dennis J. O'Connor
                                      Title: Vice President-CFO


                                      QUAD PHARMACEUTICALS INC.


                                      By: Dennis J. O'Connor
                                          ------------------
                                      Name: Dennis J. O'Connor
                                      Title: Vice President-CFO


                                      PRX PHARMACEUTICALS, INC.


                                      By: Dennis J. O'Connor
                                          ------------------
                                      Name: Dennis J. O'Connor
                                      Title: Vice President-CFO


                                      PAR PHARMA GROUP, LTD.

                                      By: Dennis J. O'Connor
                                          ------------------
                                      Name: Dennis J. O'Connor
                                      Title: Vice President-CFO



                       (SIGNATURES CONTINUED ON NEXT PAGE)


                                       2

<PAGE>

                                      PRI-RESEARCH, INC.


                                      By: Dennis J. O'Connor
                                          ------------------
                                      Name:Dennis J. O'Connor
                                      Title: Vice President-CFO


                                       3

<PAGE>

                                   Schedule F
                               FINANCIAL COVENANTS

                  1. FIXED CHARGE COVERAGE RATIO. Parent and its Subsidiaries on
a consolidated basis shall maintain for each Fiscal Quarter, commencing with the
Fiscal Quarter ending on or about March 31, 2002, a Fixed Charge  Coverage Ratio
of not less than 2.00:1.00.

                  2. MINIMUM TANGIBLE NET WORTH.  Parent and its Subsidiaries on
a  consolidated  basis shall  maintain,  as at the end of each  Fiscal  Quarter,
Tangible Net Worth of not less than the amount for such period set forth below:

      Fiscal Quarter Ending on or about:     Minimum Tangible Net Worth
      ----------------------------------     --------------------------

      December 31, 2002                                     113,924,000
      March 31, 2003                                        118,924,000
      June 30, 2003                                         123,924,000
      September 30, 2003                                    128,924,000
      December 31, 2003                                     133,924,000
      March 31, 2004                                        138,924,000
      June 30, 2004                                         143,924,000
      September 30, 2004                                    148,924,000
      December 31, 2004                                     153,924,000

                  3.  CAPITAL  EXPENDITURES.  Parent and its  Subsidiaries  on a
consolidated  basis shall not make aggregate  Capital  Expenditures in excess of
$7,500,000 for the Fiscal Year ending on or about December 31, 2001, $12,000,000
for the Fiscal Year ending on or about December 31, 2002 ,  $15,000,000  for the
Fiscal Year ending on or about December 31, 2003, and $15,000,000 for the Fiscal
Year ending on or about December 31, 2004 and each Fiscal Year thereafter.

For purposes of this covenant in SCHEDULE F the  following  terms shall have the
meanings set forth below:

                  "EBITDA" shall mean, for any period,  the Net Income (Loss) of
Parent  and its  Subsidiaries  on a  consolidated  basis for such  period,  PLUS
interest expense, income tax expense, amortization expense, depreciation expense
and extraordinary  losses and MINUS extraordinary gains, in each case, of Parent
and its  Subsidiaries  on a  consolidated  basis for such period  determined  in
accordance  with GAAP to the extent  included in the  determination  of such Net
Income (Loss).

                  "FIXED CHARGE COVERAGE RATIO" shall mean, for any period,  the
ratio of the following for Parent and its  Subsidiaries on a consolidated  basis
determined in accordance  with GAAP; (a) EBITDA for such period LESS (i) Capital
Expenditures  for such period which are not financed  through the  incurrence of
any  Indebtedness  (excluding  the Revolving  Credit Loan) and (ii) taxes to the
extent  accrued or otherwise  payable with respect to such period to (b) the sum
of (i) interest  expense paid or accrued in respect of any  Indebtedness  during
such period,  PLUS (ii) regularly  scheduled  payments of principal paid or that
were required to be paid on Indebtedness  (excluding the Revolving  Credit Loan)
during such period.

                  "NET INCOME  (LOSS)" shall mean with respect to any Person and
for any period,  the  aggregate  net income (or loss) after taxes of such Person
for such period, determined in accordance with GAAP.

                  "TANGIBLE NET WORTH" shall mean, with respect to any Person at
any date, all amounts which,  in accordance  with GAAP,  would be included under
stockholders' equity on a consolidated balance sheet of such Person at such date

<PAGE>

LESS the  aggregate  of all  intangibles  in  conformity  with  GAAP  (including
Intellectual  Property,  goodwill,  organization  expenses,  treasury stock, all
deferred financing and unamortized debt discount  expenses,  and all current and
non-current deferred tax benefits;  provided,  that with respect to deferred tax
benefits,  only such  amounts in excess of  $50,000,000  shall be  included  and
subtracted  from  shareholders'  equity  and  amounts  equal  to  or  less  than
$50,000,000 shall be excluded from the foregoing calculation).



















                                       2

<PAGE>

             CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
                    WITH SECURITIES AND EXCHANGE COMMISSION
                         ASTERISKS DENOTE SUCH OMISSION

                                                                   EXHIBIT 10.41

      LICENSE AND  DISTRIBUTION  AGREEMENT made as of the 3rd day of July,  2002
between Three Rivers Pharmaceuticals,  LLC, a limited liability company existing
under  the  laws of the  State of  Pennsylvania,  with  its  principal  place of
business at 312 Commerce Park Drive,  Cranberry Township,  Pennsylvania  ("Three
Rivers") and PAR PHARMACEUTICAL,  INC., a corporation  incorporated and existing
under the laws of the State of New Jersey with its principal  offices at One Ram
Ridge Road, Spring Valley, New York 10977 ("PAR").

      Defined terms used in this Agreement  shall have the meanings set forth in
Section 1, except as otherwise provided herein.

      WHEREAS, Three Rivers has filed Abbreviated New Drug Application ** ******
for the Finished Product; and

      WHEREAS,  Three  Rivers  wishes to grant,  and PAR wishes to  obtain,  the
exclusive  right to  distribute,  market and sell the  Product in the  Territory
during  the Term of this  Agreement  under the terms  and  conditions  set forth
herein; and

      WHEREAS,   Three  Rivers  intends  to  contract  with  a  third  party  to
manufacture and supply to PAR all of PAR's  requirements  for the Product during
the Term of this Agreement under the terms and conditions set forth herein.

      NOW, THEREFORE,  in consideration of the mutual promises contained herein,
the parties agree as follows:

1)    DEFINITIONS
      -----------

            For the purposes of this  Agreement the  following  terms shall have
the following meanings:

      a)    "AFFILIATE"  shall mean, with respect to either party,  all entities
            which,  directly  or  indirectly,  are  controlled  by, or are under
            common control with such party.  For the purpose of this definition,
            "control"  means  beneficial  ownership  of greater  than 50% of the
            voting stock of such  corporation  or other  business  entity,  or a
            greater than 50% interest in the income of such corporation or other
            business  entity,  or the power to direct or cause the  direction of
            the  management  and policies of such  corporation or other business
            entity  whether by  ownership of voting  securities,  by contract or
            otherwise.

      b)    "ANDA" shall mean  Abbreviated New Drug  Application ** ****** filed
            with the FDA by Three  Rivers for  Marketing  Authorization  for the
            Finished Products.

      c)    "CGMP" shall mean current Good  Manufacturing  Practices as required
            by the rules and regulations of the FDA.

      d)    "CONFIDENTIAL  INFORMATION"  shall mean and include all  information
            which may be  disclosed  by either  party to the other party  either
            pursuant to this  Agreement or pursuant to any  preceding  agreement
            concerning  the  Finished   Product,   any   technology,   marketing
            strategies  or  business  of such  party,  including  that  relating
            directly to the Finished  Product,  and any technology  generated by
            either  party as a result  of the  rights  granted  and  obligations
            arising under this Agreement but shall not include information which
            the receiving party can show: (1) either is or becomes  available to
            the public  other than as a result of  disclosure  by the  receiving
            party; or (2) at the time of receipt is already in the possession of
            the receiving party or becomes  lawfully  available to the receiving
            party on a  non-confidential  basis from a third  party  entitled to
            make that disclosure.

      e)    "FDA"  shall  mean the U. S.  Food and Drug  Administration,  or any
            successor body.

      f)    "FINISHED  PRODUCT"  shall mean the generic  pharmaceutical  product
            ribavirin U.S.P. 200 mg capsules.

      g)    "FOB" shall have the meaning set forth in the Incoterms.

      h)    "GAAP"  shall  mean  United  States  generally  accepted  accounting
            principles consistently applied.

      i)    "INCOTERMS"  shall  mean  the  1990  edition  of  the  International
            Commercial terms published by the International Chamber of Commerce,
            as may be amended or modified from time to time.

      j)    "INSTITUTIONAL SALES" shall be defined as sales to the United States
            Veterans Administration,  governmental agencies,  hospitals, nursing
            homes,  correctional  facilities  government  funded  facilities and
            other  facilities  commonly  accepted  in the trade as  constituting
            "institutional" parties.

      k)    "INTELLECTUAL   PROPERTY   RIGHTS"  shall  include  all  rights  and
            interests,  vested or arising out of any patent, copyright,  design,
            trademark,  trade secrets or goodwill  whether arising by common law
            or by statute or any right to apply for registration under a statute
            in respect of those or like rights.

      l)    "LITIGATION(S)"  shall mean the actions entitled RIBAPHARM,  INC. V.
            THREE  RIVERS  PHARMACEUTICALS,   LLC,  Civil  Action  No.  02-3231,
            currently  pending  in the  U.S.  District  Court  for  the  Eastern
            District of Pennsylvania;  and SCHERING  CORPORATION V. THREE RIVERS
            PHARMACEUTICALS, LLC, Civil Action



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            No.  01-1894,  pending in the U.S.  District  Court for the  Western
            District of Pennsylvania.

      m)    "MARKETING  AUTHORIZATION"  shall  mean the  grant  of  registration
            approval from the FDA necessary to permit the manufacture,  storage,
            promotion,  sale  and  marketing  of such  Finished  Product  in the
            Territory.

      n)    "NET  COSTS"  shall  mean  Three  Rivers'  direct  cost of  Finished
            Product,  plus the parties' joint commercial  expenses in connection
            with the  promotion  and sales of the  Finished  Product;  provided,
            however,  that such  commercial  expenses shall not exceed ** of Net
            Sales.

      o)    "NET PROFITS" shall mean Net Sales less Net Costs.

      p)    "NET SALES" shall mean the  parties'  (including  their  Affiliates)
            gross invoiced sales of Finished Product to third parties,  less, to
            the extent related to the sale of such Finished Product:
            (1)   any statutory or contractual  liability for rebates to be paid
                  to any  government  entity  including,  but  not  limited  to,
                  rebates to be paid pursuant to the Medicaid rebate legislation
                  and state and local government rebate programs;
            (2)   any  cash   discounts  for  prompt   payment  of  invoices  by
                  customers; and
            (3)   any adjustments granted to customers for allowances or credits
                  for returned or expired Finished  Products,  retroactive price
                  adjustments,  free  product  provided to  customers in lieu of
                  discounts  or  rebates,  damaged  Finished  Product,  rebates,
                  allowances,  chargebacks,  payments to customers in respect of
                  margin-sharing  arrangements,   or  other  discounts,  all  as
                  calculated in accordance with US generally accepted accounting
                  principles (GAAP) consistently applied.

      q)    "PURCHASE ORDER" shall have the meaning set forth in Section 7.

      r)    "REGULATORY  AUTHORITY" means any and all bodies and  organizations,
            including,  without limitation, the FDA, regulating the manufacture,
            importation,  distribution,  use and  sale  of API and the  Finished
            Products in the Territory.

      s)    "TERRITORY"  shall mean the U.S. and its  territories,  possessions,
            and the Commonwealth of Puerto Rico.

      t)    "U.S." means the United  States of America and its  territories  and
            possessions.

2)    REGISTRATION OBLIGATIONS OF THREE RIVERS:
      ----------------------------------------

      a)    Three  Rivers  shall  use  its  best  efforts  to  obtain  Marketing
            Authorization  from  the FDA for the  Product.  Three  Rivers  shall
            respond  promptly and completely to all deficiency  letters received
            from FDA, and shall comply in all respects with FDA requirements for
            Marketing  Authorization  for the Product.  PAR shall use reasonable
            commercial  efforts to make available PAR's regulatory  personnel to
            consult  with  Three  Rivers  regarding,   without  limitation,  the
            prosecution of the ANDA and regulatory strategy.

      b)    Three  Rivers  shall  diligently  pursue  the  defense of the claims
            asserted in the Litigation, together with any counterclaims asserted
            by Three Rivers in the Litigation. Three Rivers shall continue to be
            represented by counsel reasonably acceptable to PAR.

      c)    Three Rivers shall  contract with a reputable  third party  contract
            manufacturer  reasonably  acceptable  to PAR who  shall  manufacture
            PAR's  requirements of Finished Product.  Three Rivers shall provide
            PAR  with  a copy  of  the  contract  manufacturing  agreement,  the
            material  terms  of  which  shall be  subject  to  PAR's  reasonable
            approval and consent.

      d)    Three  Rivers  shall  ensure  that  its  contract  manufacturer  (i)
            manufactures  the Product in accordance with cGMP; (ii) at all times
            maintains its facilities in compliance  with cGMP;  (iii) clears any
            pre-approval  inspection  conducted  by the  FDA in  respect  of the
            Product; and (iv) promptly and completely addresses any observations
            made by FDA in  connection  with any  pre-approval  or general  cGMP
            compliance audit of its premises relating to the Finished Product.

      e)    Three  Rivers  shall  promptly   provide  PAR  with  copies  of  all
            correspondence  received from the FDA with respect to the Product or
            the ANDA.

3)    APPOINTMENT; MILESTONE PAYMENT OBLIGATIONS OF PAR
      -------------------------------------------------

      a)    Subject  to the terms and  conditions  set forth in this  Agreement,
            Three Rivers grants to PAR the sole and  exclusive  right to market,
            promote,  distribute and sell the Finished  Product in the Territory
            pursuant  to the  ANDA,  with  the  sole and  limited  exception  of
            Institutional  Sales.  Other than  Institutional  Sales of  Finished
            Product  or  sales  of the  Finished  Product  for  use in  clinical
            studies,  Three Rivers and its  affiliates  shall not sell  Finished
            Product to any other party,  whether directly or indirectly,  in the
            Territory.  If Three Rivers makes sales of the Finished  Product for
            use in clinical studies prior to the commercial launch date it shall
            be  entitled  to ****  of the Net  Profits  thereon.  Subsequent  to
            commercial  launch any Net  Profits  arising  from sales  related to
            clinical  studies shall be split **/** (in favor of Three Rivers) if
            Three  Rivers  originates  the sale  and  **/**  (in  favor of Three
            Rivers) if PAR originates the sale.

      b)    In consideration  of its  appointment,  PAR shall make the following
            payments  to  Three  Rivers  to  offset  ongoing  and  future  legal
            expenses:

            i)    $250,000 on January 1, 2003;

            ii)   $68,200 per month commencing February 1, 2003 and for a period
                  of 11 months thereafter; and

            iii)  $500,000  at  such  time  as  PAR  commercially  launches  the
                  Product.


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4)    INTELLECTUAL PROPERTY CLAIMS; CONTINGENT SUPPLEMENTAL FUNDING BY PAR:
      ---------------------------------------------------------------------

      a)    The  Litigation,  together with any other  litigation  against Three
            Rivers or its affiliates arising out of claims by a third party that
            the importation, manufacture, use, sale, or marketing of the product
            infringes  the  Intellectual  Property  rights of such third  party,
            shall be controlled and managed by Three Rivers; provided,  however,
            that  Three  Rivers  shall  not  enter  into  a  settlement  of  the
            Litigations  on terms or  conditions  that  (i)  cause  PAR to incur
            economic  or legal harm,  or (ii) reduce the value of the  exclusive
            marketing  rights  granted to PAR under this  Agreement  without the
            prior written consent of PAR.

      b)    Any  and  all  claims  brought   against  PAR  alleging  that  PAR's
            performance of its  obligations  under this  Agreement  infringe the
            Intellectual  Property  rights of a third party shall be  controlled
            and managed by PAR.

      c)    Three Rivers has  reviewed  with  qualified  patent  counsel  patent
            issues surrounding the manufacture and marketing of Finished Product
            in the Territory and, in  particular,  claims made by the plaintiffs
            in the  Litigations.  Based upon such  review and  written  opinions
            rendered by such patent  counsel,  Three  Rivers  believes,  in good
            faith, that its current plans to develop and market Finished Product
            in the Territory  will not violate any validly  claimed right of any
            third party,  including,  without  limitation,  those claimed by the
            plaintiffs in the Litigation.

      d)    At all times  during the pendency of the  Litigations,  Three Rivers
            shall  make  available  to  PAR's   designated  legal  counsel  such
            intellectual   property,   manufacturing/process,   and   regulatory
            information  with respect to the Finished  Product as PAR's  counsel
            may reasonably request. PAR's legal counsel shall, in turn, be bound
            to maintain the confidentiality of such information,  and not to use
            the  information  for any  purpose  other than  counseling  PAR with
            respect  to PAR's  exercise  of its rights  and  performance  of its
            obligations under this Agreement.

      e)    Three Rivers agrees to keep PAR's nominated  legal counsel  informed
            with  respect to the progress of the  Litigation  and to disclose to
            PAR's  counsel all material  decisions  issued by the courts in such
            matters.

      f)    To the extent that  litigation  costs  incurred  by Three  Rivers in
            connection  with  the  Litigation   after  January  1,  2003  exceed
            $1,000,000,  and upon submission of documentation by Three Rivers to
            that effect reasonably acceptable to PAR, PAR agrees to negotiate in
            good faith with Three Rivers the terms and conditions upon which PAR
            would loan Three  Rivers  funds  necessary  to cover  further  costs
            incurred  in the  defense of the  Litigation  up to an amount not to
            exceed  $500,000.  The  terms of any such  loans  shall be  mutually
            agreed  upon  and set  forth  in  writing  in a  separate  agreement
            acceptable in form and substance to Three Rivers and PAR.

      g)    If Three Rivers should require additional funding to cover the costs
            of the Litigation over and above the $500,000 referred to in Section
            4(f), above, PAR agrees to negotiate in good faith with Three Rivers
            regarding the terms under which additional  funding may be provided;
            provided,  however, that PAR shall be under no obligation to provide
            such funding  unless the terms of such  funding are mutually  agreed
            upon and set forth in writing in a separate agreement  acceptable in
            form and substance to Three Rivers and PAR.

5)    MARKETING RIGHTS AND OBLIGATIONS OF PAR:
      ----------------------------------------

      a)    PAR accepts the  appointment,  and shall use  reasonable  commercial
            efforts  during  the  Term of this  Agreement  to  market,  promote,
            distribute and sell the Finished Product in the Territory.

      b)    The Parties shall sell the Finished  Product under a joint PAR/Three
            Rivers label.

      c)    The Parties agree that PAR's  management  and its Board of Directors
            shall retain the ultimate decision-making  authority with respect to
            the timing of PAR's commercial  launch of the Product.  In the event
            that PAR elects  not to  commercially  launch the  product at a time
            when  Three   Rivers   believes   in  good   faith  that   immediate
            commercialization  of the Product would be in the best  interests of
            Three  Rivers,  then  PAR,  in its  sole  discretion,  may  elect to
            terminate this Agreement and return  exclusive  marketing  rights to
            Three Rivers.  In the event that this Agreement is terminated by PAR
            under the  circumstances  described in this Section 5(c), then Three
            Rivers  shall  refund  to PAR all  amounts  paid to Three  Rivers or
            loaned to Three Rivers by PAR pursuant to Section 3 and 4,  together
            with PAR's  reasonable  expenses  associated with its  participation
            with Three Rivers in the project up to that time. The timing of such
            repayment  shall be not later than 180 days following  Three Rivers'
            commercial launch of the Finished Product.

      d)    In the event of a termination  by PAR pursuant to Section 5(c),  PAR
            and Three Rivers shall meet and confer in good faith  regarding  the
            terms upon which,  if any,  the  parties  could  collaborate  in the
            future  with  respect  to the  Finished  Product  or  other  product
            opportunities.

6)    TERM AND  RENEWAL:  The  term of this  agreement  shall be for an  initial
      period  of ten  (10)  years  from  the date of  commercial  launch  of the
      Finished Product. Thereafter, the Agreement shall automatically be renewed
      for additional one (1) year terms unless either party shall give notice of
      its intent not to renew not less than 90 days prior to the  expiration  of
      the initial term or any renewal term then in effect.

7)    ORDERS OF FINISHED  PRODUCT BY PAR: PAR shall  purchase  exclusively  from
      Three  Rivers  all of PAR's  requirements  for the  Finished  Product  for
      distribution and sale in the Territory.

      a)    Three Rivers (via its contract  manufacturer) shall provide Finished
            Product to PAR pursuant to purchase orders submitted by PAR to Three


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                         ASTERISKS DENOTE SUCH OMISSION


            Rivers  during  the  term of this  Agreement.  The  purchase  orders
            submitted by PAR shall set forth the quantity and delivery  date for
            such order,  as well as other terms and  conditions.  The  specified
            delivery date shall be not less than ninety (90) days after the date
            of PAR's submission of the purchase order to Three Rivers. Title and
            all risk of loss shall not pass to PAR until delivery of Product FOB
            Spring  Valley,  New York, or such other location as PAR may specify
            in  writing.  Where  there is a  conflict  between  the terms of the
            purchase order and this Agreement, the terms of this Agreement shall
            control.

      b)    Thirty  (30) days  prior to the first day of each  calendar  quarter
            following the commercial  launch of the Finished  Product and during
            the Term of this  Agreement,  PAR shall  provide Three Rivers with a
            binding  Purchase Order together with a non-binding  forecast of its
            requirements  for the Product for the three (3)  following  calendar
            quarters  for Three  Rivers'  use in  production  planning  with its
            contract manufacturer.

      c)    Product  supplied by Three Rivers  pursuant to PAR's purchase orders
            shall be transferred to PAR at the Transfer  Price.  For the purpose
            of this  Agreement,  Transfer  Price shall mean Three  Rivers'direct
            cost of the Finished Product.

      d)    Payment terms by PAR to Three Rivers for the Transfer Price shall be
            net 60 days from PAR's receipt of such Product.

      e)    In  distributing,  marketing and selling,  the Finished Product with
            regards  to  non-Institutional  Sales,  PAR  shall  conduct  its own
            business  in its own  name  and  shall  be  solely  responsible  for
            determining the prices to be charged for the Product.

      f)    Three Rivers and PAR shall enter into a Quality Agreement containing
            terms with respect to product inspection and acceptance, rejections,
            product  recalls,  and  adverse  event  reporting  as is  usual  and
            customary in transactions of this nature.

      8)    DIVISION  OF NET  PROFITS:  Net  Profit  earned  from  sales  of the
            Finished  Product  shall be split **/** in favor of Three Rivers for
            Institutional  Sales.  Net Profit  shall be split  **/** in favor of
            Three Rivers for all other  sales,  including,  without  limitation,
            sales to wholesalers and retail chains.

9)    RECONCILIATION AND ACCOUNTING:
      -----------------------------

      a)    PAR shall, within 60 days after the close of each calendar half-year
            during the Term of this Agreement, furnish to Three Rivers a written
            report showing in specific  detail:  (i) PAR's actual gross sales of
            Finished  Product  during  the  calendar  half-year  covered by such
            report;  (ii) a  statement  of the Net Sales from such gross  sales;
            (iii) a statement of PAR's Net Costs for Finished Product;  and (iv)
            a statement  of Net Profits due and payable to Three Rivers and PAR,
            respectively.

      b)    Three Rivers shall,  within 60 days after the close of each calendar
            half-year  during  the  Term of  this  Agreement,  furnish  to PAR a
            written report showing in specific detail:  (i) Three Rivers' actual
            gross  Institutional  Sales of Finished  Product during the calendar
            half-year covered by such report;  (ii) a statement of the Net Sales
            from such gross sales;  (iii) a statement of Three Rivers' Net Costs
            for  Finished  Product,  and (iv) a statement of Net Profits due and
            payable to Three Rivers and PAR, respectively

      c)    All such amounts due and payable to Three Rivers or PAR respectively
            shall  be paid by  wire  transfer  within  10  business  days of the
            issuance of the report.

      d)    Three  Rivers and PAR shall each have the right,  not more than once
            annually during the Term of this  Agreement.  to have an independent
            certified public accountant reasonably acceptable to the other party
            review the relevant  books and records of the other party to confirm
            that all payments required to be made hereunder have been made. Such
            independent    certified   public   accountant   shall   execute   a
            confidentiality  agreement reasonably acceptable to the other party.
            PAR and Three Rivers shall keep such relevant  books and records for
            the same period as it keeps similar  records in the normal course of
            its business.

10)   REPRESENTATIONS AND WARRANTIES OF THREE RIVERS:  Three Rivers
      represents and warrants as follows:
      -------------------------------------------------------------

      a)    Three  Rivers  has  the  corporate  authority  to  enter  into  this
            Agreement and to perform its obligations hereunder;

      b)    There are no legal,  contractual or other restrictions,  limitations
            or  conditions  which might affect  adversely its ability to perform
            hereunder.

      c)    The Finished  Product  delivered to PAR shall not be  misbranded  or
            adulterated  in  violation  of Sections  501, 502 or 505 of the FD&C
            Act, as amended.

      d)    In  developing   and   manufacturing   the  Product,   Three  Rivers
            (including,   without  limitation,  its  contract  developer  and/or
            manufacturer)  has complied with, and shall continue to comply with,
            current Good  Manufacturing  Procedures,  the Food Drug and Cosmetic
            Act,  and  the  rules  and  regulations  and  guidance  of the  FDA,
            including the requirements for maintaining the ANDA.

      e)    Three Rivers, its contract developer,  and its contract manufacturer
            are not debarred under Section 2 of the Generic Drug Enforcement Act


                                        4
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                         ASTERISKS DENOTE SUCH OMISSION


            of 1992, and do not and will not use in any capacity the services of
            any person debarred under the Act.

      f)    After due  inquiry,  the  manufacture,  use or sale of the  Finished
            Product  in  the  Territory  shall  not  infringe  the  Intellectual
            Property rights of any third party.

      g)    Three  Rivers  shall  indemnify  and hold PAR harmless for any loss,
            including  reasonable  attorneys;  fees  (other  than  consequential
            damages of PAR such as lost business or future profits)  arising out
            of (i) any claim by a third party alleging a defect in the design or
            manufacture  of the Finished  Product or any failure of the Finished
            Product to meet appropriate standards of identity, strength, quality
            or purity,  (ii) Three Rivers'  material breach of this Agreement or
            any of the  representations  or  warranties  made  by  Three  Rivers
            herein,   (iii)  the  negligence  of  Three  Rivers,   its  contract
            manufacturer,  or their respective officers, agents or affiliates in
            the performance of their obligations hereunder, except to the extent
            such  claims  arise out of the  negligence  of PAR or its  agents or
            affiliates in the performance of PAR's obligations hereunder.

11)   REPRESENTATIONS AND WARRANTIES OF PAR:  PAR represents and warrants as
      follows:
      ----------------------------------------------------------------------

      a)    it has the corporate  authority to enter into this  Agreement and to
            perform its obligations hereunder;

      b)    there are no legal,  contractual or other restrictions,  limitations
            or  conditions  which might affect  adversely its ability to perform
            hereunder.

      c)    PAR is not debarred under Section 2 of the Generic Drug  Enforcement
            Act of 1992,  and it does not and will not use in any  capacity  the
            services of any person debarred under the Act.

      d)    PAR shall  indemnify  and hold Three  Rivers  harmless for any loss,
            including  reasonable  attorneys;  fees  (other  than  consequential
            damages of Three  Rivers such as lost  business  or future  profits)
            arising out of (i) PAR's material breach of this Agreement or any of
            the  representations  or warranties made by PAR herein, and (ii) the
            negligence  of PAR or its  officers,  agents  or  affiliates  in the
            performance  of their  obligations  hereunder,  except to the extent
            such  claims  arise  out of the  negligence  of  Three  Rivers,  its
            contract  manufacturer,  or their  respective  officers,  agents  or
            affiliates in the performance of its obligations hereunder.

12)   TERMINATION.
      -----------

      a)    This Agreement may be terminated by either party upon the occurrence
            of any of the following  events:  (i) a material breach by the other
            party which  shall go uncured for a period of 60 days after  written
            notice  of  breach   is  given  to  the   breaching   party  by  the
            non-breaching  party;  (ii) if the other party files a petition  for
            bankruptcy  or a similar  proceeding is filed against such party and
            is not stayed or discharged within 45 days of such filing or if such
            party becomes insolvent,  makes an assignment for the benefit of its
            creditors, or goes into receivership or liquidation; or (iii) in the
            event  of a  change  of  control  of the  other  party or if a major
            portion of the assets of the other  party is disposed of or acquired
            by another person or entity. The indemnification and confidentiality
            obligations of the parties and the other  obligations which by their
            terms are intended to be performed after  termination  shall survive
            termination  of this  Agreement and shall  continue to be binding on
            the parties.

      b)    This  Agreement  may be  terminated  by PAR pursuant to the terms of
            Section 5(c) of this Agreement.

      c)    This  Agreement  may  also be  terminated  by PAR in the  event of a
            material  price  decline  in the  market  which,  in the good  faith
            determination  of PAR, makes the continued  commercial  marketing of
            the Finished  Product  commercially  impractical.  In the event of a
            termination due to a material price decline,  the parties agree that
            at least 90 days prior to the effective date of any such termination
            the parties  shall meet and confer with an objective of  maintaining
            an uninterrupted  supply of the Finished Product to customers in the
            Territory.

      d)    Following  termination,  PAR shall  accept  delivery and pay for all
            Finished  Product  for which PAR had  submitted  a binding  Purchase
            Order prior to termination.

13)   NOTICES.  All Notices  provided under this Agreement to be given or served
      by  either  party  on the  other  shall be given  In  writing  and  served
      personally or by prepaid  registered airmail post or by express mail or by
      means of facsimile to the following  respective addresses or to such other
      addresses as the parties may hereafter advise each other in writing. It is
      agreed and  understood by the parties that any such notice shall be deemed
      given and served the day transmitted by facsimile or a date three (3) days
      after the date of express mail or mail by courier.

To:   Three Rivers
      Three Rivers Pharmaceuticals, LLC
      312 Commerce Park Drive


                                        5
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      Cranberry Township, Pennsylvania 16066
      Attention: General Counsel
      Fax: (724) 778-6101

To:   PAR
      PAR Pharmaceutical Inc.
      One Ram Ridge Road
      Spring Valley, New York 10977
      Attention: President and CEO
      Fax: (845) 573-5612

14)   PRODUCT  LIABILITY  INSURANCE.  Three Rivers and PAR agree that they shall
      each obtain and  maintain  during the Term of this  Agreement  appropriate
      product  liability  insurance having an aggregate policy limit of not less
      than ten million dollars (US $10,000.00).

15)   DEVELOPMENT  COMMITTEE:  Each party shall have equal representation in the
      review and oversight of the development  program for the Finished Product.
      The parties shall keep each other informed of the  respective  development
      programs.  The  committee  shall  establish  an  approximate  timeline for
      commercial launch highlighted by milestones.

16)   RELATIONSHIP OF THREE RIVERS AND PAR The relationship between Three Rivers
      and PAR that is  created  by this  Agreement  shall be that of vendor  and
      purchaser, and not that of a partnership, principal and agent, or joint or
      co-venturers.  In the  performance  of this  Agreement,  PAR shall have no
      authority to assume or create any  obligation  or  responsibility,  either
      expressed or implied,  on behalf of or in the name of Three Rivers,  or to
      bind Three Rivers or its  Affiliates  in any manner  whatsoever  and Three
      Rivers  shall  have no  authority  to assume or create any  obligation  or
      responsibility,  either express or implied, on behalf of or In the name of
      PAR or to bind PAR or its Affiliates in any manner whatsoever.  Each party
      shall  indemnify the other party for any claim asserted by any third party
      that  the  acts  of  such  party  or  any of its  Affiliates  created  any
      obligation  or  responsibility  of the other party other than as expressly
      set forth in this Section.

17)   CONFIDENTIALITY:  The existence of this Agreement and the terms hereof are
      confidential,  and shall not be  disclosed  to any third  party who is not
      bound by a written  undertaking  of  confidentiality,  except as otherwise
      required by law.

18)   GOVERNING  LAW:  This  Agreement  and any  disputes  arising  hereunder or
      relating  hereto shall be governed by and construed  under the laws of the
      State of New York  without  giving  effect to conflict of laws  provisions
      thereof.

19)   ASSIGNMENT.  Other than an assignment by a party to any of its Affiliates,
      neither this  Agreement nor any rights  arising under it shall be assigned
      by one party without the prior written consent of the other, and then only
      upon   approval  of  the  other  party  and   acceptance  of  the  written
      documentation  of the assignment,  which approval and acceptance shall not
      be  unreasonably  withheld or delayed.  In the event of an  assignment  by
      either party to its Affiliate as permitted hereunder,  the assigning party
      shall not be released from its  obligations  hereunder and shall guarantee
      the full performance by such Affiliate of such obligations. This Agreement
      shall  inure to the  benefit  of, and shall be binding  upon,  each of the
      parties hereto and their respective successors and permitted assigns.

20)   MODIFICATION:  This  Agreement  replaces and  supercedes any and all prior
      agreements between the parties,  whether oral or written,  with respect to
      the subject matter addressed herein. This Agreement may not be modified or
      amended except in a writing signed by all parties hereto.

21)   FORCE MAJEURE:
      -------------

      a)    If due  performance  of this  Agreement  by any party is affected in
            whole or in any part by reason of any event,  omission,  accident or
            other matter beyond the reasonable control of such party (including,
            without  limitation,  fire,  any kind of labor  unrest,  lack of raw
            materials or energy),  the affected  party shall give prompt  notice
            thereof to the other party and shall be under no  liability  for any
            loss,  damage,  injury or expense suffered by the other party as the
            result of such force majeure.

      b)    The party claiming  force majeure  shall,  if requested by the other
            party,  promptly present reasonable and reliable evidence in support
            of the force  majeure  claimed,  together  with an  estimate  of the
            duration of such force majeure.


                                        6
<PAGE>

             CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
                    WITH SECURITIES AND EXCHANGE COMMISSION
                         ASTERISKS DENOTE SUCH OMISSION


      c)    The parties  shall use all  reasonable  efforts to avoid or overcome
            the causes affecting performance, and the party whose performance is
            affected  by  such  force  majeure  shall  fulfill  all  outstanding
            obligations as soon as practicable.

      d)    Should the force  majeure  continue for more than six (6) months the
            party not  claiming  inability  to  perform  by reason of such force
            majeure shall be entitled to terminate  this  Agreement upon written
            notice to the other as provided in Section 12, above.


                                          ACCEPTED AND AGREED:

                                         PAR PHARMACEUTICAL, INC.



                                         By:  /s/ Scott Tarriff
                                              ---------------------------
                                              Name:  Scott Tarriff
                                              Title: President and CEO


                                         THREE RIVERS PHARMACEUTICALS, LLC



                                         By:  /s/ Donald J. Kerrish
                                              ---------------------------
                                              Name:  Donald J. Kerrish
                                              Title: President




                                        7
<PAGE>
                                                                   EXHIBIT 10.42

                               FIRST AMENDMENT TO
                     THE LICENSE AND DISTRIBUTION AGREEMENT
                                     BETWEEN
                        THREE RIVERS PHARMACEUTICALS, LLC
                          AND PAR PHARMACEUTICAL, INC.

This  First   Amendment  to  the  License  and   Distribution   Agreement   (the
"Amendment"),   dated  as  of  October  18,  2002,   is  between   Three  Rivers
Pharmaceuticals,  LLC, a Pennsylvania  Corporation,  having offices at Cranberry
Commerce Center, 312 Commerce Park Drive,  Cranberry Township,  PA 16066 and Par
Pharmaceutical,  Inc, a New Jersey Corporation,  having offices at One Ram Ridge
Road, Spring Valley, NY 10977.

WHEREAS,  Three Rivers and Par have previously entered into that certain License
and  Distribution  Agreement  dated as of July 3, 2002 (the  License  and Supply
Agreement); and,

WHEREAS,  Three Rivers and Par wish to amend the License and Supply Agreement by
entering into this  amendment on the terms and  conditions  and for the purposes
set forth herein.

NOW, THEREFORE, in consideration of the mutual convenants and promises set forth
herein,  the  receipt and  sufficiency  of which is hereby  acknowledged,  Three
Rivers and Par agree as follows:

I.    AMENDMENTS.

A.    SECTION  3B I, II,  III;  of the  License  and Supply  Agreement  shall be
      deleted in its entirety and replaced with the new section 3b i and ii:

      3b. In  consideration  of its  appointment,  Par shall make the  following
      payment to Three Rivers to offset ongoing and future legal expenses:

      i.) $1,000,000 prior to December 1, 2002.
      ii.) $500,000 at such time as Par commercially launches the Product.

B.    ENTIRE AGREEMENT  AMENDMENT.  This Amendment together with the License and
      Supply  Agreement (as amended by this  Amendment)  constitute the complete
      and  entire  understanding   between  the  Parties  with  respect  to  the
      activities anticipated hereunder and thereunder, superseding and replacing
      all prior oral and written  agreements,  communications,  representations,
      proposals,  or  negotiations   specifically  relating  to  the  activities
      hereunder and  thereunder  and the subject  matter hereof and thereof.  No
      change or addition to or variation nor amendment of the Amendment, nor any
      cancellation or waiver of any of the terms or provisions  hereof,  nor any
      alteration  or  modification  of any of the terms and  conditions  hereof,
      shall be  effective or valid and binding on either Party unless in writing
      and signed by a duly authorized representative of each Party. All terms of
      the Agreement not  specifically  addressed or set forth in this  Amendment
      shall  continue to apply in full force and effect and shall apply  equally
      to this Amendment  itself (e.g.  confidentiality,  notice,  etc.).  To the
      extent  that there is any  inconsistency  between the terms of the License
      and Supply Agreement and this Amendment, the terms of this amendment shall
      govern.

C.    COUNTERPARTS.  This  Amendment  may be executed in  counterparts,  each of
      which shall be deemed an original  and all of which taken  together  shall
      constitute one and the same instrument.

   IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
   first set forth above.

   THREE RIVERS PHARMACEUTICALS, LLC                 PAR PHARMACEUTICAL, INC.


   By: /s/ Paul Fagan                                By: /s/ Scott Tarriff
       ----------------------                            -----------------------
   Name: Paul Fagan                                  Name: /s/ Scott Tarriff
       ----------------------                            -----------------------
   Title: Vice President - General Counsel           Title: President and Ceo
       -----------------------------------               -----------------------


                                        8
<PAGE>

EX-99.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER



                                                                  Exhibit 99.1


                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Pharmaceutical  Resources,  Inc. (the
"Company")  on Form 10-Q for the period ended  September  30, 2002 as filed with
the Securities  and Exchange  Commission on the date hereof (the  "Report"),  I,
Kenneth I. Sawyer, Chief Executive Officer of the Company,  certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to my knowledge:

    (1) The Report fully  complies  with the  requirements  of section  13(a) or
        15(d) of the Securities Exchange Act of 1934; and

    (2) The information contained in the Report fairly presents, in all material
        respects,  the  financial  condition  and  result of  operations  of the
        Company.


/s/ Kenneth I. Sawyer
------------------------
Kenneth I. Sawyer
Chief Executive Officer
November 14, 2002


                                        9
<PAGE>
EX-99.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER



                                                                  Exhibit 99.2


                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Pharmaceutical  Resources,  Inc. (the
"Company")  on Form 10-Q for the period ended  September  30, 2002 as filed with
the Securities  and Exchange  Commission on the date hereof (the  "Report"),  I,
Dennis J. O'Connor, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to my knowledge:

    (1) The Report fully  complies  with the  requirements  of section  13(a) or
        15(d) of the Securities Exchange Act of 1934; and

    (2) The information contained in the Report fairly presents, in all material
        respects,  the  financial  condition  and  result of  operations  of the
        Company.


/s/ Dennis J. O'Connor
-------------------------
Dennis J. O'Connor
Chief Financial Officer
November 14, 2002





                                       10