<PAGE>


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

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

                                    FORM 10-Q

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

                For the quarterly period ended September 29, 2001

                         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 _X_  No ___

                                   32,016,652
      Number of shares of Common Stock outstanding as of November 7, 2001.

          This is page 1 of 28 pages. The exhibit index is on page 21.

<PAGE>

                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                              September 29,          December 31,
                           ASSETS                                                2001                   2000
                           ------                                             (Unaudited)             (Audited)
                                                                              -----------             ---------
<S>                                                                            <C>                     <C>
Current assets:
  Cash and cash equivalents                                                    $  2,509                $   222
  Accounts receivable, net of allowances of
   $45,141 and $3,954                                                            84,683                 22,306
  Inventories                                                                    23,973                 20,249
  Prepaid expenses and other current assets                                       5,117                  4,023
  Deferred income tax assets                                                     36,424                      -
                                                                               --------                -------
    Total current assets                                                        152,706                 46,800

Property, plant and equipment, at cost less
 accumulated depreciation and amortization                                       24,329                 23,560

Deferred charges and other assets                                                 6,936                  4,182

Non-current deferred income tax assets, net                                           -                 14,608
                                                                               --------                -------
   Total assets                                                                $183,971                $89,150
                                                                               ========                =======

           LIABILITIES AND SHAREHOLDERS' EQUITY
           ------------------------------------
Current liabilities:
  Current portion of long-term debt                                            $    252                $ 1,049
  Short-term debt                                                                    20                 10,021
  Accounts payable                                                               48,621                 13,163
  Accrued salaries and employee benefits                                          2,230                  1,566
  Accrued expenses and other current liabilities                                  4,903                  2,489
  Income taxes payable                                                           15,733                      -
                                                                               --------                -------
   Total current liabilities                                                     71,759                 28,288

Long-term debt, less current portion                                              1,103                    163

Accrued pension liability                                                           614                    614

Deferred income tax liabilities, net                                                753                      -

Shareholders' equity:
  Common Stock, par value $.01 per share; authorized 90,000,000 shares;
    issued and outstanding 32,007,461 and 29,647,135 shares                         320                    297
  Additional paid-in capital                                                    108,364                 89,642
  Retained earnings accumulated (deficit)                                         1,289                (29,623)
  Additional minimum liability related to defined benefit pension plan             (231)                  (231)
                                                                               --------                -------
    Total shareholders' equity                                                  109,742                 60,085
                                                                               --------                -------

    Total liabilities and shareholders' equity                                 $183,971                $89,150
                                                                               ========                =======
</TABLE>



        The accompanying notes are an integral part of these statements.


                                      -2-

<PAGE>

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

<TABLE>
<CAPTION>
                                                            Nine Months Ended                Three Months Ended
                                                            -----------------                ---------------------
                                                         Sept. 29,       Sept. 30,          Sept. 29,       Sept. 30,
                                                           2001            2000               2001            2000
                                                           ----            ----               ----            ----
<S>                                                      <C>            <C>                 <C>            <C>
Net sales                                                $154,725       $ 61,289            $ 99,724       $ 20,436
Cost of goods sold                                         93,613         46,101              58,161         15,273
                                                         --------       --------            --------       --------
       Gross margin                                        61,112         15,188              41,563          5,163

Operating expenses:
   Research and development                                 7,436          5,334               3,779            879
   Selling, general and administrative                     15,385         11,205               6,793          3,845
                                                         --------       --------            --------       --------
       Total operating expenses                            22,821         16,539              10,572          4,724
                                                         --------       --------            --------       --------
       Operating income (loss)                             38,291         (1,351)             30,991            439
Other income, net                                             431            504                  67            112
Interest expense, net                                        (580)          (658)               (138)          (277)
                                                         --------       --------            --------       --------
Income (loss) before provision for income taxes            38,142         (1,505)             30,920            274
Provision for income taxes                                  7,230              -               4,070              -
                                                         --------       --------            --------       --------
Net income (loss)                                          30,912         (1,505)             26,850            274
Accumulated deficit, beginning of period                  (29,623)       (28,694)            (25,561)       (30,473)
                                                         --------       --------            --------       --------
Retained earnings accumulated (deficit), end of period   $  1,289       $(30,199)           $  1,289       $(30,199)
                                                         ========       ========            ========       ========

Net income (loss) per share of common stock:

       Basic                                             $   1.03       $   (.05)           $    .87       $    .01
                                                         ========       ========            ========       ========
       Diluted                                           $    .97       $   (.05)           $    .83       $    .01
                                                         ========       ========            ========       ========

Weighted average number of common and
   common equivalent shares outstanding:

       Basic                                               30,106         29,591              30,871         29,622
                                                         ========       ========            ========       ========
       Diluted                                             31,902         29,591              32,428         30,670
                                                         ========       ========            ========       ========
</TABLE>



        The accompanying notes are an integral part of these statements.



                                      -3-

<PAGE>


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

<TABLE>
<CAPTION>
                                                                                         Nine Months Ended
                                                                                         -----------------
                                                                                      Sept. 29,       Sept. 30,
                                                                                        2001            2000
                                                                                        ----            ----
<S>                                                                                   <C>              <C>
Cash flows from operating activities:
   Net income (loss)                                                                  $  30,912        $(1,505)

   Adjustments to reconcile net income (loss) to net cash provided by (used in)
      operating activities:
     Deferred income taxes                                                              (21,063)             -
     Depreciation and amortization                                                        1,938          1,661
     Allowances against accounts receivable                                              41,187            435
     Write-off of inventories                                                             1,195          1,010
     Tax benefit from exercise of stock options                                          11,254              -
     Other                                                                                  146            171

 Changes in assets and liabilities:
     Increase in accounts receivable                                                   (103,564)        (3,889)
     Increase in inventories                                                             (4,919)        (1,819)
     (Increase) decrease in prepaid expenses and other assets                            (3,848)           240
     Increase (decrease) in accounts payable                                             35,458         (2,200)
     Increase in accrued expenses and other liabilities                                   3,078          1,026
     Increase in income taxes payable                                                    15,733              -
                                                                                      ---------        -------
       Net cash provided by (used in) operating activities                                7,507         (4,870)

Cash flows from investing activities:
     Capital expenditures                                                                (2,743)        (2,468)
     Proceeds from sale of fixed assets                                                      19             36
                                                                                      ---------        -------
       Net cash used in investing activities                                             (2,724)        (2,432)

Cash flows from financing activities:
     Proceeds from issuances of Common Stock                                              7,362            243
     Net (payments) proceeds from revolving credit line and other borrowings             (9,646)         7,272
     Principal payments under long-term debt and other borrowings                          (212)          (182)
                                                                                      ---------        -------
       Net cash (used in) provided by financing activities                               (2,496)         7,333

Net increase in cash and cash equivalents                                                 2,287             31
Cash and cash equivalents at beginning of period                                            222            176
                                                                                      ---------        -------
Cash and cash equivalents at end of period                                            $   2,509        $   207
                                                                                      =========        =======
</TABLE>




        The accompanying notes are an integral part of these statements.

                                      -4-

<PAGE>


                         PHARMACEUTICAL RESOURCES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                               September 29, 2001
                                   (Unaudited)



       Pharmaceutical Resources, Inc. (the "Company" or "PRI") 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 29, 2001
and for the nine-month and three-month periods ended September 29, 2001 and
September 30, 2000 are unaudited; however, in the opinion of the Company's
management, such statements include all adjustments (consisting of normal
recurring accruals) necessary to present a fair statement of the information
presented therein. The balance sheet at December 31, 2000 was derived from the
Company's audited financial statements at such date.

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

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

<TABLE>
<CAPTION>
Accounts Receivable:                                   September 29,     December 31,
                                                           2001              2000
                                                           ----              ----
                                                               (In Thousands)
<S>                                                      <C>               <C>
       Accounts receivable                               $129,824          $26,260
                                                         --------          -------
       Allowances:
       Doubtful accounts                                      977              914
       Returns and allowances                               2,890            1,602
       Price adjustments                                   41,274            1,438
                                                         --------          -------
                                                           45,141            3,954
                                                         --------          -------
       Accounts receivable,
       net of allowances                                 $ 84,683          $22,306
                                                         ========          =======
</TABLE>

       The accounts receivable amounts are net of provisions for customer
rebates and chargebacks. Customer rebates are price reductions generally given
to customers as an incentive to increase sales volume. Chargebacks are price
adjustments generated from the differential between the invoice or list price
and a separate price agreed to in a contract with a customer.

       The accounts receivable allowances include price adjustments that consist
of provisions for cash discounts, sales promotions, introductory price
protection and shelf stock adjustments. In the third quarter of 2001, the
Company recorded a portion of the total projected price protection reserve
anticipated for fluoxetine 10 mg and 20 mg tablets, and fluoxetine 40 mg
capsules, the generic versions of Eli Lilly and Company's Prozac(R), upon
competition entering the market at the end of the Company's exclusivity period
in late-January 2002. The reserve is based on a number of factors, including the
Company's projected sales volumes during the exclusivity period, inventory
levels of customers and anticipated price declines factoring in a number of
competitors based on tentative FDA approvals. This practice has become customary
in the industry when several manufacturers attempt to capture significant market
share of a new product. A shelf stock adjustment occurs when there is a
reduction in the invoice or list price of a product and the Company provides an
allowance on the customer's existing inventory for the difference between the
old and new invoice prices.

Changes in Shareholders' Equity:

       Changes in the Company's Common Stock and Additional Paid-in Capital
accounts during the nine months ended September 29, 2001 were as follows:

                                       -5-

<PAGE>


                         PHARMACEUTICAL RESOURCES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                               September 29, 2001
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                   Additional
                                                                        Common Stock                 Paid-In
                                                                  Shares            Amount           Capital
                                                                  ------            ------           -------

<S>                                                             <C>                 <C>           <C>
       Balance, December 31, 2000                               29,647,135          $297,000      $89,642,000
         Exercise of Genpharm warrants                             249,700             2,000        2,095,000
         Exercise of Genpharm stock options                        351,040             4,000          699,000
         Exercise of Merck KGaA stock options                      820,000             8,000        1,632,000
         Exercise of stock options                                 933,699             9,000        2,948,000
         Issuance of stock options                                       -                 -          129,000
         Compensatory arrangements                                   5,887                 -       11,219,000
                                                               -----------          --------     ------------
       Balance, September 29, 2001                              32,007,461          $320,000     $108,364,000
                                                               ===========          ========     ============
</TABLE>


Strategic Alliance:

       In 1998, the Company entered into a strategic alliance with Merck KGaA, a
pharmaceutical and chemical company located in Darmstadt, Germany pursuant to
which Merck KGaA purchased 10,400,000 shares of the Company's Common Stock
through its subsidiary EMD, Inc. ("EMD" formerly known as Lipha Americas, Inc.).
As part of the alliance, Merck KGaA and Genpharm, Inc. ("Genpharm"), a Canadian
subsidiary of Merck KGaA, were issued five-year options to purchase an aggregate
of 1,171,040 additional shares of Common Stock at an exercise price of $2.00 per
share and the Company obtained the exclusive United States distribution rights
to a portfolio of products covered by a distribution agreement with Genpharm
(see "-Distribution and Supply Agreements-Genpharm, Inc."). In addition, EMD
purchased 1,813,272 shares of Common Stock from Clal Pharmaceutical Industries
Ltd. In August 2001, Merck KGaA and Genpharm exercised options and warrants
totaling 1,420,740 shares of Common Stock. EMD, Merck KGaA and Genpharm
subsequently sold their entire holdings of 13,634,012 shares of Common Stock,
representing approximately 43% of the Company's total number of outstanding
shares of Common Stock at the close of the transaction in September 2001, to
unaffiliated institutional investors in a private placement (see "Other
Information"). The selling of these shares did not change the terms of any
existing distribution or development agreements between the Company and Merck
KGaA or its affiliates.

Research and Development Agreement:

       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 approximately $800,000 for fiscal year 2000 and $587,000 for the first
nine months of fiscal year 2001, fulfilling their funding requirements through
September 29, 2001. Under the Development Agreement, Generics is not required to
fund more than $1,000,000 in any one calendar year.

Profit Sharing Agreement:

       In January 1999, the Company and Genpharm entered into a profit sharing
agreement (the "Genpharm Profit Sharing Agreement") pursuant to which the
Company will receive a portion of the profits generated from the sale of
products sold under a separate agreement between Genpharm and an unaffiliated
United States-based pharmaceutical company in exchange for a non-refundable fee
of $2,500,000 paid by the Company. The fee, included in deferred charges and
other assets on the consolidated balance sheets, will be amortized over a
projected revenue stream from the products when launched by the third party. To
date, there are two abbreviated new drug applications ("ANDAs") for potential
products covered by the Genpharm

                                       -6-

<PAGE>


                         PHARMACEUTICAL RESOURCES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                               September 29, 2001
                                   (Unaudited)



Profit Sharing Agreement awaiting U.S. Food and Drug Administration ("FDA")
approval. The agreement between Genpharm and the unaffiliated third party covers
15 products that are not included in the Company's other distribution agreements
with Genpharm (see "-Distribution and Supply Agreements-Genpharm, Inc.").

Lease Agreement:

       In March 1999, Par entered into an agreement (the "Lease Agreement") to
lease its manufacturing facility and related machinery and equipment located in
Congers, New York (the "Congers Facility") to Halsey Drug Co., Inc. ("Halsey"),
a manufacturer of generic pharmaceutical products. The Lease Agreement has an
initial term of three years, subject to an additional two-year renewal period
and contains a purchase option (for which Halsey paid $100,000 in March 1999)
permitting Halsey to purchase the Congers Facility and substantially all the
equipment thereof at any time during the lease terms for a specified amount. The
Lease Agreement provides for annual fixed rent during the initial term of
$500,000 per year and $600,000 per year during the renewal period.

Distribution and Supply 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 14 generic pharmaceutical products,
four of which have been filed with the FDA awaiting approval, to be marketed
exclusively by Par in the United States and certain other United States
territories upon FDA approval. 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. The Company will pay Reddy a
percentage of the gross profits on sales of the products sold by Par in
accordance with the Reddy Development and Supply Agreement. On August 2, 2001,
the Company received 180-day marketing exclusivity for fluoxetine (Prozac(R)) 40
mg capsules through the Reddy Development and Supply Agreement and began
shipping the product.

       The products covered by the Reddy Development and Supply Agreement are in
addition to five products currently being marketed by the Company under prior
agreements with Reddy. Pursuant to these agreements, the Company pays Reddy a
certain percentage of the gross profits on sales of any products covered under
such agreements.

  Genpharm, Inc.:

       The Company and Genpharm have a distribution agreement (the "Genpharm
Distribution Agreement"), dated March 25, 1998, pursuant to which Genpharm
granted to the Company exclusive distribution rights within the United States
and certain other United States territories with respect to approximately 40
generic pharmaceutical products. To date, 15 of such products have obtained FDA
approval and 14 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 12 ANDAs for potential
products (five 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 on all sales of products included in 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), which will be distributed by the Company under
the Genpharm Distribution Agreement. Since Alphapharm was the first-to-file an
ANDA and obtained paragraph IV certification, the Company anticipates receiving
up to 180 days of marketing exclusivity for the product. The Company anticipates
commencing the marketing of the product in the first quarter of fiscal year
2002.

       The Company and Genpharm have a second distribution agreement for
additional products (the "Genpharm Additional Product Agreement"), dated
November 27, 2000, pursuant to which Genpharm granted the Company exclusive

                                       -7-

<PAGE>



                         PHARMACEUTICAL RESOURCES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                               September 29, 2001
                                   (Unaudited)



distribution rights within the United States and certain other United States
territories with respect to five additional generic pharmaceutical products. The
products are either being developed, have been identified for development, or
have been submitted to the FDA for approval. Currently, there is one ANDA for a
potential product covered by the Genpharm Additional Product Agreement pending
with, and awaiting approval from, the FDA. 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 on
all sales of products included in the Genpharm Additional Product Agreement. On
August 2, 2001, the Company received 180-day marketing exclusivity for
fluoxetine (Prozac(R)) 10 mg and 20 mg tablets through the Genpharm Additional
Product Agreement and began shipping the product.

  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 78-month revolving line of credit
expiring June 2003. 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) $20,000,000. The borrowing base is limited to 85% of eligible accounts
receivable plus 50% of eligible inventory of Par, each as determined from time
to time by GECC. The interest rate 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 secured by the
assets of Par and PRI other than real property and is guaranteed by PRI. In
connection with such facility, Par, PRI and their affiliates have established a
cash management system pursuant to which all cash and cash equivalents received
by any of such entities would be deposited into a lockbox account over which
GECC would have sole operating control if there were 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. As of
September 29, 2001, the borrowing base was approximately $19,287,000. To date,
no debt is outstanding under the Loan Agreement.

Income Taxes:

       The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes" ("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. In addition, SFAS 109 requires
the recognition of future tax benefits, such as net operating loss ("NOL")
carryforwards, to the extent that realization of such benefits is more likely
than not. At September 29, 2001, the Company had deferred income tax assets of
$36,424,000 consisting of temporary differences, primarily related to accounts
receivable reserves, and net deferred income tax liabilities of $753,000.
Additional paid-in capital includes the recognition of future tax benefits of
approximately $12,932,000 related to stock option compensation.

       The Company recorded tax provisions of $7,230,000 and $4,070,000, net of
tax benefits of $8,370,000 related to previously unrecognized NOL carryforwards,
for the nine and three-month periods, respectively, ended September 29, 2001.
The Company did not recognize a benefit for its operating losses in either of
the nine and three-month periods ended September 30, 2000.

                                       -8-

<PAGE>


                         PHARMACEUTICAL RESOURCES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                               September 29, 2001
                                   (Unaudited)


Earnings Per Share:

       The Company's computation and presentation of basic and diluted earnings
per share data is in accordance with the provisions of SFAS No. 128, "Earnings
Per Share" ("SFAS 128"). Under SFAS 128, the dilutive effect of stock options is
excluded from the calculation of basic earnings per share but included in
diluted earnings per share. The following table is a reconciliation of the
amounts used to calculate basic and diluted earnings per share:

<TABLE>
<CAPTION>
                                                           Nine Months Ended              Three Months Ended
                                                           -----------------              ------------------
                                                        Sept. 29,      Sept. 30,         Sept. 29,      Sept. 30,
                                                          2001           2000              2001           2000
                                                          ----           ----              ----           ----
                                                                (In Thousands, Except Per Share Amounts)

<S>                                                      <C>             <C>              <C>               <C>
Net income (loss)                                        $30,912         $(1,505)         $26,850           $274

Basic:
Weighted average number of common
  shares outstanding                                      30,106          29,591           30,871         29,622

Net income (loss) per share of common stock              $  1.03         $  (.05)         $   .87        $   .01
                                                         =======         =======          =======        =======

Assuming dilution:
Weighted average number of common
  shares outstanding                                      30,106          29,591           30,871         29,622
Effect of dilutive options                                 1,796               -            1,557          1,048
                                                         -------         -------          -------        -------
Weighted average number of common and common
   equivalent shares outstanding                          31,902          29,591           32,428         30,670

Net income (loss) per share of common stock              $   .97         $  (.05)         $   .83        $   .01
                                                         =======         =======          =======        =======
</TABLE>

       As of September 29, 2001, incremental shares from assumed conversions of
all of the Company's outstanding options and warrants were included in the
computation of diluted earnings per share. The Company had outstanding options
and warrants of 408,700 and 360,200, respectively, at the end of the nine-month
and three-month periods ended September 30, 2000 that were not included in the
computation of diluted earnings per share because their exercise prices were
greater than the average market price of the Common Stock in the respective
periods. In addition, incremental shares from assumed conversions of 1,011,186
at the end of the nine-month period ended September 29, 2000 were excluded from
diluted earnings per share because they were anti-dilutive.

New Accounting Standards:

       In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations" ("SFAS 141"), and SFAS No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142"). SFAS 141 changes the accounting for
business combinations, requiring that all business combinations be accounted for
using the purchase method and is effective for all business combinations
initiated after June 30, 2001. SFAS 142 specifies the financial accounting and
reporting for acquired goodwill and other intangible assets. Goodwill and
intangible assets that have indefinite useful lives will not be amortized but
rather will be tested at least annually for impairment. SFAS 142 is effective
for fiscal years beginning after December 15, 2001.

       SFAS 142 requires that the useful lives of intangible assets acquired on
or before June 30, 2001 be reassessed and the remaining amortization periods
adjusted accordingly. Previously recognized intangible assets deemed to have
indefinite lives shall be tested for impairment. Goodwill recognized on or
before June 30, 2001 shall be tested for impairment as of the beginning of the
fiscal year in which SFAS 142 is initially applied in its entirety.

       The Company has not fully assessed the potential impact of the adoption
of SFAS 142, which is effective for the Company as of January 1, 2002, however,
the Company anticipates the adoption of these statements will not have a
material

                                       -9-

<PAGE>


                         PHARMACEUTICAL RESOURCES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                               September 29, 2001
                                   (Unaudited)



impact on its financial position and results of operations.

       In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of SFAS 133", which delayed
the Company's required adoption of SFAS 133 to January 1, 2001. In June 2000,
the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities, an amendment to SFAS 133" ("SFAS 138"), which is
effective concurrently with SFAS 133. There was no impact on the Company's
financial position and results of operations for the nine and three-month
periods ended September 29, 2001 as a result of the adoption of SFAS 133 and
SFAS 138.

Commitments, Contingencies and Other Matters:

  Retirement Plans:

       The Company has a defined contribution social security integrated
retirement plan (the "Retirement Plan") which provides retirement benefits to
eligible employees as defined in the Retirement Plan. The Company suspended
employer contributions to the Retirement Plan effective December 30, 1996.
Consequently, participants in the Retirement Plan will no longer be entitled to
any employer contributions under such plan for 1996 or subsequent years. The
Company also maintains a retirement savings plan (the "Retirement Savings Plan")
whereby eligible employees are permitted to contribute from 1% to 15% of their
compensation to the Retirement Savings Plan. The Company contributes an amount
equal to 50% of the first 6% of compensation contributed by the employee.
Participants of the Retirement Savings Plan become vested with respect to 20% of
the Company's contributions for each full year of employment with the Company
and thus become fully vested after five full years. In fiscal year 1998, the
Company merged the Retirement Plan into the Retirement Savings Plan. In
September 2001, the Company made a contribution to the Retirement Savings Plan
of approximately $200,000 for fiscal year 2000.

  Legal Proceedings:

       Par is a defendant in two lawsuits filed in United States District Court
for the Eastern District of North Carolina by aaiPharma Inc., involving patent
infringement allegations connected to a total of three patents related to
polymorphic forms of fluoxetine (Prozac(R)). The first of these actions,
aaiPharma Inc. v. Barr Laboratories, Par Pharmaceutical Inc., Dr. Reddy's
Laboratories Inc., Reddy-Cheminor Inc., and Geneva Pharmaceuticals, Inc., was
filed on August 1, 2001. The second of these actions, aaiPharma Inc. v. Barr
Laboratories, Par Pharmaceutical Inc., Dr. Reddy's Laboratories Inc., and
Reddy-Cheminor Inc., was filed on October 30, 2001. 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 July 16, 2001, the Federal Circuit Court of Appeals in Washington D.C.
affirmed the Company's summary judgment victory in its patent infringement case
with Bristol Myers Squibb ("BMS") over megestrol acetate oral suspension, the
generic version of BMS's Megace(R) Oral Suspension. On July 25, 2001, the FDA
granted the Company final approval for megestrol acetate oral suspension with
marketing exclusivity until mid-January 2002 and the Company began shipping the
product to its customers.

       Although the Court has disposed of all infringement issues, Par's
counterclaims for patent invalidity, unfair competition and tortious
interference remain. Par's counterclaims seek an injunction and an award of
compensatory and punitive damages. Par intends to vigorously pursue its pending
litigation with BMS and to defend its patent rights and ensure that other
generic companies do not infringe the Par patent. At this time, it is not
possible for the Company to predict the probable outcome of this litigation and
the impact, if any, that it might have on the Company.

       On March 30, 2001, the Company reached an agreement with 3M with respect
to a previous product agreement (the "Product Co-development, Supply and
Distribution Agreement") entered into between the parties on January 6, 1994.
Under the terms of the agreement, 3M agreed to pay the Company $750,000 in April
2001 in exchange for the mutual termination of the Product Co-development,
Supply and Distribution Agreement. In the first quarter of 2001, the Company
recorded $500,000 of the payment related to product royalties in net sales and
the remaining $250,000 in other income.

                                      -10-

<PAGE>



                         PHARMACEUTICAL RESOURCES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                               September 29, 2001
                                   (Unaudited)



       The Company is involved in certain other litigation matters, including
certain product liability and patent actions, and 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.

Subsequent Events:

       In October 2001, Par entered into a licensing agreement with Elan
Transdermal Technologies, Inc. ("Elan") to market a generic clonidine
transdermal patch. Elan filed an ANDA for the product with the FDA earlier this
fiscal year, including a paragraph IV certification, certifying that the product
did not infringe the branded product's formulation patent, which expires May
2003. The clonidine transdermal patch is a generic version of Boehringer
Ingelheim's Catapres TTS(R), which is a treatment for hypertension. Based on the
Company's market research, brand sales of the product were approximately $160
million in fiscal year 2000. The product will be marketed in 0.1 mg./day, 0.2
mg./day and 0.3 mg./day strengths and the product launch is expected to occur in
either late 2002 or early 2003.

       In November 2001, the Company announced that it had entered into joint
development and marketing agreement with Breath Ltd. of the Arrow Group
("Arrow"), 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
ANDA for latanoprost, which was developed by Arrow and is currently pending at
the FDA, seeking approval to engage in the commercial manufacture, sale and use
of the latanoprost product in the United States. Par's ANDA includes a
certification that the patents listed in the FDA's publication, Approved Drug
Products with Therapeutic Equivalence Evaluations, known as the Orange Book, in
connection with Xalatan(R) are invalid, unenforceable or will not be infringed
by Par's generic product. Par has sent notice of its ANDA and patent
certification to Pharmacia and the additional patent holders. Pursuant to the
provisions of the Hatch-Waxman Act, Pharmacia and the additional patent holders
have 45 days from receipt of the notice from Par in which to bring suit against
Par to attempt to prevent Par from marketing the generic product prior to the
expiration of the patents and thereby delay approval of Par's ANDA. Par has
reason to believe that its ANDA is the first to be filed for this drug with a
paragraph IV certification.

                                      -11-

<PAGE>



       According to the Company's market research, Xalatan(R) sales were over
$400 million in the U.S. in fiscal year 2000. Under the terms of this agreement,
Par will market and distribute the drug in the U.S and share with Arrow the net
profits generated from the sales.





















                                      -12-

<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. 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 and (viii) general industry and economic conditions. Any
forward-looking statements included in this Form 10-Q are made as of the date
hereof, based on information available to the Company as of the date hereof, and
the Company assumes no obligation to update any forward-looking statements.

RESULTS OF OPERATIONS

General

       Net income of $30,912,000 for the nine-month period ended September 29,
2001 increased $32,417,000 from a net loss of ($1,505,000) for the nine months
ended September 30, 2000. The net income in the most recent period was favorably
impacted by the reversal of a previously established valuation allowance of
$8,370,000 related to NOL carryforwards. The Company did not recognize a tax
benefit for its losses in fiscal year 2000. A revenue increase of $93,436,000,
or 152%, from revenues realized during the nine months ended September 30, 2000
led to the significant improvement, reflecting the successful launch of
fluoxetine (Prozac(R)) 10 mg and 20 mg tablets, fluoxetine 40 mg capsules, and
megestrol acetate oral suspension (Megace(R) Oral Suspension). Net sales reached
an all time high of $154,725,000 for the first nine months of fiscal year 2001
compared to net sales of $61,289,000 for the same period of last year. Following
the sales growth, the gross margins increased to $61,112,000, or 39% of net
sales, for the nine-month period of 2001, from $15,188,000, or 25% of net sales,
in the same period of the prior year. The improved results included an increased
investment in research and development in 2001 totaling $7,436,000 for the nine
months, an increase of $2,102,000 from the comparable period of 2000. Selling,
general and administrative costs for the most recent nine-month period of
$15,385,000 increased by an absolute dollar amount of $4,180,000 from the
corresponding period of the prior year, primarily due to the additional
marketing programs, shipping costs and legal fees associated with new product
launches.

       Third quarter 2001 net income of $26,850,000, including the income tax
benefit of $8,370,000 related to previously unrecognized NOL carryforwards,
increased $26,576,000 from the corresponding quarter of the prior year,
reflecting the increased sales and gross margin growth described above. In the
third quarter of 2001, the Company incurred higher costs for research and
development, marketing, legal fees, shipping and personnel compared to the third
quarter of 2000. Third quarter 2001 revenues and net income represent record
highs for any quarter in the Company's history and exceed the annual totals for
any fiscal year since 1989.

       In addition to its own product development program, the Company has
several strategic alliances through which it co-develops and distributes
products. As a result of its internal program and strategic alliances, the
Company's pipeline of potential products includes 23 ANDAs (five of which have
been tentatively approved), pending with, and awaiting approval from, the FDA.
The Company pays a percentage of the gross profits to its strategic partners on
sales of products covered by its distribution agreements (see "Notes to
Financial Statements-"-Distribution and Supply Agreements").

       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 and fluoxetine 40 mg capsules and 10 and 20 mg tablets, which as
first

                                      -13-

<PAGE>



to-file opportunities entitled the Company up to 180 days of marketing
exclusivity for the products. Par's ANDA approval for megestrol acetate oral
suspension, which had an estimated $180 million of annual brand sales in 2000,
is not subject to any profit sharing agreements. Reddy's ANDA approval for
fluoxetine 40mg capsules, which had an estimated $275 million of annual brand
sales in 2000, is covered under the Reddy Development and Supply Agreement.
Alphapharm's ANDA approval for fluoxetine 10 mg tablets, which had an estimated
$70 million of annual brand sales in 2000, and 20 mg tablets, which the Company
believes should be able to compete for a share of the fluoxetine capsule market,
are covered under the Genpharm Additional Product Agreement. Generic competitors
of the Company received 180 days marketing exclusivity for fluoxetine 10 mg and
20 mg capsules. Fluoxetine 20 mg capsules had an estimated annual brand sales of
nearly $2 billion in 2000. Annual brand sales are based on the Company's market
research. The Company began marketing megestrol acetate oral suspension in July
2001 and all three strengths of fluoxetine in August 2001 (see "Notes to
Financial Statements-Distribution and Supply Agreements" ).

       Critical to the continued improvement in the Company's financial
condition 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 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.

       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 expiration or exclusivity
periods, diminishing the amount and duration of significant profits, (iv)
willingness of generic drug customers, including wholesale and retail customers,
to switch among pharmaceutical manufacturers and (v) pricing and product
deletions by competitors.

Net Sales

       Net sales for the nine months ended September 29, 2001 of $154,725,000
increased $93,436,000, or 152%, from net sales of $61,289,000 for the
corresponding nine-month period of 2000. The sales increase was due to the
launch of fluoxetine 10 mg and 20 mg tablets sold under a distribution agreement
with Genpharm, fluoxetine 40 mg capsules sold under a distribution agreement
with Reddy, and megestrol acetate oral suspension manufactured by the Company.
Net sales of distributed products, which consist of products manufactured under
contract and licensed products, were approximately 63% of the Company's net
sales in each of the comparable nine-month periods. The Company is substantially
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.

       Net sales of $99,724,000 for the third quarter of 2001 increased
$79,288,000, or 388%, from $20,436,000 for the corresponding quarter of 2000,
primarily due to the introduction of new products during the quarter. Net sales
of distributed products were approximately 67% of the Company's total net sales
in the most recent quarter compared to approximately 66% of the total for the
same quarter of last year.

       For the nine and three-month periods ended September 29, 2001, net sales
of fluoxetine and megestrol acetate oral suspension were $56,521,000 and
$21,906,000, respectively. Based on the Company's market research for the twelve
weeks ended October 26, 2001, Par had captured approximately 79.7 percent of new
generic and brand prescriptions in the U.S. market for 40 mg fluoxetine and 22.6
percent of new generic prescriptions in the U.S. market for 10 and 20 mg
fluoxetine. In addition, the Company held a 43.8 percent share of new generic
and brand prescriptions in the U.S. market for megestrol acetate oral suspension
for the thirteen weeks ended October 26, 2001.

                                      -14-

<PAGE>



       Sales of the Company's products continue to be 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.

Gross Margin

       The gross margin of $61,112,000 (39% of net sales) for the nine-month
period ended September 29, 2001 increased $45,924,000 from $15,188,000 (25% of
net sales) in the corresponding period of the prior year. The gross margin
improvement was achieved through additional contributions from sales of higher
margin new products, and to a lesser extent, increased sales of certain existing
products and more favorable manufacturing overhead variances.

       The third quarter 2001 gross margin of $41,563,000 (42% of net sales)
increased $36,400,000 from $5,163,000 (25% of net sales) in the corresponding
quarter of the prior year. The higher gross margins in the most recent quarter
reflect the launch of higher margin new products, and to a lesser extent, more
favorable manufacturing overhead variances.

       For the nine and three-month periods ended September 29, 2001,
fluoxetine, which is subject to profit sharing agreements with Genpharm and
Reddy, contributed approximately $18,900,000 to the margin improvement while
megestrol acetate oral suspension contributed approximately $17,000,000. As a
result of the 180-day marketing exclusivity granted to the Company for
fluoxetine and megestrol acetate oral suspension, pricing for these products is
such that they yield relatively high gross margins, before applicable profit
splits, during the exclusivity period. As the exclusivity period ends and
additional manufacturers introduce and market comparable generic pharmaceutical
products, price competition and access to market have historically intensified
and selling prices and product margins typically decline, often significantly.
The 180 days marketing exclusivity will extend into late January-2002 for
fluoxetine and until mid-January 2002 for megestrol acetate oral suspension. Due
to price declines anticipated at the end of the Company's exclusivity period for
fluoxetine 10 mg and 20 mg tablets, and fluoxetine 40 mg capsules, the Company
recorded a portion of the total projected price protection reserve in the third
quarter of 2001. The reserve is based on a number of factors, including the
Company's projected sales volumes during the exclusivity period, inventory
levels of customers and anticipated price declines factoring in a number of
competitors based on tentative FDA approvals.

       Inventory write-offs amounted to $1,195,000 and $729,000 for the
nine-month and three-month periods ended September 29, 2001, respectively,
compared to $1,010,000 and $180,000 in the corresponding periods of the prior
year. The inventory write-offs, taken in the normal course of business, are
primarily related to work-in-process inventory not meeting the Company's quality
control standards and the disposal of finished products due to short shelf
lives. The higher inventory write-offs in the most recent year include the
disposal of validation batches related to manufacturing process improvements.

Operating Expenses

  Research and Development

       In the nine-month period ended September 29, 2001, the Company incurred
research and development expenses of $7,436,000 compared to $5,334,000 for the
corresponding nine months of the prior year. The increased costs were primarily
attributable to higher material, bio-study and personnel costs, and additional
payments for formulation development work performed for PRI by unaffiliated
companies. Annual research and development costs in 2001 are expected to exceed
the total for fiscal year 2000. The Company's domestic research and development
program is integrated with IPR, its research operation in Israel. Research and
development expenses at IPR for the most recent nine-month period were $865,000,
net of Generics funding, compared to expenses of $935,000 for the comparable
period of last year. The Company, IPR and Generics have an agreement pursuant to
which Generics shares one-half of the costs of IPR's operating budget up to a
maximum payment of $1,000,000 in any one calendar year in exchange for the
exclusive distribution rights outside of the United States to the products
developed by IPR after the date of the agreement (see "Notes to Financial
Statements-Research and Development Agreement").

       Research and development expenses of $3,779,000 in the third quarter of
2001 increased $2,900,000 from the third quarter of 2000. The most recent
three-month period included increased costs for bio-studies related to products
co-developed with Genpharm, development materials and personnel. In addition,
the third quarter of the prior year included lower payments to unaffiliated
development companies and the reimbursement of certain expenses by Genpharm.
Research

                                      -15-

<PAGE>

and development expenses at IPR in the most recent quarter were $289,000, net of
Generics funding, compared to expenses of $313,000 in the same quarter of the
prior year.

       The Company currently has three ANDAs for potential products pending
with, and awaiting approval from, the FDA as a result of its own product
development program. In addition, the Company has in process or expects to
commence biostudies for at least four additional products during the remainder
of 2001. None of the potential products described above are subject to any
profit sharing arrangements through the Company's strategic alliances.

       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 12 ANDAs for potential products
(five of which have been tentatively approved) that are covered by the Genpharm
Distribution Agreement pending with, and awaiting approval from, the FDA. To
date, the Company is marketing 14 products under the Genpharm Distribution
Agreement. Flecainide acetate tablets (Tambocor(R)), which is covered under the
Genpharm Distribution Agreement, received final approval from the FDA in July
2001. The Company anticipates commencing the marketing of the product in the
first quarter of 2002 (see "Notes to 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. Currently, there is one
ANDA for a potential product covered by the Genpharm Additional Product
Agreement pending with, and awaiting approval from, the FDA. The Company began
marketing fluoxetine 10 mg and 20 mg tablets, covered under the Genpharm
Additional Product Agreement, in August 2001 (see "Notes to Financial
Statements-Distribution and Supply Agreements-Genpharm, Inc.").

  Selling, General and Administrative

       Although selling, general and administrative costs of $15,385,000 for the
nine months ended September 29, 2001 increased $4,180,000, or 37%, over the same
period of last year, the cost as a percentage of net sales in the respective
periods decreased to 10% in 2001 from 18% in 2000. The higher dollar amounts in
the current nine-month period were primarily attributable to additional
marketing programs, shipping costs and legal fees associated with new product
introductions, and to a lesser extent, increased personnel costs. 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 Financial Statements-Commitments, Contingencies and
Other Matters-Legal Proceedings").

       For the three-month period ended September 29, 2001, selling, general and
administrative costs increased $2,948,000, or 77%, in absolute dollars to
$6,793,000 (7% of net sales) from $3,845,000 (19% of net sales) for the
corresponding three-month period of the prior year primarily due to higher
marketing, shipping, legal and personnel expenses.

Other Income

       Other income of $431,000 and $67,000 for the nine-month and three-month
periods ended September 29, 2001, respectively, decreased from $504,000 and
$112,000 in the corresponding periods of 2000. Included in the nine-month 2001
total was a payment from 3M to the Company releasing the parties from a prior
product agreement recorded in the first quarter of 2001 while the nine-month
period of 2000 included payments from strategic partners to reimburse the
Company for research costs incurred in prior periods.

Income Taxes

       The Company recorded income tax provisions of $7,230,000 and $4,070,000,
net of tax benefits of $8,370,000 related to previously unrecognized NOL
carryforwards, for the nine and three-month periods, respectively, ended
September 29, 2001. The Company did not recognize a benefit for its operating
losses for the nine months ended September 29, 2000 (see "Notes to Financial
Statements-Income Taxes").

FINANCIAL CONDITION

Liquidity and Capital Resources

       The Company's cash and cash equivalents of $2,509,000 at September 29,
2001 increased from $222,000 at

                                      -16-

<PAGE>

December 31, 2000. Proceeds from issuance of Common Stock from the exercise of
options and warrants and net cash provided by operations were used to pay down
the Company's credit line with GECC and to fund capital projects. Working
capital, which includes cash and cash equivalents increased to $80,947,000 at
September 29, 2001 from $18,512,000 at December 31, 2000, primarily due to
increased accounts receivable and deferred income tax assets. The working
capital ratio improved to 2.13x at September 29, 2001 compared to 1.65x at
December 31, 2000.

       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. The payments are
expensed as incurred and included in research and development costs. Annual
research and development expenses, including payments to non-affiliated
companies, are expected to total approximately $10,000,000 for the entire fiscal
year 2001.

       As of September 29, 2001 the Company's accounts payable balance increased
to $48,621,000 due primarily to a total of approximately $35,600,000 payable to
strategic partners related to profit sharing agreements for fluoxetine. The
Company expects to pay these amounts from its working capital by November 2001.

       On March 30, 2001, the Company reached an agreement with 3M pursuant to
which 3M paid the Company $750,000 in April 2001, releasing the parties from a
prior product agreement (see "Notes to Financial Statements-Commitments,
Contingencies and Other Matters-Legal Proceedings").

       In June 2000, the Company agreed to sell its remaining distribution
rights back to Elan for a non-prescription transdermal nicotine patch and to
terminate Par's right to royalty payments under a prior agreement. Pursuant to
this agreement, the Company received a $500,000 payment in July 2001 (see "Notes
to Financial Statements-Distribution and Supply Agreements-Elan Corporation").

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

       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 paid the Company $800,000 for fiscal year 2000 and $587,000 for the
first nine months of 2001, fulfilling their funding requirements through
September 29, 2001. Generics is not required to fund more than $1,000,000 for
any one calendar year (see "Notes to Financial Statements-Research and
Development Agreement").

       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, if and to the
extent available (see "-Financing").

Financing

       At September 29, 2001, the Company's total outstanding long-term debt,
including the current portion, amounted to $1,355,000. The amount consists
primarily of an outstanding mortgage loan with a bank and capital leases for
computer equipment. In June 2001, the Company and the bank entered into an
agreement that extended the terms of the mortgage loan of which the remaining
balance was originally due in May 2001. The mortgage loan extension, in the
principal amount of $877,000, is to be paid in equal monthly installments over a
term of 13 years maturing May 1, 2014. The mortgage loan has a fixed interest
rate of 8.5% per annum, with rate resets after the fifth and tenth years based
upon a per annum rate of 3.25% over the five-year Federal Home Loan Bank of NY
rate.

                                      -17-

<PAGE>

       Par entered into the Loan Agreement with GECC in December 1996, which as
amended, provides Par with a 78-month revolving line of credit expiring June
2003. 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)
$20,000,000. The borrowing base is limited to 85% of eligible accounts
receivable plus 50% of eligible inventory of Par, each as determined from time
to time by GECC. The interest rate 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 secured by the
assets of Par and PRI other than real property and is guaranteed by PRI. In
connection with such facility, Par, PRI and their affiliates have established a
cash management system pursuant to which all cash and cash equivalents received
by any of such entities would be deposited into a lockbox account over which
GECC would have sole operating control if there were 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. As of
September 29, 2001, the borrowing base was approximately $19,287,000. To date,
no debt is outstanding under the loan agreement.

       ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

       Not applicable.




















                                      -18-

<PAGE>

                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings.
-------  ------------------

       Par is a defendant in two lawsuits filed in United States District Court
for the Eastern District of North Carolina by aaiPharma Inc., involving patent
infringement allegations connected to a total of three patents related to
polymorphic forms of fluoxetine (Prozac/R/). The first of these actions,
aaiPharma Inc. v. Barr Laboratories, Par Pharmaceutical Inc., Dr. Reddy's
Laboratories Inc., Reddy-Cheminor Inc., and Geneva Pharmaceuticals, Inc., was
filed on August 1, 2001. The second of these actions, aaiPharma Inc. v. Barr
Laboratories, Par Pharmaceutical Inc., Dr. Reddy's Laboratories Inc., and
Reddy-Cheminor Inc., was filed on October 30, 2001. 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 July 16, 2001, the Federal Circuit Court of Appeals in Washington D.C.
affirmed the Company's summary judgment victory in its patent infringement case
with Bristol Myers Squibb ("BMS") over megestrol acetate oral suspension, the
generic version of BMS's Megace(R) Oral Suspension. On July 25, 2001, the FDA
granted the Company final approval for megestrol acetate oral suspension with
marketing exclusivity until mid-January 2002 and the Company began shipping the
product to its customers.

Item 5.  Other Information.
-------  ------------------

       On September 6, 2001, Merck KGaA and two affiliated entities sold their
entire ownership stake in PRI, which consisted of 13,634,012 shares of Common
Stock or approximately 43% of the total outstanding number of shares of Common
Stock, to 53 unaffiliated institutional investors in a private placement at a
price of $27 per share. In connection with the transaction, the Company filed a
registration statement on Form S-3 with the Securities and Exchange Commission
that permitted the immediate resale of the PRI shares sold by Merck KGaA and its
two affiliates. Merck KGaA reimbursed the Company for all costs, expenses and
fees incurred by it in connection with filing the registration statement. In
addition, four directors designated by Merck KGaA to serve on the Company's
board of directors resigned as a result of the transaction. PRI expects to fill
the board vacancies with qualified independent individuals who have experience
beneficial to the Company.

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

       (a)  Exhibits:

        10.26.1   Tenth Amendment and Consent to Loan and Security Agreement,
                  dated as of August 20, 2001, among the Company, General
                  Electric Capital Corporation, and the other parties named
                  therein.

       (b)  Reports on Form 8-K:

                  None.



                                      -19-

<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 13, 2001         /s/ Kenneth I. Sawyer
                          --------------------------------------------
                          Kenneth I. Sawyer
                          Chief Executive Officer and Chairman of
                          the Board of Directors
                          (Principal Executive Officer)




November 13, 2001         /s/ Dennis J. O'Connor
                          --------------------------------------------
                          Dennis J. O'Connor
                          Vice President - Chief Financial Officer and Secretary
                          (Principal Accounting and Financial Officer)






                                      -20-

<PAGE>

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


<TABLE>
<CAPTION>

Exhibit Number                      Description                                        Page Number
--------------                      -----------                                        -----------

<S>                 <C>                                                                <C>
   10.26.1          Tenth Amendment and Consent to Loan and Security                       22
                    Agreement, dated as of August 20, 2001, among the
                    Company, General Electric Capital Corporation, and the
                    other parties named therein.


</TABLE>






















                                      -21-