UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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

                                    FORM 10-Q

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

                  For the quarterly period ended: April 3, 2005

                         COMMISSION FILE NUMBER: 1-10827


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


      DELAWARE                                                        22-3122182
      (State or other jurisdiction of                           (I.R.S. Employer
      incorporation or organization)                         Identification No.)


      300 TICE BOULEVARD, WOODCLIFF LAKE, NEW JERSEY                       07677
      (Address of principal executive offices)                        (Zip Code)


      (Registrant's telephone number, including area code - (201) 802-4000)

      Indicate by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]  No [ ]

      Indicate by check mark whether the registrant is an accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act): Yes [X]  No [ ]

         Number of shares of Common Stock outstanding as of May 2, 2005:
                                   34,191,793

<PAGE>

                                TABLE OF CONTENTS
                       PAR PHARMACEUTICAL COMPANIES, INC.
                                    FORM 10-Q
                   FOR THE FISCAL QUARTER ENDED APRIL 3, 2005

                                                                            PAGE
                                                                            ----
PART I         FINANCIAL INFORMATION

     Item 1    Financial Statements

               Consolidated balance sheets as of April 3, 2005 and
               December 31, 2004...............................................3

               Consolidated statements of operations for the three months
               ended April 3, 2005 and April 4, 2004...........................4

               Consolidated statements of cash flows for the three months
               ended April 3, 2005 and April 4, 2004...........................5

               Notes to consolidated financial statements...................6-16


    Item 2    Management's Discussion and Analysis of Financial Condition
              and Results of Operations....................................17-25

    Item 3    Quantitative and Qualitative Disclosures about Market Risk......26

    Item 4    Controls and Procedures.........................................26

PART II       OTHER INFORMATION

    Item 1    Legal Proceedings............................................27-29

    Item 5    Other Information...............................................29

    Item 6     Exhibits.......................................................29


    SIGNATURES................................................................30

                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS
                       PAR PHARMACEUTICAL COMPANIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (In Thousands, Except Share Data)
                                   (Unaudited)

                                                         APRIL 3,   DECEMBER 31,
                         ASSETS                            2005        2004
                         ------                            ----        ----
Current assets:
  Cash and cash equivalents                              $42,064      $36,534
  Available for sale securities                          122,445      151,854
  Accounts receivable, net of
   allowances of $35,729 and $42,316                     152,063      149,107
  Inventories, net                                       100,822       86,835
  Prepaid expenses and other current assets               13,502       17,072
  Deferred income tax assets                              46,932       52,580
                                                          ------       ------
  Total current assets                                   477,828      493,982

Property, plant and equipment, at cost less
 accumulated depreciation and amortization                69,571       66,642

Investments                                               33,139       25,271

Intangible assets, net                                    50,189       51,491

Goodwill                                                  77,946       77,919

Deferred charges and other assets                         11,042       11,234

Non-current deferred income tax assets, net               38,412       42,465
                                                          ------       ------
Total assets                                            $758,127     $769,004
                                                         =======      =======

         LIABILITIES AND STOCKHOLDERS' EQUITY
         ------------------------------------
Current liabilities:
  Short-term and current portion of long-term debt        $2,443       $4,348
  Accounts payable                                        38,547       45,832
  Payables due to distribution agreement partners         39,205       40,149
  Accrued salaries and employee benefits                   7,059        8,745
  Accrued expenses and other current liabilities          16,063       16,554
  Income taxes payable                                    31,990       39,116
                                                          ------       ------
  Total current liabilities                              135,307      154,744

Long-term debt, less current portion                     200,224      200,275

Other long-term liabilities                                  395          395

Commitments and contingencies

Stockholders' equity:
  Preferred Stock, par value $.0001 per share;
    authorized 6,000,000 shares; no
    shares issued and outstanding                              -            -
  Common stock, par value $.01 per share;
    authorized: 90,000,000 shares; issued
    35,012,024 and 34,759,265 shares                         350          348
  Additional paid-in capital                             203,649      193,686
  Deferred compensation - restricted stock                (9,536)      (1,455)
 Retained earnings                                       255,703      253,726
  Accumulated other comprehensive income (loss)            4,061         (689)
  Treasury stock, at cost, 843,700 shares                (32,026)     (32,026)
                                                          ------       ------
 Total stockholders' equity                              422,201      413,590
                                                         -------      -------
 Total liabilities and stockholders' equity             $758,127     $769,004
                                                         =======      =======

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

                                       3
<PAGE>

                       PAR PHARMACEUTICAL COMPANIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In Thousands, Except Per Share Data)
                                   (Unaudited)

                                                          THREE MONTHS ENDED
                                                          ------------------
                                                        APRIL 3,       APRIL 4,
                                                          2005           2004
                                                          ----           ----
Revenues:
  Net product sales                                     $91,088       $211,039
  Other product related revenues                          6,413            728
                                                          -----            ---
Total revenues                                           97,501        211,767
Cost of goods sold                                       58,349        141,215
                                                         ------        -------
  Gross margin                                           39,152         70,552
Operating expenses (income):
  Research and development                               15,989          6,478
  Selling, general and administrative                    21,352         17,067
  Gain on sale of facility                                    -         (2,812)
                                                         ------          -----
Total operating expenses                                 37,341         20,733
                                                         ------         ------
Operating income                                          1,811         49,819
Other income (expense), net                               1,323            (22)
Interest expense, net                                      (146)          (279)
                                                            ---            ---
Income before provision for income taxes                  2,988         49,518
Provision for income taxes                                1,011         19,312
                                                          -----         ------
Net income                                               $1,977        $30,206
                                                          =====         ======
Net income per share of common stock:
  Basic                                                   $0.06          $0.88
                                                           ====           ====
  Diluted                                                 $0.06          $0.85
                                                           ====           ====
Weighted average number of
  common shares outstanding:
  Basic                                                  34,137         34,498
                                                         ======         ======
  Diluted                                                34,646         35,555
                                                         ======         ======

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

                                       4
<PAGE>

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

                                                          THREE MONTHS ENDED
                                                          ------------------
                                                         APRIL 3,     APRIL 4,
                                                           2005         2004
                                                           ----         ----
Cash flows from operating activities:
  Net income                                              $1,977     $30,206

  Adjustments to reconcile net income
   to net cash (used in) provided by
   operating activities:
    Deferred income taxes                                  6,797       2,704
    Depreciation and amortization                          3,519       2,911
    Inventory reserves                                      (353)        284
    Allowances against accounts receivable                (6,588)     (8,440)
    Gain on sale of property                                  (2)     (2,812)
    Gain on investments                                   (1,318)          -
    Stock compensation expense                               893         392
    Other                                                      -        (692)

  Changes in assets and liabilities:
    Decrease (increase) in accounts receivable             3,632      (2,801)
    Increase in inventories                              (13,633)    (12,005)
    Decrease in prepaid expenses and other assets          3,762       1,307
    (Decrease) increase in accounts payable               (7,286)     15,021
    (Decrease) increase in payables due to
     distribution agreement partners                        (944)      6,570
    Decrease in accrued expenses and other
     liabilities                                          (2,176)    (11,509)
    (Decrease) increase in income taxes payable           (7,167)     12,327
                                                           -----      ------
      Net cash (used in) provided by operating
       activities                                        (18,887)     33,463
                                                          ------      ------

Cash flows from investing activities:
  Capital expenditures                                    (5,146)     (5,156)
  Issuance of note receivable                                  -     (10,000)
  Proceeds from sale of investment                         1,846           -
  Proceeds from sales of available for sale
   securities                                             43,665           -
  Purchases of available for sale securities             (15,000)    (95,168)
  Proceeds from sale of fixed assets                           2       4,980
  Other                                                      (27)          -
                                                              --     -------
  Net cash provided by (used in) investing
   activities                                             25,340    (105,344)
                                                          ------     -------

Cash flows from financing activities:
  Proceeds from issuances of common stock                  1,033       4,445
  Issuance of debt                                             -         399
  Principal payments under long-term debt
   and other borrowings                                   (1,956)        (96)
                                                           -----          --
  Net cash (used in) provided by financing
   activities                                               (923)      4,748
                                                             ---       -----

Net increase (decrease) in cash and cash equivalents       5,530     (67,133)
Cash and cash equivalents at beginning of period          36,534     162,549
                                                          ------     -------
Cash and cash equivalents at end of period               $42,064     $95,416
                                                          ======      ======

Supplemental disclosure of cash flow information:
Cash paid during the year for:
  Taxes                                                   $1,379      $4,929
                                                           =====       =====
  Interest                                                $2,915      $2,922
                                                           =====       =====
Non-cash transactions:
  Tax benefit from exercise of stock options                $214      $2,301
                                                             ===       =====
  Increase in fair value of available for sale
   securities and investments                             $9,005      $1,688
                                                           =====       =====

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

                                       5
<PAGE>

                       PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  APRIL 3, 2005
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)


      Par  Pharmaceutical  Companies,  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  principally in the United States.  The Company wholly owns Kali
Laboratories,  Inc. ("Kali"), a generic pharmaceutical  research and development
company  located in  Somerset,  New Jersey,  which it acquired on June 10, 2004.
Marketed products are principally in the 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 product.

NOTE 1 - BASIS OF PREPARATION:

      The accompanying  consolidated  financial  statements at April 3, 2005 and
for the three-month periods ended April 3, 2005 and April 4, 2004 are unaudited;
in the opinion of the Company's management, however, such statements include all
adjustments  (consisting only of normal recurring accruals) necessary to present
fairly the information  presented  therein.  The  consolidated  balance sheet at
December 31, 2004 was derived from the Company's audited consolidated  financial
statements at such date.

      On June 10, 2004, the Company  purchased all of the capital stock of Kali.
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
Kali from the date of acquisition.

      Pursuant  to  accounting  requirements  of  the  Securities  and  Exchange
Commission (the "Commission")  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 Company's most recent annual consolidated
financial statements.

      Results of operations for interim periods are not  necessarily  indicative
of those  that may be  achieved  for full  fiscal  years.  Certain  items in the
consolidated  financial  statements for the prior corresponding period have been
reclassified   to  conform  to  the   current   period's   financial   statement
presentation.

NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS:

      In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123R (Revised 2004),  "Share-Based  Payment"  ("SFAS 123R").  SFAS 123R
requires  all  share-based  payments  made to  employees,  including  grants  of
employee stock options and shares issued under employee stock purchase plans, to
be recognized in the income statement based on their grant-date fair values.  In
April 2005, the Commission  amended the date for compliance  with SFAS 123R. The
Company is required to adopt the new accounting provision beginning in its first
quarter of fiscal year 2006. The Company is currently  evaluating the provisions
of SFAS 123R.

NOTE 3 - STOCK-BASED COMPENSATION:

      The Company accounts for stock-based employee compensation arrangements in
accordance  with the provisions of Accounting  Principles  Board ("APB") Opinion
No. 25,  "Accounting  for Stock Issued to Employees"  ("APB  Opinion  25"),  and
complies  with the  disclosure  provisions  of SFAS  No.  123,  "Accounting  for
Stock-Based  Compensation"  ("SFAS  123").  Under APB Opinion  25,  compensation
expense  is based on any  difference,  as of the date of a stock  option  grant,
between the fair value of the Company's  common stock and the option's per share
exercise price.

      In  December  2002,  the  FASB  issued  SFAS  No.  148,   "Accounting  for
Stock-Based  Compensation  -  Transition  and  Disclosure - an Amendment of FASB
Statement No. 123" ("SFAS 148"),  to provide  alternative  methods of transition
for a  voluntary  change  to the  fair  value-based  method  of  accounting  for
stock-based  employee  compensation.  In  addition,  this  Standard  amends  the
disclosure  requirements  of SFAS 123 to require  prominent  disclosure  in both

                                       6
<PAGE>

                       PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  APRIL 3, 2005
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

annual and  interim  financial  statements  about the method of  accounting  for
stock-based employee compensation and the effects of the method used on reported
results.

      The following  table  illustrates the effects on net income and net income
per share of common stock if the Company had applied the fair value  recognition
provisions of SFAS 123 to its stock-based employee compensation:

                                                         THREE MONTHS ENDED
                                                         ------------------
                                                         APRIL 3,    APRIL 4,
                                                           2005        2004
                                                           ----        ----
Net income, as reported                                  $1,977      $30,206
Add: Stock-based employee compensation expense
   included in reported net income, net of
   related tax effects                                      383            -

Deduct: Stock-based employee compensation expense
   determined under the fair value-based method,
   net of related tax effects                           (20,734)      (7,634)
                                                         ------        -----

Pro forma net (loss) income                            $(18,374)     $22,572
                                                         ======       ======

Net income (loss) per share of common stock:
  As reported -Basic                                      $0.06        $0.88
                                                           ====         ====
  As reported -Diluted                                    $0.06        $0.85
                                                           ====         ====

  Pro forma -Basic                                       $(0.54)       $0.65
                                                           ====         ====
  Pro forma -Diluted                                     $(0.54)       $0.63
                                                           ====         ====

      In February 2005, the Company  accelerated the vesting of 820 outstanding,
non-vested  stock options,  which  represented  all stock option grants with per
share exercise prices exceeding $60. The fair value of these options,  using the
Black-Scholes  stock  option  pricing  model  and  the  Company's  stock  option
assumptions at the date of their grant, was approximately  $27,869.  This action
increased  pro  forma  compensation  expense  in the  first  quarter  of 2005 by
approximately  $16,552,  net of related tax  effects.  The Company  considered a
number  of  factors  in  making  this  decision,   including  the  issuance  and
anticipated  implementation  of the revision to SFAS 123 requiring the expensing
of stock options, which is expected to be effective for the Company in 2006.

      As permitted under SFAS 123, the Company has elected to follow APB Opinion
25 and related interpretations in accounting for stock-based compensation to its
employees.  Pro forma information  regarding net income is required by SFAS 123,
as amended by SFAS 148. This required  information is to be determined as if the
Company had accounted for its  stock-based  compensation  to employees under the
fair  value-based  method of SFAS 148.  The fair  value of the  options  granted
during each of the three-month  periods has been estimated at the dates of grant
using the  Black-Scholes  stock option  pricing  model,  based on the  following
assumptions:

                                             THREE MONTHS ENDED
                                             ------------------
                                        APRIL 3,               APRIL 4,
                                         2005                   2004
                                         ----                   ----
Risk-free interest rate                  3.5%                   4.0%
Expected term                         4.9 years              5.0 years
Expected volatility                     59.0%                  59.0%

      It is assumed  that no  dividends  will be paid for the entire term of the
options.  The weighted  average per share fair values of options  granted in the
first   quarter  of  fiscal   years  2005  and  2004  were  $21.98  and  $32.85,
respectively.

                                       7
<PAGE>

                       PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  APRIL 3, 2005
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

NOTE 4 - AVAILABLE FOR SALE SECURITIES:

      At April 3, 2005 and December 31, 2004,  all of the Company's  investments
in marketable securities were classified as available for sale and, as a result,
were  reported  at fair  value.  The  following  is a summary  of the  Company's
available for sale securities, classified as current, at April 3, 2005:

                                                         UNREALIZED       FAIR
                                              COST     GAIN      LOSS     VALUE
                                              ----     ----      ----     -----
      Debt securities issued by various
        state and local municipalities
        and agencies                         $49,244    $-      $(447)  $48,797
      Securities issued by United States
        government and agencies               74,592     -       (944)   73,648
                                              ------     -        ---    ------
      Total                                 $123,836    $-    $(1,391) $122,445
                                             =======     =      =====   =======

      The following is a summary of the Company's available for sale securities,
classified as current, at December 31, 2004:

                                                         UNREALIZED        FAIR
                                              COST     GAIN      LOSS     VALUE
                                              ----     ----      ----     -----
      Debt securities issued by various
        state and local municipalities
        and agencies                         $82,894     $-     $(216)  $82,678
      Securities issued by United States
        government and agencies               69,642      -      (466)   69,176
                                              ------    ---        ---   ------
      Total                                 $152,536     $-     $(682) $151,854
                                             =======      =       ===   =======

      The Company had $442 and $36 of unrealized losses related to available for
sale  securities  that had been in a loss position for greater than a year as of
April 3, 2005 and December 31, 2004,  respectively.  All of the  securities  are
available for immediate sale and have been  classified as current.  In the first
quarter of 2005,  the Company sold $43,665 of these  securities.  The  following
table summarizes the contractual  maturities of debt securities at April 3, 2005
and December 31, 2004:

                                       APRIL 3, 2005         DECEMBER 31, 2004
                                       -------------         -----------------
                                                 FAIR                    FAIR
                                       COST      VALUE       COST        VALUE
                                       ----      -----       ----        -----
      Less than one year            $98,857     $97,638    $93,907     $93,250
      Due between 1-2 years               -           -          -           -
      Due between 2-5 years           3,592       3,556      3,592       3,594
      Due after 5 years              21,387      21,251     55,037      55,010
                                     ------      ------     ------      ------
      Total                        $123,836    $122,445   $152,536    $151,854
                                    =======     =======    =======     =======

NOTE 5 - INVESTMENTS:

      The Company holds  investments  in New River  Pharmaceuticals  Inc.  ("New
River"),   Advancis   Pharmaceutical   Corporation   ("Advancis")   and   Abrika
Pharmaceuticals,  LLLP ("Abrika").  The Company  assesses  whether  temporary or
other-than-temporary  gains or losses on its  investments  have  occurred due to
increases  or declines  in fair value or other  market  conditions.  Because the
Company has  determined  that all of its  investments  are  available  for sale,
unrealized  gains and losses are  reported as a component of  accumulated  other
comprehensive income (loss) in stockholders' equity.

      In  December  2004,  the  Company  acquired a 5%  partnership  interest in
Abrika, a privately-held  specialty  generic  pharmaceutical  company located in
Sunrise,  Florida  for  $8,361,  including  costs.  The  Company  also  holds  a
convertible  promissory  note in the principal  amount of $3,000,  with interest
accruing  at 8.0%  annually,  for money  loaned  to  Abrika.  Because  Abrika is

                                       8
<PAGE>

                       PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  APRIL 3, 2005
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

privately-held,  the Company  monitors  the  investment  on a periodic  basis to
evaluate whether any changes in fair value become other-than-temporary.

      In August,  2004, the Company  purchased 875 shares of common stock of New
River for $7,000 in its initial  public  offering of $8 per share.  In the first
quarter of 2005, the Company sold 62 shares of New River common stock for $1,846
and  recorded a gain on the sale of $1,353.  The  Company's  current  investment
represents an ownership position of approximately 4.5% of the outstanding common
stock of New River. As of April 3, 2005 and December 31, 2004, the fair value of
the  Company's  investment  in New River was $21,268 and $13,090,  respectively,
based on the  market  value of the  common  stock of New  River on those  dates,
respectively.  To  date,  the  Company  has  recorded  unrealized  gains on this
investment  of $14,761,  with a  corresponding  credit of $9,095 to  accumulated
other comprehensive gains and $5,666 to deferred income taxes.

      The Company paid  $10,000 to purchase  1,000 shares of the common stock of
Advancis,  a pharmaceutical  company based in Germantown,  Maryland,  at $10 per
share in its initial  public  offering of 6,000 shares on October 16, 2003.  The
Company's current  investment  represented an ownership  position of 4.4% of the
outstanding  common stock of Advancis at April 3, 2005.  As of April 3, 2005 and
December 31, 2004,  the fair value of the  Company's  investment in Advancis was
$3,510 and $3,820,  respectively,  based on the market value of the common stock
of Advancis at those dates, respectively.  To date, the Company has recorded net
unrealized losses on this investment of $6,490,  with  corresponding  charges of
$3,962 to accumulated other  comprehensive  losses and $2,528 to deferred income
taxes.

NOTE 6 - ACCOUNTS RECEIVABLE:
                                                      APRIL 3,     DECEMBER 31,
                                                        2005           2004
                                                        ----           ----
      Gross trade accounts receivable                $272,529       $294,030
      Allowances for rebates and chargebacks           91,150        102,607
                                                       ------        -------
      Trade accounts receivable, net of customer
       rebates and chargebacks                        181,379        191,423
      Other accounts receivable                         6,413              -
                                                        -----        -------
                                                      187,792        191,423
      Allowances:
        Doubtful accounts                               1,847          1,847
        Returns                                        21,787         23,392
        Price adjustments and allowances               12,095         17,077
                                                       ------         ------
                                                       35,729         42,316
                                                       ------         ------
      Accounts receivable,
        net of allowances                            $152,063       $149,107
                                                      =======        =======

      At the  time  the  Company  recognizes  revenues  for  product  sales,  it
simultaneously  records estimates for sales allowances,  the most significant of
which are  described  below and include  rebates,  chargebacks,  returns,  price
adjustments and other sales  allowances,  as reductions to gross revenues,  with
corresponding adjustments to the accounts receivable allowances.

      Customer  rebates are price  reductions  that  generally  are  provided to
customers as an incentive for them to continue to carry the  Company's  products
or to  substitute  the  Company's  products  for  competing  products to be sold
through the customers'  distribution channels. This incentive is generally based
on a customer's volume of purchases made during an applicable monthly, quarterly
or annual period.

      Chargebacks  are  given to the  wholesale  customer  for  product  that it
resells  to  specific  healthcare  providers  on the basis of prices  negotiated
between  the  Company  and the  providers.  Chargeback  credits  are  issued  to
wholesalers  for the  difference  between the  Company's  invoice  price and the
contract price through which the wholesaler resells the product.

      The Company accepts returns of product according to the following: (i) the
returns must be approved by authorized personnel in writing or by telephone with
the lot number and expiration date  accompanying  any request,  (ii) the Company

                                       9
<PAGE>

                       PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  APRIL 3, 2005
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

generally  will accept  returns of products  from any customer and will give the
customer a credit for such return if such product is returned  within six months
prior to, and until 12 months  following,  such  product's  expiration  date and
(iii) any product that has more than six months until its expiration date may be
returned  to the  Company;  however,  no credit  will be issued to the  customer
unless the product can be resold.

      Price adjustments include term discounts, sales promotions and shelf-stock
adjustments.  Term  discounts are given to customers  that pay within a specific
period of time.  The Company may conduct  sales or trade show  promotions  where
additional  discounts may be given on a new product or certain existing products
as an added  incentive  to stock the  Company's  products or for the customer to
substitute the Company's products for competing products.  The Company may also,
from time to time,  provide price and/or volume  incentives on new products that
have  multiple  competitors  and/or  on  existing  products  that  confront  new
competition in order to secure or maintain a certain  market share.  The Company
does not provide incentives designed to increase shipments to its customers that
it believes would result in out-of-the ordinary course of business inventory for
them.  Shelf-stock  adjustments  are  typically  provided to a customer when the
Company  lowers its invoice  pricing and provides the customer with a credit for
the difference between the old and new invoice prices for the inventory that the
customer has on hand at the time of the price reduction.

      Due to competitive factors, the Company may also provide price protection.
The Company will generally offer price protection for sales of new generic drugs
for which its market  exclusivity period has expired or with respect to products
for  which  it  anticipates  significant  price  erosion  through  increases  in
competition. Such price protection accounts for the fact that the prices of such
drugs typically will decline,  sometimes substantially,  when additional generic
manufacturers  introduce and market a comparable  generic product  following the
expiration of an  exclusivity  period or at the time of a price  decrease.  Such
price protection plans,  which are common in the Company's  industry,  are given
through  lower  contract  pricing to the  wholesalers,  which could result in an
increased   chargeback  per  unit  on  existing  inventory  levels,  or  through
shelf-stock adjustments. At April 3, 2005 and December 31, 2004, the Company did
not have any material  price  protection  reserves,  but had issued  significant
price protection  credits and had generally  lowered contract pricing on its key
products  in the  first  quarter  2005 and  throughout  fiscal  year 2004 due to
competition.

      The following  summarizes the activity for the three-months ended April 3,
2005 in the accounts affected by the accruals described above:

                                                         THREE MONTHS
                                                      ENDED APRIL 3, 2005
                                                      -------------------
RESERVES FOR REBATES AND CHARGEBACKS:
-------------------------------------
      Balance, beginning of the period                   $(102,607)
      Provision recorded                                  (149,345)
      Credits processed                                    160,802
                                                           -------
      Balance, end of the period                          $(91,150)
                                                            ======

RESERVES FOR DOUBTFUL ACCOUNTS, RETURNS,
PRICE ADJUSTMENTS AND OTHER SALES ALLOWANCES:
---------------------------------------------
      Balance, beginning of the period                    $(42,316)
      Provision recorded                                   (35,459)
      Credits processed                                     42,046
                                                            ------
      Balance, end of the period                          $(35,729)
                                                            ======

      The Company's other accounts receivable in the first quarter 2005 included
a $6,000  receivable  from a business  partner to conclude a  manufacturing  and
supply agreement. The $6,000 was subsequently paid in April 2005.

                                       10
<PAGE>

                       PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  APRIL 3, 2005
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

NOTE 7 - INVENTORIES, NET:
                                                     APRIL 3,     DECEMBER 31,
                                                       2005           2004
                                                       ----           ----
      Raw materials and supplies, net                $30,573        $30,773
      Work-in-process, net                            11,496         11,041
      Finished goods, net                             58,753         45,021
                                                      ------         ------
                                                    $100,822        $86,835
                                                     =======         ======
NOTE 8 - ACQUISITIONS:

      On June 10, 2004,  the Company  acquired all of the capital  stock of Kali
for $142,888 in cash and warrants to purchase 150 shares of the Company's common
stock  valued at $2,530.  The  acquisition  did not require the  approval of the
Company's stockholders.  The Company acquired the physical facilities,  acquired
in-process  research  and  development  and  intellectual  property  of Kali and
retained  all of its  employees.  The  acquisition  of  Kali  has  significantly
expanded the  Company's  research and  development  capabilities.  The Company's
acquisition  of Kali is  consistent  with its  long-term  strategy to supplement
internal  growth  with  acquisitions,   joint  ventures  and  product  licensing
agreements.

NOTE 9 - INTANGIBLE ASSETS, NET:
                                                       APRIL 3,     DECEMBER 31,
                                                         2005           2004
                                                         ----           ----
      FSC Laboratories, Inc. agreement, net of
          accumulated amortization of $189 and $0       $14,811      $15,000
      Trademark licensed from Bristol-Myers Squibb        5,000        5,000
      Bristol-Myers Squibb asset purchase agreement,
          net of accumulated amortization of $5,154
          and $4,736                                      6,546        6,964
      Product license fees, net of accumulated
          amortization of $3,539 and $3,480               7,466        7,525
      Genpharm, Inc. distribution agreement, net of
          accumulated amortization of $4,875
          and $4,694                                      5,958        6,139
      Intellectual property, net of accumulated
          amortization of $2,331 and $2,071               6,974        7,234
      Other intangibles assets, net of accumulated
          amortization of $386 and $191                   3,434        3,629
                                                          -----        -----
                                                        $50,189      $51,491
                                                         ======       ======

      The Company recorded  amortization expense related to intangible assets of
$1,302 and $1,512, respectively, for the three-month periods ended April 3, 2005
and  April 4,  2004.  Amortization  expense  related  to the  intangible  assets
currently  being  amortized is expected to total  approximately  $7,959 in 2005,
$8,131 in 2006,  $6,701  in 2007,  $5,960  in 2008,  $4,197  in 2009 and  $6,544
thereafter.  Intangible assets not being amortized at April 3, 2005 and December
31,  2004 were  product  license  fees of $6,999 and a trademark  licensed  from
Bristol-Myers Squibb Company ("BMS") of $5,000.

      The  product  license  fees of  $6,999  consist  of  payments  made by Par
pursuant to  agreements  with Breath  Ltd.  of the Arrow  Group  ("Breath")  and
FineTech  Laboratories,  Ltd. related to latanoprost ophthalmic solution 0.005%,
the generic equivalent of Pharmacia Corporation's  ("Pharmacia")  Xalatan(R),  a
glaucoma medication.  The Company and Pharmacia are currently in litigation over
alleged  patent   infringement  in  regards  to  latanoprost  (see  "Note  13  -
Commitments, Contingencies and Other Matters - Legal Proceedings").

 NOTE 10 - INCOME TAXES:

      The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109,  "Accounting  for Income  Taxes,"  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. Current deferred
income tax assets at April 3, 2005 and December 31, 2004  consisted of temporary
differences,  primarily related to accounts receivable reserves, and non-current
deferred  income tax assets in both periods  included the tax benefit related to
purchased call options and acquired in-process research and development.

                                       11
<PAGE>

                       PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  APRIL 3, 2005
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

NOTE 11 - CHANGES IN STOCKHOLDERS' EQUITY:

      Changes  in  the  Company's  Common  stock,  Additional  paid-in  capital,
Deferred  compensation - restricted  stock and Accumulated  other  comprehensive
income (loss) accounts during the three-month period ended April 3, 2005 were as
follows:

<TABLE>
<CAPTION>
                                                                          DEFERRED     ACCUMULATED
                                                            ADDITIONAL  COMPENSATION      OTHER
                                            COMMON STOCK      PAID-IN    RESTRICTED   COMPREHENSIVE
                                          SHARES   AMOUNT     CAPITAL      STOCK      INCOME (LOSS)
                                          ------   ------     -------      -----      -------------

<S>                                       <C>        <C>     <C>         <C>             <C>
      Balance, January 1, 2005            34,759     $348    $193,686    $(1,455)        $(689)
        Comprehensive income:
         Unrealized gains on marketable
         securities, net of tax                -        -           -          -          4,750
        Exercise of stock options             44        -         941          -              -
        Tax benefit from exercise of
          stock options                        -        -         214         --
        Issuance of restricted stock         206        2       8,698     (8,700)             -
        Employee stock purchase program        3        -          92          -              -
        Compensatory arrangements              -        -         273        619              -
        Other                                  -        -        (255)         -              -
                                          ------    -----         ---      -----          -----
      Balance, April 3, 2005              35,012     $350    $203,649    $(9,536)        $4,061
                                          ======      ===     =======      =====          =====
</TABLE>

                                                      THREE MONTHS ENDED
                                                      ------------------
                                                     APRIL 3,    APRIL 4,
COMPREHENSIVE INCOME:                                  2005        2004
                                                       ----        ----
      Net income                                     $1,977      $30,206
      Other comprehensive income:
       Unrealized gains on marketable
       securities, net of tax                         4,750        1,070
                                                      -----        -----
      Comprehensive income                           $6,727      $31,276
                                                      =====       ======

      In April 2004, the Company's  board of directors (the "Board")  authorized
the repurchase of up to $50,000 of the Company's  common stock.  The repurchases
may be made, subject to compliance with applicable securities laws, from time to
time in the open market or in privately  negotiated  transactions.  Common stock
acquired  through the  repurchase  program is and will be available  for general
corporate purposes.  In fiscal year 2004, the Company had repurchased 844 shares
of its common  stock for  approximately  $32,026  pursuant to the  program.  The
Company did not  repurchase  any shares of its common stock in the first quarter
of 2005. The Company can still  repurchase  approximately  $17,974 of its common
stock under the above plan.

      In the first quarter of 2005 and the second  quarter of 2004,  the Company
granted 206 and 45 restricted shares of common stock,  respectively,  to certain
key  employees.  The  restrictions  expire over a four-year  period from date of
grant.  Compensation  expense is recognized  over the related  vesting period as
restrictions lapse.

                                       12
<PAGE>

                       PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  APRIL 3, 2005
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

NOTE 12 - EARNINGS PER SHARE:

      The following is a  reconciliation  of the amounts used to calculate basic
and diluted earnings per share:

                                                       THREE MONTHS ENDED
                                                       ------------------
                                                       APRIL 3,    APRIL 4,
                                                         2005        2004
                                                         ----        ----
Net income                                             $1,977      $30,206
Basic:
Weighted average number of common
  shares outstanding                                   34,137       34,498
Net income per share of common stock                    $0.06        $0.88
                                                         ====         ====
Assuming dilution:
Weighted average number of common
  shares outstanding                                   34,137       34,498
Effect of dilutive options                                509        1,057
                                                          ---        -----
Weighted average number of common
   shares outstanding                                  34,646       35,555
Net income per share of common stock                    $0.06        $0.85
                                                         ====         ====

      Outstanding  options  and  warrants of 2,196 and 1,244 as of April 3, 2005
and April 4, 2004, respectively, were not included in the computation of diluted
earnings per share because their  exercise  prices were greater than the average
market  price of the  Common  Stock  during  the  respective  periods  and their
inclusion would, therefore,  have been anti-dilutive.  In addition,  outstanding
warrants  sold  concurrently  with the sale of senior  subordinated  convertible
notes in September 2003 were not included in the computation of diluted earnings
per share as of April 3, 2005 and April 4, 2004.  The warrants  are  exercisable
for an aggregate of 2,253 shares at an exercise price of $105.20 per share.

NOTE 13 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:

PENSION PLAN:

      The Company  maintains a defined  benefit plan (the  "Pension  Plan") that
covers eligible employees,  as defined in the Pension Plan. The Pension Plan has
been frozen since October 1, 1989. Since the benefits under the Pension Plan are
based on the  participants'  length of service and compensation  (subject to the
Employee  Retirement  Income  Security Act of 1974 and Internal  Revenue Service
limitations),  service  costs  subsequent  to October 1, 1989 are excluded  from
benefit accruals under the Pension Plan. The funding policy for the Pension Plan
is  to  contribute  amounts  actuarially  determined  as  necessary  to  provide
sufficient assets to meet the benefit requirements of the Pension Plan retirees.
For fiscal year 2005, the Company's contribution is estimated to be $22.

      Net pension expense for the three-months  ended April 3, 2005 and April 4,
2004 included the components set forth in the table below:

                                                     APRIL 3,       APRIL 4,
                                                       2005           2004
                                                       ----           ----
      Interest cost                                     $31            $31
      Expected return on Pension Plan assets            (33)           (34)
      Amortization of initial unrecognized
       transition obligation                             13             13
                                                         --             --
Net pension expense                                     $11            $10
                                                         ==             ==

                                       13
<PAGE>

                       PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  APRIL 3, 2005
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

LEGAL PROCEEDINGS:

      On November 1, 2004, Morton Grove  Pharmaceuticals,  Inc. ("Morton Grove")
filed a lawsuit  against the Company in the United States District Court for the
Northern  District of Illinois,  seeking a  declaratory  judgment  that four Par
patents relating to megestrol acetate oral suspension are invalid, unenforceable
and not  infringed  by a Morton  Grove  product  that was launched in the fourth
quarter of 2004. The Company  intends to defend  vigorously  this action and has
asserted counterclaims against Morton Grove.

      On May 3, 2004, Pentech  Pharmaceutical,  Inc. ("Pentech") filed an action
against  the  Company  in the  United  States  District  Court for the  Northern
District of Illinois. This action alleges that the Company breached its contract
with Pentech relating to the supply and marketing of paroxetine (Paxil(R)).  The
Company and Pentech are in dispute over the amount of gross profit  share.  This
case is currently in discovery.  The Company  intends to defend  vigorously this
action.

      On March 9, 2004,  the Congress of  California  Seniors  brought an action
against  GlaxoSmithKline,  plc ("GSK") and the  Company  concerning  the sale of
paroxetine  in the State of  California.  This action  alleges  that the sale of
paroxetine by GSK and the Company in California constitutes, among other things,
unfair business practices. The Company intends to defend vigorously this action.

      On  September  10,  2003,  Par and a number  of other  generic  and  brand
pharmaceutical  companies  were sued by a New York  State  county  (the suit has
since been joined by additional New York counties) which has alleged  violations
of laws  (including  the Racketeer  Influenced  and Corrupt  Organizations  Act,
common  law  fraud  and  obtaining  funds  by  false   statements)   related  to
participation in the Medicaid program.  The complaint seeks declaratory  relief;
actual,  statutory and treble  damages,  with  interest;  punitive  damages;  an
accounting and  disgorgement of any illegal  profits;  a constructive  trust and
restitution;  and  attorneys'  and  experts'  fees  and  costs.  This  case  was
transferred   to  the  United  States   District   Court  for  the  District  of
Massachusetts  for  coordinated  and  consolidated  pre-trial  proceedings.   In
addition,  on  September  25, 2003,  the Office of the  Attorney  General of the
Commonwealth of Massachusetts filed a complaint in the District of Massachusetts
against Par and 12 other  leading  generic  pharmaceutical  companies,  alleging
principally that Par and such other companies violated,  through their marketing
and sales practices, state and federal laws, including allegations of common law
fraud and violations of Massachusetts  false statements  statutes,  by inflating
generic  pharmaceutical  product prices paid for by the  Massachusetts  Medicaid
program.  Par waived  service  of process  with  respect to the  complaint.  The
complaint seeks  injunctive  relief,  treble damages,  disgorgement of excessive
profits,  civil penalties,  reimbursement of investigative  and litigation costs
(including  experts' fees) and attorneys' fees. On January 29, 2004, Par and the
other  defendants  involved  in the  litigation  brought  by the  Office  of the
Attorney General of the Commonwealth of Massachusetts filed a motion to dismiss,
which has not yet been  ruled on. On August 4,  2004,  Par and a number of other
generic  and brand  pharmaceutical  companies  were also sued by the City of New
York,  which has  alleged  violations  of laws  (including  common law fraud and
obtaining funds by false  statements)  related to  participation in its Medicaid
program.  The complaint seeks declaratory relief;  actual,  statutory and treble
damages, with interest;  punitive damages; an accounting and disgorgement of any
illegal  profits;  a  constructive  trust and  restitution;  and  attorneys' and
experts' fees and costs.  This case was  transferred to the U.S.  District Court
for the District of  Massachusetts  for coordinated and  consolidated  pre-trial
proceedings.  In addition to  Massachusetts,  the Commonwealth of Kentucky,  the
State of Illinois  and the State of Alabama  have filed  similar  suits in their
respective jurisdictions. Par intends to defend vigorously these actions.

      On July 15,  2003,  the  Company  and Par filed a lawsuit  against  Roxane
Laboratories,  Inc.  ("Roxane")  in the  United  States  District  Court for the
District of New Jersey.  The Company and Par alleged  that Roxane had  infringed
Par's U.S.  Patents  numbered  6,593,318  and  6,593,320  relating to  megestrol
acetate oral  suspension  (Megace Oral  Suspension(R)).  Roxane has denied these
allegations and has counterclaimed for declaratory judgments of non-infringement
and  invalidity  of both  patents.  In addition,  Roxane has  recently  filed an
amended   complaint   asserting   that  Par's  patents  in  the  litigation  are
unenforceable  due to  inequitable  conduct before the U.S.  Patent Office.  Par
intends to defend vigorously this action.

                                       14
<PAGE>

                       PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  APRIL 3, 2005
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

      In February 2003,  Abbott,  Fournier  Industrie et Sante and  Laboratoires
Fournier S.A.  ("Abbott")  filed a complaint in the United States District Court
for the District of New Jersey against Par,  alleging that Par's generic version
of TriCor(R) (fenofibrate) infringes one or more claims of four of their patents
based on Par having filed an Abbreviated New Drug  Application  ("ANDA") for the
accused product with the Food and Drug  Administration (the "FDA"). Par filed an
answer and a counterclaim,  alleging  non-infringement  and invalidity.  Par has
filed a request  with the FDA to convert its  Paragraph  IV  certification  to a
Paragraph  III  certification  and the  case  is  subject  to an  administrative
dismissal.

      On November 25, 2002, Ortho-McNeil  Pharmaceutical,  Inc. ("Ortho-McNeil")
filed a lawsuit against Kali, a wholly-owned  subsidiary of the Company,  in the
United  States  District  Court for the  District  of New  Jersey.  Ortho-McNeil
alleged that Kali  infringed  U.S.  Patent No.  5,336,691 (the "`691 patent") by
submitting  a  Paragraph  IV  certification  to the FDA for  approval of tablets
containing  tramadol  hydrochloride and  acetaminophen.  Par is Kali's exclusive
marketing partner for these tablets through an agreement entered into before the
Company's  acquisition  of Kali.  Kali  has  denied  Ortho-McNeil's  allegation,
asserting  that  the  `691  patent  was  not  infringed  and is  invalid  and/or
unenforceable,  and that the lawsuit is barred by unclean  hands.  Kali also has
counterclaimed  for declaratory  judgments of  non-infringement,  invalidity and
unenforceability  of the `691  patent.  Summary  judgment  papers were served on
opposing  counsel on May 28, 2004. The referenced  summary  judgment  motion was
fully  briefed and  submitted to the Court as of August 23, 2004.  The Court has
stated that it will hold oral argument,  which has not as of yet been scheduled.
The Company received FDA approval and began shipping  tramadol in April 2005 and
is still awaiting an answer from the court  regarding the referenced  motion for
summary  judgment (see "Note 14 - Subsequent  Events").  Ortho-McNeil has stated
that it will  pursue  its claims  against  Kali and will seek  damages  for lost
profits. The Company intends to defend vigorously against this action.

      As a result  of Par's  filing  of the ANDA for  latanoprost  (Xalatan(R)),
Pharmacia Corporation and the Trustees of Columbia University (collectively, the
"Plaintiffs")  filed a lawsuit  against Par on  December  21, 2001 in the United
States  District  Court  for  the  District  of  New  Jersey,   alleging  patent
infringement.  The  Plaintiffs  sought an injunction  enjoining  approval of the
Company's ANDA and the marketing of its generic  product prior to the expiration
of their  patents.  On February 8, 2002,  Par answered the complaint and filed a
counterclaim,  which sought a declaration that the  patents-in-suit are invalid,
unenforceable  and/or not infringed by Par's  products and that the extension of
the term of one of the patents was  invalid.  The trial  concluded in March 2004
and on July 6, 2004 the Court issued an opinion and order ordering that judgment
be entered in favor of the  Plaintiffs on their claims of  infringement  of U.S.
Patent Nos.  4,599,353  (expires July 28, 2006) and 5,296,504 (expires March 22,
2011);  that the effective  date of approval of Par's ANDA shall be a date which
is not earlier than the dates of  expiration of those  patents;  and that Par is
enjoined from engaging in the  commercial  manufacture,  use,  offer to sell, or
sale within the United  States,  or importation  into the United States,  of any
drug  product  covered by, or the use of which is covered by, those two patents.
As to the third patent  asserted by the Plaintiffs,  U.S. Patent No.  5,422,368,
the Court  dismissed the Plaintiffs'  infringement  claims and declared that the
patent is unenforceable due to inequitable  conduct. The Court further dismissed
all of the parties' claims for attorneys' fees. Both Par and the Plaintiffs have
filed  notices of appeal which are pending in the United States Court of Appeals
for the Federal  Circuit.  Par is appealing the Court's decision only insofar as
it relates to U.S. Patent No. 5,296,504.

      Par  entered   into  a  licensing   agreement   with   developer   Paddock
Laboratories,  Inc. ("Paddock") to market testosterone 1% gel, a generic version
of Unimed  Pharmaceuticals,  Inc.'s ("Unimed") product Androgel(R).  Pursuant to
this agreement,  Par is responsible for management of any litigation and payment
of all legal fees  associated  with this product.  The product,  if successfully
brought to market, would be manufactured by Paddock and marketed by Par. Paddock
has filed an ANDA (that is  pending  with the FDA) for the  testosterone  1% gel
product.  As a result of the filing of the ANDA, Unimed and Laboratories  Besins
Iscovesco  ("Besins"),  co-assignees  of the  patent-in-suit,  filed  a  lawsuit
against Paddock in the United States District Court for the Northern District of
Georgia,  alleging  patent  infringement on August 22, 2003. Par has an economic
interest in the outcome of this litigation by virtue of its licensing  agreement
with Paddock.  Unimed and Besins are seeking an  injunction  to prevent  Paddock
from  manufacturing the generic product.  On November 18, 2003, Paddock answered
the  complaint  and filed a  counterclaim,  which seeks a  declaration  that the
patent-in-suit is invalid and/or not infringed by Paddock's  product.  This case
is currently in discovery. The Company intends to defend vigorously against this
action.

                                       15
<PAGE>

                       PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  APRIL 3, 2005
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

      The Company  cannot predict with certainty at this time the outcome or the
effects on the Company of the above listed actions.  Accordingly,  no assurances
can be given that such  actions will not have a material  adverse  effect on the
Company's financial condition, results of operations, prospects or business.

      The Company  and/or Par are,  from time to time,  parties to certain other
litigations,  including  product  liability  and  patent  actions.  The  Company
believes that these actions are part of the ordinary  course of its business and
that their ultimate  resolution  will not have a material  adverse effect on its
financial condition,  results of operations or liquidity. The Company intends to
vigorously  defend or, in cases where the  Company is  plaintiff,  to  prosecute
these actions.

OTHER MATTERS:

      In June 2003, the Company received notice from the U.S.  Congress that the
Committee on Energy and Commerce (the  "Committee")  had begun an  industry-wide
(brand and generic) investigation into pharmaceutical reimbursements and rebates
under  Medicaid,  to which the  Company has  responded.  In order to conduct the
investigation,   the  Committee  has   requested   certain   pricing  and  other
information,  which the Company  delivered in August  2003,  relating to certain
drugs produced by these  pharmaceutical  manufacturers.  It is premature for the
Company to speculate  what action,  if any, the federal  government may take and
what impact such  action  could have on the  Company's  business,  prospects  or
financial condition.

NOTE 14 - SUBSEQUENT EVENTS:

      In April 2005, the Company  received final approval from the FDA and began
shipping tramadol  hydrochloride and acetaminophen  tablets, the generic version
of Ortho-McNeil's Ultracet(R). The product is indicated for the short-term (five
days or less) management of acute pain. The Company has been awarded 180 days of
marketing exclusivity,  commencing at its launch, for being the first to file an
ANDA  containing a paragraph IV  certification  of the  product.  Following  the
Company's  launch,  a  competitor  entered the market with a generic  version of
Ultracet(R)  authorized by  Ortho-McNeil.  The Company is currently  involved in
litigation  with  Ortho-McNeil  who  has  alleged  that  the  Company's  product
infringes upon their patent (see "Note 13 - Commitments, Contingencies and Other
Matters - Legal Proceedings").

                                       16
<PAGE>

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

      CERTAIN  STATEMENTS  IN  THIS  DOCUMENT  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, TRENDS 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,"  "INTENDS,"  "BELIEVES," OR
SIMILAR  WORDS AND  PHRASES.  FACTORS  THAT MIGHT  AFFECT  SUCH  FORWARD-LOOKING
STATEMENTS SET FORTH IN THIS DOCUMENT INCLUDE (I) INCREASED COMPETITION FROM NEW
AND  EXISTING   COMPETITORS,   AND  PRICING   PRACTICES  FROM  SUCH  COMPETITORS
(PARTICULARLY  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, DELAYS INVOLVED IN AND OUTCOME OF ANY THREATENED
OR  PENDING  LITIGATIONS,  INCLUDING  PATENT  AND  INFRINGEMENT  CLAIMS,  (VIII)
UNANTICIPATED  COSTS, DELAYS AND LIABILITIES IN INTEGRATING  ACQUISITIONS,  (IX)
OBTAINING OR LOSING  180-DAY  MARKETING  EXCLUSIVITY ON PRODUCTS AND (X) GENERAL
INDUSTRY AND ECONOMIC  CONDITIONS.  ANY  FORWARD-LOOKING  STATEMENTS INCLUDED IN
THIS  DOCUMENT  ARE  MADE AS OF THE  DATE  HEREOF  ONLY,  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.

      THE FINANCIAL DATA CONTAINED IN THIS SECTION IS IN THOUSANDS.

OVERVIEW

      The Company's revenues and gross margin dollars for the three-month period
ended  April  3,  2005  decreased  54.0%  and  44.5%,  respectively,   from  the
corresponding  period of 2004.  Increased  competition  has  adversely  affected
pricing and volumes of the  Company's  key  products  leading to lower sales and
gross  margins.   Also,  the  Company's   increased  spending  on  research  and
development,   higher  sales  and  marketing  costs  and  increased  legal  fees
contributed  to decreased  earnings when  comparing the first fiscal  quarter of
2005 to the first fiscal quarter of 2004.  Critical to the growth of the Company
is its  introduction of new  manufactured  and  distributed  products at selling
prices that generate adequate gross margins.  The Company,  through its internal
development  program and  various  strategic  alliances  and  relationships,  is
seeking to introduce  new  products  that have  limited  competition  and longer
product life cycles. As part of this effort, the Company received final approval
from  the  FDA  and  began  shipping  tramadol  HCl  and  acetaminophen  tablets
(Ultracet(R)) in April 2005 (see "Notes to Consolidated  Financial  Statements -
Note 14 - Subsequent Events"). In addition to expected new product introductions
as part of its various strategic alliances and relationships,  the Company plans
to continue to invest in its internal research and development efforts and brand
marketing  strategy  throughout  fiscal year 2005 and beyond.  Also, the Company
will  continue  seeking  additional  products  for sale through new and existing
distribution   agreements  or   acquisitions  of   complementary   products  and
businesses,  additional  first-to-file  opportunities and unique dosage forms to
differentiate its products in the marketplace.

      Part of the  Company's  business plan is its strategy to enter the branded
drug market in an effort to market  products  with longer life cycles and higher
profitability.  On June 29,  2004,  the  Company  submitted  its  first New Drug
Application ("NDA"), pursuant to Section 505(b)(2) of the Federal Food, Drug and
Cosmetic Act ("FFDC Act"),  seeking  marketing  clearance for megestrol  acetate
oral suspension  NanoCrystal(R)  Dispersion ("NCD"). During the first quarter of
2005, the Company was notified that the FDA had extended the original  ten-month
Prescription  Drug User Fee Act  ("PDUFA")  goal date for the  completion of its
review of its NDA for  Megace(R)  ES. The new PDUFA goal date has been  extended
three  months  to July 29,  2005,  following  the  FDA's  request  for,  and the
Company's submission of, existing supplemental data on Megace(R) ES. The new NCD
formulation is a line extension of Par's currently  marketed  megestrol  acetate
oral suspension.  This advanced  formulation  utilizes NCD technology to improve
the bioavailability of the drug as compared to currently available  formulations
of the product. NCD is a trademark of Elan Corporation,  plc, Dublin Ireland. If
cleared by the FDA for  marketing,  Megace(R) ES is expected to be indicated for
the treatment of anorexia,  cachexia or any unexplained  significant weight loss
in patients  with a diagnosis of acquired immunodeficiency syndrome ("AIDS") and

                                       17
<PAGE>

will utilize the Megace(R) brand name, which Par has licensed from BMS.

      The  Company's  brand market  business  strategy also includes a potential
505(b)(2) NDA submission planned for late 2005 through Advancis. The Company has
an agreement  with Advancis to develop and market a low dose  pulsatile  form of
the  antibiotic   amoxicillin,   utilizing  Advancis'   proprietary   PULSYS(TM)
technology.  If  successfully  developed,  amoxicillin  PULSYS(TM)  would  be  a
once-daily version of the antibiotic  amoxicillin that is administered for fewer
days with improved  therapeutic  effect.  Advancis has stated that it expects to
publicly  report  summary  results of its initial  Phase III  clinical  trial of
amoxicillin  PULSYS(TM)  around mid-June 2005. The parties executed an amendment
to this agreement in December of 2004.  The amendment adds a new  formulation of
amoxicillin to treat otitis media in pediatrics to the original agreement.

      Net sales and gross margins derived from generic  pharmaceutical  products
often follow a pattern  based on  regulatory  and  competitive  factors that are
believed by the Company's management to be unique to the generic  pharmaceutical
industry.  As the patent(s) for a brand name product and the related exclusivity
period expire,  the first generic  manufacturer to receive  regulatory  approval
from the FDA for a generic  equivalent of the product is often able to capture a
substantial share of the market. At that time, however,  the branded company may
license  an  authorized  generic  product to a  competing  generic  company.  As
additional  generic  manufacturers  receive  regulatory  approvals for competing
products,  the  market  share  and the  price  of that  product  have  typically
declined, often significantly, depending on several factors including the number
of competitors,  the price of the brand product and the pricing  strategy of the
new  competitors.  In recent years,  a large  portion of the  Company's  revenue
growth had been derived from sales of generic drugs during the 180-day marketing
exclusivity  period or from the sale of generic products where there was limited
competition.  These drugs  included  paroxetine  tablets  (Paxil(R)),  megestrol
acetate oral suspension (Megace Oral Suspension(R)), and fluoxetine (Prozac(R)).

      The marketing  exclusivity  period in respect of paroxetine ended on March
8, 2004 and the Company  currently has three  competitors for this product.  The
additional  competition has had an adverse effect on the Company's  revenues and
gross margins  derived from  paroxetine.  Due to  significant  pricing and, to a
lesser extent,  volume  declines,  paroxetine sales in the first quarter of 2005
have decreased to $11,600 from $104,500, in the first quarter of 2004.

      The Company  currently has three generic  competitors on megestrol acetate
oral  suspension.  In July 2004,  Par entered into a settlement  with one of the
competitors,  Teva  Pharmaceuticals USA, Inc. ("Teva USA") pursuant to which Par
granted a license to Teva USA for a limited number of units and Par is receiving
a royalty on Teva USA's net sales of megestrol  acetate oral  suspension  in the
United  States.  Sales and gross margins for megestrol  acetate oral  suspension
have  declined  due  principally  to the effects of  competition  on pricing and
volume.  Megestrol acetate oral suspension net sales were  approximately  $8,600
for the first  quarter of 2005 compared to  approximately  $18,700 for the first
quarter of 2004.

      There are four  competitors  currently  in the market with  products  that
compete  with the  Company's  fluoxetine  40 mg  product  and a large  number of
competitors  on the 10 mg and 20 mg  products.  Net  sales of  fluoxetine  40 mg
capsules  and 10 mg and 20 mg tablets  were  approximately  $6,100 for the first
quarter of 2005 compared to approximately $14,900 for the first quarter of 2004.

      Generic  drug  pricing  at the  wholesale  level  can  create  significant
differences between invoice price and the Company's net selling price. Wholesale
customers  purchase  product from the Company at invoice price,  then resell the
product  to  specific  healthcare  providers  on the basis of prices  negotiated
between the Company and the providers,  and the wholesaler  submits a chargeback
credit to the Company for that  difference.  The Company  records  estimates for
these  chargebacks,  along with  estimates for sales  returns,  rebates or other
sales  allowances,  for all its  customers at the time of sale, as reductions to
invoice  price,  with  corresponding  adjustments  to  its  accounts  receivable
allowances.

      The Company  generally  will offer price  protection  for sales of generic
drugs for which the market  exclusivity period has expired because the prices of
such drugs will typically  decline,  sometimes  substantially,  when  additional
generic  manufacturers  introduce and market  comparable  generic  products.  In
addition,  the Company may offer price  protection  with respect to products for
which it anticipates  significant price erosion through  increased  competition.
Such  price  protection  plans,  which  are  common in the  Company's  industry,
generally  provide for shelf-stock  adjustments or lower contract pricing to the
wholesalers,  which could result in an increased chargeback per unit on existing
inventory  levels.  In the first quarter of 2005,  the Company  provided for and
issued  price  protection  credits of  approximately  $11,100  primarily  due to

                                       18
<PAGE>

competition  with respect to paroxetine,  megestrol  acetate oral suspension and
glyburide & metformin HCl (Glucovance(R)).

      The  Company  has the  historical  experience  and access to  information,
including  rebate  agreements  with each  customer,  resales by its customers to
end-users having contracts with the Company, the total demand for each drug that
the Company  manufactures or distributes,  the Company's market share, recent or
pending  new  drug  introductions  and  inventory  practices  of  the  Company's
customers,  that it believes are necessary to reasonably estimate the amounts of
such reductions to invoice price.  Some of the  assumptions  used by the Company
for  certain  of its  estimates  are based on  information  received  from third
parties, such as customers' inventories at a particular point in time and market
data,  or other  market  factors  beyond  the  Company's  control.  The  Company
regularly  reviews the  information  related to these  estimates and adjusts its
reserves  accordingly,  if and when  actual  experience  differs  from  previous
estimates.  There were no material changes to any of the underlying  assumptions
used by the Company to estimate such sales returns, rebates, chargebacks,  price
adjustments or other sales allowances for the  three-months  ended April 3, 2005
and April 4, 2004.

      The following table summarizes  activity for the three-months  ended April
3, 2005 and April 4, 2004 in the  accounts  affected by the  accruals  described
above:

                                                  FOR THE THREE MONTHS ENDED
                                                  --------------------------
                                                     APR. 3,        APR. 4,
      RESERVES FOR REBATES AND CHARGEBACKS:           2005           2004
      -------------------------------------           ----           ----
      Balance, beginning of the period            $(102,607)      $(99,391)
      Provision recorded                           (149,345)      (130,110)
      Credits processed                             160,802        134,685
                                                    -------        -------
      Balance, end of the period                   $(91,150)      $(94,816)
                                                     ======         ======

      RESERVES FOR DOUBTFUL ACCOUNTS,
        RETURNS, PRICE ADJUSTMENTS AND               APR. 3,        APR. 4,
        OTHER SALES ALLOWANCES:                       2005           2004
        ------------------------------                ----           ----
      Balance, beginning of the period             $(42,316)      $(40,357)
      Provision recorded                            (35,459)       (33,219)
      Credits processed                              42,046         41,659
                                                     ------         ------
      Balance, end of the period                   $(35,729)      $(31,917)
                                                     ======         ======

      In  addition  to its own  product  development  program,  the  Company has
several  strategic  alliances  through  which  it  co-develops  and  distributes
products.   These  strategic  alliances  afford  the  Company  many  advantages,
including additional  resources for increased activity,  expertise on dissimilar
products  or  technologies,  and a  sharing  of both the  costs and risks of new
product  development.  As a  result  of  its  internal  program,  including  the
integration  of Kali  which  the  Company  purchased  in June  2004,  and  these
strategic  alliances,  the Company's  pipeline of potential products includes 51
regulatory  filings  including  two NDAs and 49 ANDAs  (six of which  have  been
tentatively  approved),  pending with, and awaiting  approval from, the FDA. The
Company  pays a  percentage  of the gross  profits or of sales to its  strategic
partners on sales of products covered by its distribution agreements. Generally,
products that the Company develops  internally,  and to which it is not required
to split any  profits  with its  strategic  partners,  contribute  higher  gross
margins than products  covered  under  distribution  agreements.  The Company is
engaged in  various  efforts,  subject to FDA  approval  and other  factors,  to
introduce new products through its research and development  efforts and through
distribution and development agreements with third parties.

      In addition to the substantial costs of product  development,  the Company
may incur  significant  legal  costs in  bringing  certain  products  to market.
Litigation  concerning  patents and proprietary  rights is often  protracted and
expensive.   Pharmaceutical   companies   with  patented   brand   products  are
increasingly  suing companies that produce generic forms of their patented brand
name  products  for  alleged  patent   infringement   or  other   violations  of
intellectual  property  rights,  which  could delay or prevent the entry of such
generic products into the market.  Generally, a generic drug may not be marketed
until the applicable  patent(s) on the brand name drug expires.  When an ANDA is
filed with the FDA for approval of a generic drug, the filing person may certify
either  that the patent  listed by the FDA as covering  the  branded  product is
about to  expire,  in which case the ANDA will not  become  effective  until the
expiration  of such  patent,  or that the patent  listed as covering the branded
drug is invalid or will not be infringed by the manufacture,  sale or use of the
new drug for which the ANDA is filed.  In either  circumstance,  there is a risk
that a branded  pharmaceutical  company  may sue the filing  person for  alleged
patent infringement or other violations of intellectual property rights. Because

                                       19
<PAGE>

substantially  all of the Company's  current business involves the marketing and
development of generic versions of brand products, the threat of litigation, the
outcome of which is inherently uncertain,  is always present. Such litigation is
often costly and time-consuming,  and could result in a substantial delay in, or
prevent,  the  introduction  and/or  marketing of  products,  which could have a
material  adverse  effect  on  the  Company's  business,   financial  condition,
prospects and results of operations.

RESULTS OF OPERATIONS

GENERAL

      The Company's net income of $1,977 for the three-month  period ended April
3, 2005 decreased  $28,229,  from $30,206 for the three-month period ended April
4, 2004. Total revenues of $97,501 in the first quarter of 2005 decreased 54.0%,
from $211,767 in the first quarter of 2004,  due primarily to lower net sales of
paroxetine,  megestrol  acetate oral  suspension  and  fluoxetine as competition
adversely  affected  both  pricing and volume for these  products.  Gross margin
dollars of $39,152 in the first  quarter of 2005  decreased  from $70,552 in the
first  quarter  of 2004 due  primarily  to the lower  net  sales.  Research  and
development  spending in the first quarter of 2005 of $15,989  increased $9,511,
or 146.8%,  from $6,478 in the same period of the prior year. The acquisition of
Kali in June 2004, along with additional  outside  development costs, led to the
increase in the  Company's  research and  development  spending.  In fiscal year
2005, the Company  expects to continue to spend at a higher rate on research and
development than it did in 2004.  Selling,  general and administrative  costs in
the first  three-months  of 2005  were  $21,352  compared  to  $17,067  in first
three-months of 2004. The Company  increased its spending on sales and marketing
in the first  quarter of 2005 as it prepared for the  potential  launch of a new
branded product later in fiscal year 2005. General and administrative costs were
also higher due  primarily to increased  personnel  costs and legal fees.  First
quarter of 2004 net income  included a $2,812 gain on the sale of the  Company's
facility in Congers, New York (the "Congers Facility").

      Sales  and  gross  margins  of  the   Company's   products  are  dependent
principally  upon the (i)  introduction  of other  generic  drug  manufacturers'
products in direct  competition with the Company's  significant  products,  (ii)
ability  of generic  competitors  to quickly  enter the market  after  patent or
exclusivity period  expirations,  or during exclusivity  periods with authorized
generic products,  diminishing the amount and duration of significant profits to
the Company from any one product,  (iii) pricing  practices of  competitors  and
removal of any competing products from the market, (iv) continuation of existing
distribution  agreements,  (v)  introduction of new distributed  products,  (vi)
consolidation among distribution  outlets through mergers,  acquisitions and the
formation  of buying  groups,  (vii)  willingness  of  generic  drug  customers,
including wholesale and retail customers, to switch among generic pharmaceutical
manufacturers,  (viii) approval of ANDAs and  introduction  of new  manufactured
products,  (ix) granting of potential marketing  exclusivity periods, (x) extent
of market penetration for the existing product line and (xi) level,  quality and
amount of customer service.

REVENUES

      Total  revenues  for the  three-month  period  ended  April 3,  2005  were
$97,501,  decreasing $114,266, or 54.0%, from total revenues of $211,767 for the
three-month  period ended April 4, 2004, due primarily to lower sales of certain
existing  products  sold  under  various  distribution   agreements,   including
paroxetine  which  decreased  approximately  $92,900,  metformin ER  (Glucophage
XR(R)) which  decreased  $9,500 and  Fluoxetine  which  decreased  $8,800.  Also
contributing  to the lower  sales was the  Company's  top  selling  manufactured
product,  megestrol acetate oral suspension,  which decreased $10,100. Increased
competition  continues to adversely  affect both volume and pricing on the above
mentioned  products.  Partially  offsetting these decreases were higher sales of
minocycline  which  increased  $5,300  and  the  introduction  of  new  products
including  quinapril  (Accupril(R))  which was  introduced in the fourth quarter
2004 and had sales of $4,700 and glyburide/metformin which was introduced in the
second  quarter  2004 and had net sales of  $2,900.  Total  revenue in the first
quarter  of 2005 also  included  a $6,000  payment  from a  business  partner to
conclude  a  manufacturing  and supply  agreement  which was  recorded  in other
product related revenues.

      Net sales of distributed products,  which consist of products manufactured
under contract and licensed products,  were approximately  $53,300,  or 54.7% of
the  Company's  total  revenues in the first quarter of 2005,  and $168,400,  or
79.5% of the Company's  total revenues in the first quarter of 2004. The Company
is substantially  dependent upon distributed products for its overall sales and,
because the Company  continues to introduce new products under its  distribution
agreements,  it expects that this dependence will continue. Any inability by its
suppliers to meet demand could adversely affect the Company's future sales.

                                       20
<PAGE>

      The Company's gross revenues before  deductions for  chargebacks,  rebates
(including  rebates  paid  under  Federal  and State  government  Medicaid  drug
reimbursement  programs),  price  adjustments,  sales  returns  and other  sales
allowances were $288,206 in the first  three-months of 2005 compared to $385,164
in first  three-months of 2004.  Deductions from gross revenues were $190,705 in
the first  three-months of 2005 and $173,397 in the first  three-months of 2004.
These deductions are discussed in "Notes to Consolidated  Financial Statements -
Note 6 -  Accounts  Receivable."  The  gross-to-net  revenue  percentage  spread
increased to 66.2% in the first  quarter of 2005  compared to 45.0% in the first
quarter of 2004,  primarily due to the effects of price declines for paroxetine,
glyburide/metformin  (which  was  launched  in  the  second  quarter  of  2004),
megestrol acetate oral suspension and metformin ER, which led to the issuance of
price protection credits and increased  chargeback dollars due to lower contract
pricing for wholesalers during the first quarter of 2005.

      The  Company's  other  product  related  revenues  of  $6,413 in the first
quarter of 2005  increased  from $728 in the first quarter of 2004.  Included in
the first  quarter  of 2005 was a $6,000  payment  from a  business  partner  to
conclude a manufacturing  and supply  agreement.  The Company also records other
product related revenues pursuant to an agreement with Genpharm, Inc., where the
Company  receives  a  portion  of the  profits,  as  defined  in the  agreement,
generated from Kremers Urban  Development  Co.'s, a subsidiary of Schwarz Pharma
AG of  Germany,  sales of  omeprazole,  the  generic  version of Astra  Zeneca's
Prilosec(R).

      As discussed above, net sales of the Company's key products have decreased
primarily as a result of increased generic competition and its effect on pricing
and market share.  When competition  enters the market,  there are circumstances
under which the Company may determine to not afford price  protection to certain
customers and consequently,  as a matter of business strategy, to lose volume to
competitors  rather  than to reduce its  pricing.  When there is general  market
pressure for lower  pricing due to many  competitors  entering the market at the
same time, the Company decides which customers will be afforded price protection
and a price  protection  reserve may be  established  depending  on estimated or
actual existing customer inventories.  Competitors on the Company's key products
have been entering the market over an extended period of time,  thereby reducing
the need for broad price  protection and material price  protection  reserves at
the end of any one  reporting  period;  however,  the  Company  has  lowered the
pricing on these products over time and  significant  price  protection  credits
have been granted and  processed  within the  reporting  periods,  including the
first quarter of 2005. The Company did not have material reserves for additional
price protection as of April 3, 2005 because it did not believe that there would
be any additional significant price protection credits to be issued with respect
to sales of these  products  through  that date.  The Company  will  continue to
evaluate the effects of competition and the need for price  protection  reserves
in future periods.

GROSS MARGIN

      The  Company's  gross margin of $39,152  (40.2% of total  revenues) in the
first  three-months  of 2005  decreased  $31,400  from  $70,552  (33.3% of total
revenues) in the corresponding period of 2004. The lower margin is due primarily
to the lower net sales discussed above,  partially offset by the increase of the
other  product  related  revenue.  The gross margin  percentage  increase is due
primarily to the  increase of the other  product  related  revenue and the lower
sales of paroxetine  and  metformin ER which after profit splits with  partners,
have significantly lower gross margins than other products.

      Inventory  write-offs of $385 in the first quarter of 2005  decreased from
$1,980 in the first quarter of 2004.  These inventory  write-offs,  taken in the
normal  course of business,  were related  primarily to the disposal of finished
products  due to short shelf lives and  work-in-process  inventory  that did not
meet the Company's quality control  standards.  The decreased  write-offs in the
first  quarter of 2005 were due  primarily to the write-off of inventory in 2004
for a product  whose  launch was  delayed,  and was not  repeated  in 2005.  The
Company maintains  inventory levels that it believes are appropriate to optimize
its customer service.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT

      The  Company's  research  and  development  expenses  of  $15,989  for the
three-months  ended April 3, 2005  increased  $9,511,  or 146.8%,  from the same
period of last year. The increase was primarily  attributable  to higher outside
development  projects  of $5,035,  including  a payment of $4,750 to Advancis in
order  to  fund  the  development  of a  novel  formulation  of  the  antibiotic
amoxicillin,  additional  expenses  related to the acquisition of Kali of $2,817

                                       21
<PAGE>

and  increased  domestic  development  operations  of  $1,556  primarily  due to
additional personnel costs. As previously  discussed,  the Company acquired Kali
in June 2004. The Company expects to utilize Kali to develop additional products
for its  product  pipeline.  Although  there  can be no such  assurance,  annual
research and development expenses for fiscal year 2005, including payments to be
made to unaffiliated  companies,  are expected to increase by approximately  20%
from fiscal year 2004.

      In June 2004,  Par entered into an agreement  with Advancis to develop and
market a novel  formulation  of the  antibiotic  amoxicillin.  Pursuant  to this
agreement,  Par paid  Advancis  $14,000,  which  was  charged  to  research  and
development  expense in fiscal year 2004.  Par paid an additional  $4,750 in the
first quarter of 2005, which was charged to research and development  expense in
that quarter. Par has agreed to fund future development costs of $14,250 through
the  remainder of fiscal year 2005.  Advancis  agreed to grant Par the exclusive
right to sell and  distribute the product and the  co-exclusive  right to market
the product. Advancis will be responsible for the development and manufacture of
the  product  and the two  parties  have  agreed to share  equally in  marketing
expenses  and profits if the product is  successfully  developed  and brought to
market.

      As a result of its product development  program, the Company currently has
18 ANDAs pending with the FDA, three of which have received tentative  approval,
for  potential  products  that are not  subject  to any  distribution  or profit
sharing agreements.  In addition, there are 31 ANDAs pending with the FDA, three
of which have received tentative  approval,  that have been filed by the Company
or its strategic partners for potential products covered by various distribution
agreements.  No assurances can be given that the Company or any of its strategic
partners will  successfully  complete the  development  of any of these products
either  under  development  or proposed for  development,  that they will obtain
regulatory  approvals  for any such product,  that any approved  product will be
produced  in  commercial  quantities  or that any  approved  product can be sold
profitably.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

      Total selling,  general and administrative expenses were $21,352 (21.9% of
total  revenues)  in the first  quarter of 2005 as compared to $17,067  (8.1% of
total revenues) in the first quarter of 2004. The increase in 2005 was primarily
attributable  to higher sales and marketing  costs of $1,708 in  anticipation of
the  Company's  potential  brand  product  launch in fiscal  year  2005,  higher
personnel  costs of $1,529 to support the Company's  growth and increased  legal
fees of $1,057. Distribution costs included those related to shipping product to
the  Company's  customers,  primarily  through  the use of  common  carriers  or
external  distribution  services.  Shipping costs were approximately  $1,500 and
$1,400  in the  first  quarters  of 2005 and  2004,  respectively.  The  Company
anticipates  that it will  continue to incur a high level of legal  expenses for
litigation  costs  relating  to  existing  products  and  potential  new product
introductions  (see  "Notes to  Consolidated  Financial  Statements  - Note 13 -
Commitments,  Contingencies  and Other Matters - Legal  Proceedings").  Although
there can be no such assurance,  selling general and administrative  expenses in
fiscal  year 2005 are  expected to increase by up to 25% to 30% from fiscal year
2004 primarily due to planned brand drug marketing activities.

GAIN ON SALE OF FACILITY

      Par owned a facility of  approximately  33,000  square feet located on six
acres in Congers, New York. In March 2004, the Company sold the Congers Facility
to Ivax Pharmaceuticals New York, LLC for $4,980 and recorded a gain on the sale
of $2,812.

OTHER INCOME/EXPENSE

      Other  income was $1,323 for the first  three-months  of 2005  compared to
other expense of $22 for the first three-months of 2004. In the first quarter of
2005,  the Company  sold 62 shares of New River stock for $1,846 and  recorded a
gain on the sale of $1,353.

INTEREST EXPENSE

      Net interest expense was $146 for the first  three-months of 2005 compared
to net  interest  expense  of $279 for the  corresponding  period  of 2004.  Net
interest expense in both periods  principally  includes  interest payable on the
Company's  convertible  notes,  partially  offset  by  interest  income  derived
primarily from money market and other short-term investments.

                                       22
<PAGE>

INCOME TAXES

      The Company recorded provisions for income taxes of $1,011 and $19,312 for
the first three-months of 2005 and 2004, respectively. The effective tax rate in
the first quarter of 2005 of 33.8% decreased from 39.0% for the first quarter of
2004 due to tax free interest  income earned in the first  three-months of 2005.
The  provisions  were based on the  applicable  Federal  and State tax rates for
those  periods  (see "Notes to  Consolidated  Financial  Statements  - Note 10 -
Income Taxes").

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

      Cash and cash  equivalents  of $42,064 at April 3, 2005  increased  $5,530
from $36,534 at December 31, 2004,  primarily  due to the net proceeds  from the
sale of available for sale  securities  and  investments in the first quarter of
2005  partially  offset by net cash used in operating  activities.  In the first
quarter  of 2005,  the  Company  had  $18,887  of cash used in  operations,  net
proceeds of $30,511 from available for sale securities and  investments,  $1,956
of principal  payments under  long-term  debt and other  borrowings and obtained
$1,033 from the  issuance of shares of Common  Stock upon the  exercise of stock
options.  In the  three-months  ended April 3, 2005,  the Company also  invested
$5,146 in capital improvements,  primarily for the expansion of its laboratories
in Spring  Valley,  New York and new  production  machinery.  The Company's cash
balances are deposited  primarily  with financial  institutions  in money market
funds and overnight investments.

      There were no  significant  changes in credit terms,  collection  efforts,
credit utilization, or delinquency related to the Company's accounts receivable.
There are, however,  a number of timing issues that can cause  fluctuations when
measuring accounts receivable days based on the previous quarter's average days'
sales in accounts receivable.  Because of these issues, the Company measures its
days' sales in accounts  receivable  on a rolling  twelve month  average.  Days'
sales in accounts receivable based on this calculation  increased to 100 days at
April 3, 2005 from 85 days at December  31, 2004.  Generally,  the Company has a
customer  base  that  pays  within  60 to 90 days and the  Company's  management
expects  days' sales in accounts  receivables  to  fluctuate  within that range.
Significant  decreases in sales over the last four quarters have  contributed to
the higher days' sales in accounts receivable. The Company expects this trend to
reverse with the introduction of new products in future quarters.

      The Company's working capital,  current assets minus current  liabilities,
of $342,521  increased  $3,283,  from $339,238 at December 31, 2004. The working
capital  ratio,  which is  calculated  by  dividing  current  assets by  current
liabilities,  was 3.53x at April 3, 2005 compared to 3.19x at December 31, 2004.
The Company believes that its strong working capital ratio indicates its ability
to meet its ongoing and foreseeable obligations.

      In April 2004, the Board authorized the repurchase of up to $50,000 of the
Company's  common stock.  The repurchases  are made,  subject to compliance with
applicable securities laws, from time to time in the open market or in privately
negotiated transactions.  Shares of common stock acquired through the repurchase
program are available for general corporate  purposes.  Pursuant to the program,
the Company had  repurchased  approximately  844 shares of its common  stock for
approximately  $32,026 through December 31, 2004. The Company did not repurchase
any additional shares under the program in the first quarter of 2005.

      In  September  2003,  the Company sold an  aggregate  principal  amount of
$200,000 of senior  subordinated  convertible  notes pursuant to Rule 144A under
the Securities Act of 1933. Net proceeds of $177,945 from the notes,  which were
net of  underwriting  costs of $5,250 and the net  payment  of $16,805  from the
purchase of call options and sale of warrants,  were used to purchase  available
for sale  securities in October 2003.  Available for sale securities of $122,445
at April 3, 2005 are all available for immediate  sale.  The Company  intends to
use its current  liquidity to support the expansion of its business,  increasing
its  research  and  development   activities,   entering  into  product  license
arrangements,  potentially acquiring other complementary businesses and products
and for general corporate purposes.

      As of April  3,  2005,  the  Company  had  payables  owed to  distribution
agreement  partners of $39,205  related  primarily  to amounts due under  profit
sharing agreements, particularly amounts owed to Pentech and GSK with respect to
paroxetine.  The Company  expects to pay these  amounts,  with the  exception of
payables  due to Pentech as a result of current  litigation,  out of its working
capital  during the  second  quarter  of 2005.  In the  second  quarter of 2004,

                                       23
<PAGE>

Pentech  filed a legal  action  against  the Company  alleging  that the Company
breached its contract with Pentech.  The Company and Pentech are in dispute over
the amount of gross profit share.

      The dollar values of the Company's  material  contractual  obligations and
commercial commitments as of April 3, 2005 were as follows:

<TABLE>
<CAPTION>
                                                                AMOUNTS DUE BY PERIOD
                                                                ---------------------
                             TOTAL MONETARY   APR. 4-DEC. 31,   2006 TO   2009 TO      2011 AND
      OBLIGATION               OBLIGATION          2005           2008      2010      THEREAFTER
      ----------               ----------          ----           ----      ----      ----------
<S>                            <C>             <C>               <C>      <C>           <C>
      Operating leases          $21,236         $2,517           $9,417    $4,983       $4,319
      Convertible notes*        200,000              -                -   200,000            -
      Advancis development
       expenses                  14,250         14,250                -         -            -
      Insurance obligations       2,274          2,274                -         -            -
      Pension obligation             22             22                -         -            -
      Other                         393            169              224         -            -
                                    ---            ---              ---   -------        -----
      Total obligations        $238,175        $19,232           $9,641  $204,983       $4,319
                                =======         ======            =====   =======        =====
</TABLE>

      *The  convertible  notes mature on  September  30,  2010,  unless  earlier
converted or repurchased.

      In addition to its internal  research and development  costs, the Company,
from time to time, enters into agreements with third parties for the development
of new  products  and  technologies.  To date,  the  Company  has  entered  into
agreements and advanced funds and has commitments or contingent liabilities with
several non-affiliated  companies for products in various stages of development.
These  contingent  payments or commitments are generally  dependent on the third
party  achieving  certain  milestones or the timing of third-party  research and
development  or legal  expenses.  Due to the  uncertainty  of the timing  and/or
realization of such contingent  commitments,  these obligations are not included
in the above  table.  Payments  made  pursuant  to these  agreements  are either
capitalized  or expensed  according to the Company's  accounting  policies.  The
total  amount  that  could  become  due under  these  contingent  agreements  is
approximately $45,250.

      As part of the  consideration for the acquisition of Kali, the former Kali
stockholders  are  entitled  to  up to  $10,000  from  the  Company  if  certain
product-related  performance  criteria  are met over the next four years.  As of
December  31,  2004,  the former  Kali  stockholders  had earned  $2,500 of this
contingent payout and were paid in January 2005.

      The  Company  expects to continue to fund its  operations,  including  its
research and development activities,  capital projects and obligations under its
existing distribution and development  arrangements discussed herein, out of its
working  capital,  including  proceeds from the issuance of its 2003 convertible
notes.  The Company  anticipates  that its capital  spending in fiscal year 2005
will increase  approximately  20% from fiscal year 2004.  Implementation  of the
Company's  business plan may require additional debt and/or equity financing and
there can be no assurance that the Company will be able to obtain any additional
financing when needed on terms acceptable or favorable to it.

FINANCING

      At April 3, 2005, the Company's total outstanding short-term and long-term
debt,  including  the  current  portion,  was  $202,667.  The  amount  consisted
primarily  of senior  subordinated  convertible  notes,  financing  for  product
liability insurance and capital leases of computer equipment. In September 2003,
the  Company  sold  an  aggregate   principal   amount  of  $200,000  of  senior
subordinated convertible notes pursuant to Rule 144A under the Securities Act of
1933. The notes bear interest at an annual rate of 2.875%, payable semi-annually
on March 30 and September 30 of each year. The notes are convertible into shares
of Common Stock at an initial  conversion  price of $88.76 per share,  only upon
the occurrence of certain events. Upon conversion,  the Company has the right to
deliver,  in lieu of Common  Stock,  cash or a  combination  of cash and  Common
Stock. It is the Company's current intention to satisfy the Company's obligation
upon a  conversion  of the  notes in cash in an  amount  equal to the  principal
amount of the notes  converted.  The notes mature on September 30, 2010,  unless
earlier converted or repurchased.  The Company may not redeem the notes prior to
the maturity date.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

      The  Company's  critical  accounting  policies are set forth in its Annual
Report on Form 10-K for the fiscal year ended December 31, 2004.  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 fiscal year ended
December 31, 2004.

                                       24
<PAGE>

SUBSEQUENT EVENTS

      In April 2005, the Company  received final approval from the FDA and began
shipping tramadol  hydrochloride and acetaminophen  tablets, the generic version
of Ortho-McNeil's Ultracet(R). The product is indicated for the short-term (five
days or less) management of acute pain. The Company has been awarded 180 days of
marketing exclusivity, commencing at launch, for being the first to file an ANDA
containing a paragraph IV certification of the product.  Following the Company's
launch,  a competitor  entered the market with a generic  version of Ultracet(R)
authorized by Ortho-McNeil. The Company is currently involved in litigation with
Ortho-McNeil  who has alleged that the Company's  product  infringes  upon their
patent (see "Notes to Consolidated Financial Statements - Note 13 - Commitments,
Contingencies and Other Matters - Legal Proceedings").

                                       25
<PAGE>

       ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      The Company is subject to market risk primarily from changes in the market
values of its investments in marketable debt and government  agency  securities.
These  instruments are classified as available for sale securities for financial
reporting  purposes and have minimal or no interest risk due to their short-term
natures.  Professional  portfolio  managers  managed 100% of these available for
sale securities at April 3, 2005.  Additional  investments are made in overnight
deposits and money market funds.  These  instruments  are classified as cash and
cash  equivalents  for  financial  reporting  purposes  and have  minimal  or no
interest risk due to their short-term natures.

      The following  table  summarizes  the available for sale  securities  that
subject the Company to market risk at April 3, 2005 and December 31, 2004:

                                                            APRIL 3,   DEC. 31,
                                                              2005       2004
                                                              ----       ----
      Debt securities issued by various state and local
        municipalities and agencies                          $48,797   $82,678
      Securities issued by United States government and
        agencies                                              73,648    69,176
                                                              ------    ------
      Total                                                  $122,445  $151,854
                                                              =======   =======

AVAILABLE FOR SALE SECURITIES:

      The  primary  objectives  for  the  Company's   investment  portfolio  are
liquidity and safety of principal.  Investments  are made to achieve a high rate
of return while retaining safety of principal.  The Company's  investment policy
limits  investments to certain types of instruments  issued by institutions  and
governmental agencies with investment-grade credit ratings. A significant change
in interest rates could affect the market value of the $122,445 in available for
sale securities that have a maturity greater than one year.

      In addition to the short-term  investments described above, the Company is
also subject to market risk in respect to its investments in Advancis, New River
and Abrika.

      The Company paid  $10,000 to purchase  1,000 shares of the common stock of
Advancis at $10 per share in its  initial  public  offering  of 6,000  shares on
October 16, 2003.  The  transaction  closed on October 22, 2003.  The  Company's
investment  in  Advancis  is subject to  fluctuations  in the price of  Advancis
common  stock,  which  is  publicly  traded.  The fair  value  of the  Company's
investment in Advancis as of April 3, 2005 was $3,510.

      The Company purchased 875 shares of common stock of New River on August 5,
2004 in its initial public offering for $8 per share, for a total purchase price
of $7,000.  The Company sold 62 shares of the stock in the first quarter of 2005
for $1,846. This investment is subject to fluctuations in the price of New River
common stock, which also is publicly traded. As of April 3, 2005, the fair value
of the Company's investment in New River was $21,268,  based on the market value
of the common stock of New River at that date.

      In  December  2004,  the  Company  acquired a 5%  partnership  interest in
Abrika, a privately-held  specialty  generic  pharmaceutical  company located in
Sunrise,  Florida, for $8,361, including costs. The investment is monitored on a
periodic  basis to evaluate  whether any changes in fair value become other than
temporary.

      ITEM 4. CONTROLS AND PROCEDURES.

      Based on an evaluation under the supervision and with the participation of
the  Company's  management,   the  Company's  principal  executive  officer  and
principal  financial  officer  have  concluded  that  the  Company's  disclosure
controls and procedures (as defined in Rules  13a-15(e) and 15d-15(e)  under the
Securities Exchange Act of 1934 as amended) (the "Exchange Act"), were effective
as of April 3, 2005 to ensure that  information  required to be disclosed by the
Company in reports that it files or submits  under the Exchange Act is recorded,
processed,  summarized  and reported  within the time  periods  specified in the
Commission's rules and forms.

      There were no changes in the  Company's  internal  control over  financial
reporting  identified  in  management's  evaluation  during the first quarter of
fiscal  year 2005 that have  materially  affected  or are  reasonably  likely to
materially affect the Company's internal controls over financial reporting.

                                       26
<PAGE>

                           PART II. OTHER INFORMATION

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

      On November 1, 2004,  Morton Grove filed a lawsuit  against the Company in
the United States District Court for the Northern District of Illinois,  seeking
a declaratory  judgment that four Par patents relating to megestrol acetate oral
suspension  are  invalid,  unenforceable  and not  infringed  by a Morton  Grove
product that was launched in the fourth quarter of 2004. The Company  intends to
defend  vigorously  this action and has asserted  counterclaims  against  Morton
Grove.

      On May 3, 2004,  Pentech filed an action against the Company in the United
States District Court for the Northern District of Illinois. This action alleges
that the Company  breached its contract with Pentech  relating to the supply and
marketing of paroxetine.  The Company and Pentech are in dispute over the amount
of gross profit share. This case is currently in discovery.  The Company intends
to defend vigorously this action.

      On March 9, 2004,  the Congress of  California  Seniors  brought an action
against GSK and the Company  concerning  the sale of  paroxetine in the State of
California.  This  action  alleges  that the sale of  paroxetine  by GSK and the
Company  in  California   constitutes,   among  other  things,  unfair  business
practices. The Company intends to defend vigorously this action.

      On  September  10,  2003,  Par and a number  of other  generic  and  brand
pharmaceutical  companies  were sued by a New York  State  county  (the suit has
since been joined by additional New York counties) which has alleged  violations
of laws  (including  the Racketeer  Influenced  and Corrupt  Organizations  Act,
common  law  fraud  and  obtaining  funds  by  false   statements)   related  to
participation in the Medicaid program.  The complaint seeks declaratory  relief;
actual,  statutory and treble  damages,  with  interest;  punitive  damages;  an
accounting and  disgorgement of any illegal  profits;  a constructive  trust and
restitution;  and  attorneys'  and  experts'  fees  and  costs.  This  case  was
transferred   to  the  United  States   District   Court  for  the  District  of
Massachusetts  for  coordinated  and  consolidated  pre-trial  proceedings.   In
addition,  on  September  25, 2003,  the Office of the  Attorney  General of the
Commonwealth of Massachusetts filed a complaint in the District of Massachusetts
against Par and 12 other  leading  generic  pharmaceutical  companies,  alleging
principally that Par and such other companies violated,  through their marketing
and sales practices, state and federal laws, including allegations of common law
fraud and violations of Massachusetts  false statements  statutes,  by inflating
generic  pharmaceutical  product prices paid for by the  Massachusetts  Medicaid
program.  Par waived  service  of process  with  respect to the  complaint.  The
complaint seeks  injunctive  relief,  treble damages,  disgorgement of excessive
profits,  civil penalties,  reimbursement of investigative  and litigation costs
(including  experts' fees) and attorneys' fees. On January 29, 2004, Par and the
other  defendants  involved  in the  litigation  brought  by the  Office  of the
Attorney General of the Commonwealth of Massachusetts filed a motion to dismiss,
which has not yet been  ruled on. On August 4,  2004,  Par and a number of other
generic  and brand  pharmaceutical  companies  were also sued by the City of New
York,  which has  alleged  violations  of laws  (including  common law fraud and
obtaining funds by false  statements)  related to  participation in its Medicaid
program.  The complaint seeks declaratory relief;  actual,  statutory and treble
damages, with interest;  punitive damages; an accounting and disgorgement of any
illegal  profits;  a  constructive  trust and  restitution;  and  attorneys' and
experts' fees and costs.  This case was  transferred to the U.S.  District Court
for the District of  Massachusetts  for coordinated and  consolidated  pre-trial
proceedings.  In addition to  Massachusetts,  the Commonwealth of Kentucky,  the
State of Illinois  and the State of Alabama  have filed  similar  suits in their
respective jurisdictions. Par intends to defend vigorously these actions.

      On July 15, 2003,  the Company and Par filed a lawsuit  against  Roxane in
the United States District Court for the District of New Jersey. The Company and
Par alleged that Roxane had infringed Par's U.S. Patents numbered  6,593,318 and
6,593,320 relating to megestrol acetate oral suspension. Roxane has denied these
allegations and has counterclaimed for declaratory judgments of non-infringement
and  invalidity  of both  patents.  In addition,  Roxane has  recently  filed an
amended   complaint   asserting   that  Par's  patents  in  the  litigation  are
unenforceable  due to  inequitable  conduct before the U.S.  Patent Office.  Par
intends to defend vigorously this action.

      In February 2003,  Abbott filed a complaint in the United States  District
Court for the District of New Jersey  against Par,  alleging  that Par's generic
version of TriCor(R) (fenofibrate) infringes one or more claims of four of their
patents based on Par having filed an ANDA for the accused  product with the FDA.
Par  filed  an  answer  and  a  counterclaim,   alleging   non-infringement  and

                                       27
<PAGE>

invalidity.  Par has filed a request  with the FDA to convert its  Paragraph  IV
certification  to a Paragraph  III  certification  and the case is subject to an
administrative dismissal.

      On  November  25,  2002,  Ortho-McNeil  filed a lawsuit  against  Kali,  a
wholly-owned  subsidiary of the Company, in the United States District Court for
the District of New Jersey.  Ortho-McNeil  alleged that Kali  infringed the `691
patent by  submitting  a Paragraph IV  certification  to the FDA for approval of
tablets  containing  tramadol  hydrochloride  and  acetaminophen.  Par is Kali's
exclusive  marketing partner for these tablets through an agreement entered into
before  the  Company's  acquisition  of  Kali.  Kali has  denied  Ortho-McNeil's
allegation,  asserting  that the `691  patent was not  infringed  and is invalid
and/or unenforceable, and that the lawsuit is barred by unclean hands. Kali also
has counterclaimed for declaratory judgments of non-infringement, invalidity and
unenforceability  of the `691  patent.  Summary  judgment  papers were served on
opposing  counsel on May 28, 2004. The referenced  summary  judgment  motion was
fully  briefed and  submitted to the Court as of August 23, 2004.  The Court has
stated that it will hold oral argument,  which has not as of yet been scheduled.
The Company received FDA approval and began shipping  tramadol in April 2005 and
is still awaiting an answer from the court  regarding the referenced  motion for
summary  judgment (see "Notes to Consolidated  Financial  Statements - Note 14 -
Subsequent  Events").  Ortho-McNeil  has stated  that it will  pursue its claims
against  Kali and will seek  damages for lost  profits.  The Company  intends to
defend vigorously against this action.

      As a result of Par's filing of the ANDA for latanoprost (Xalatan(R)),  the
Plaintiffs filed a lawsuit against Par on December 21, 2001 in the United States
District Court for the District of New Jersey, alleging patent infringement. The
Plaintiffs sought an injunction enjoining approval of the Company's ANDA and the
marketing of its generic  product prior to the expiration of their  patents.  On
February 8, 2002,  Par answered the  complaint and filed a  counterclaim,  which
sought a declaration that the patents-in-suit are invalid,  unenforceable and/or
not infringed by Par's products and that the extension of the term of one of the
patents was invalid.  The trial  concluded in March 2004 and on July 6, 2004 the
Court issued an opinion and order  ordering that judgment be entered in favor of
the Plaintiffs on their claims of  infringement  of U.S.  Patent Nos.  4,599,353
(expires  July 28,  2006)  and  5,296,504  (expires  March 22,  2011);  that the
effective  date of  approval  of Par's ANDA shall be a date which is not earlier
than the dates of  expiration  of those  patents;  and that Par is enjoined from
engaging in the commercial  manufacture,  use, offer to sell, or sale within the
United  States,  or  importation  into the United  States,  of any drug  product
covered  by, or the use of which is covered  by,  those two  patents.  As to the
third patent asserted by the Plaintiffs,  U.S. Patent No.  5,422,368,  the Court
dismissed the  Plaintiffs'  infringement  claims and declared that the patent is
unenforceable due to inequitable conduct. The Court further dismissed all of the
parties'  claims for attorneys'  fees.  Both Par and the  Plaintiffs  have filed
notices of appeal  which are pending in the United  States  Court of Appeals for
the Federal  Circuit.  Par is appealing the Court's  decision only insofar as it
relates to U.S. Patent No. 5,296,504.

      Par entered into a licensing  agreement with  developer  Paddock to market
testosterone 1% gel, a generic version of Unimed's product Androgel(R). Pursuant
to this  agreement,  Par is  responsible  for  management of any  litigation and
payment  of all  legal  fees  associated  with this  product.  The  product,  if
successfully brought to market, would be manufactured by Paddock and marketed by
Par.  Paddock  has  filed  an ANDA  (that  is  pending  with  the  FDA)  for the
testosterone 1% gel product.  As a result of the filing of the ANDA,  Unimed and
Besins,  co-assignees of the patent-in-suit,  filed a lawsuit against Paddock in
the United States District Court for the Northern District of Georgia,  alleging
patent  infringement  on August 22,  2003.  Par has an economic  interest in the
outcome of this  litigation by virtue of its licensing  agreement  with Paddock.
Unimed  and  Besins  are  seeking  an   injunction   to  prevent   Paddock  from
manufacturing  the generic product.  On November 18, 2003,  Paddock answered the
complaint  and  filed  a  counterclaim,  which  seeks  a  declaration  that  the
patent-in-suit is invalid and/or not infringed by Paddock's  product.  This case
is currently in discovery. The Company intends to defend vigorously against this
action.

      The Company  cannot predict with certainty at this time the outcome or the
effects on the Company of the above listed actions.  Accordingly,  no assurances
can be given that such  actions will not have a material  adverse  effect on the
Company's financial condition, results of operations, prospects or business.

      The Company  and/or Par are,  from time to time,  parties to certain other
litigations,  including  product  liability  and  patent  actions.  The  Company
believes that these actions are part of the ordinary  course of its business and
that their ultimate  resolution  will not have a material  adverse effect on its
financial condition,  results of operations or liquidity. The Company intends to
vigorously  defend or, in cases where the  Company is  plaintiff,  to  prosecute
these actions.

                                       28
<PAGE>


OTHER MATTERS:

      In June 2003, the Company received notice from the U.S.  Congress that the
Committee  had begun an  industry-wide  (brand and generic)  investigation  into
pharmaceutical  reimbursements and rebates under Medicaid,  to which the Company
has  responded.  In  order to  conduct  the  investigation,  the  Committee  has
requested certain pricing and other information,  which the Company delivered in
August  2003,  relating  to  certain  drugs  produced  by  these  pharmaceutical
manufacturers.  It is premature to  speculate  what action,  if any, the federal
government  may take and what  impact such  action  could have on the  Company's
business, prospects or financial condition.

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

      The  Company  is  presently  in the  process  of  reviewing  its  policies
regarding the advance  approval by the Company's  Audit  Committee of all audit,
audit-related,  tax and other services (the "Pre-approval  Policy") performed by
its independent auditors, Deloitte & Touche LLP. The Company intends to post its
revised  Pre-approval Policy on its Company website,  www.parpharm.com  upon its
adoption.

ITEM 6.  EXHIBITS
-------  --------

31.1  Certification of the Principal Executive Officer.

31.2  Certification of the Principal Financial Officer.

32.1  Certification  by  the Chief  Executive  Officer  pursuant  to  18  U.S.C.
      Section  1350,  as  adopted pursuant to  Section 906 of the Sarbanes-Oxley
      Act of 2002.

32.2  Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section
      1350, as  adopted pursuant  to Section 906  of  the Sarbanes-Oxley  Act of
      2002.

                                       29
<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.



                                        PAR PHARMACEUTICAL COMPANIES, INC.
                                        ----------------------------------
                                        (Registrant)



May 13, 2005                            /s/ Scott Tarriff
                                        -----------------
                                        Scott Tarriff
                                        PRESIDENT AND CHIEF EXECUTIVE OFFICER



May 13, 2005                            /s/ Dennis J. O'Connor
                                        ----------------------
                                        Dennis J. O'Connor
                                        VICE PRESIDENT AND CHIEF FINANCIAL
                                        OFFICER

                                       30
<PAGE>

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


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

      31.1   Certification by the President and Chief Executive Officer pursuant
             to Rule 13a-14(a) of the Exchange Act.

      31.2   Certification  by the  Chief  Financial  Officer  pursuant  to Rule
             13a-14(a) of the Exchange Act.

      32.1   Certification by the President and Chief Executive Officer pursuant
             to 18 U.S.C.  Section 1350,  as adopted  pursuant to Section 906 of
             the Sarbanes-Oxley Act of 2002.

      32.2   Certification by the Chief Financial  Officer pursuant to 18 U.S.C.
             Section   1350,   as  adopted   pursuant  to  Section  906  of  the
             Sarbanes-Oxley Act of 2002.

                                       31