**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: March 29, 2008


**Commission
      file number: 1-10827**





**PAR
      PHARMACEUTICAL COMPANIES, INC.**


(Exact
      name of registrant as specified in its charter)





**Delaware**
            
            **22-3122182**(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)





**300
      Tice Boulevard, Woodcliff Lake, New Jersey 07677**


(Address
      of principal executive offices)


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





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





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:


Large
                    accelerated filer x
                Accelerated
                    filer o
                Non-accelerated
                    filer o




Indicate
      by check mark whether the Registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes
o No
x





Number
      of
      shares of the Registrant’s ** common
      stock outstanding as of May 1, 2008: 34,532,466








TABLE
      OF
      CONTENTS


PAR
      PHARMACEUTICAL COMPANIES, INC.


FORM
      10-Q


FOR
      THE
      FISCAL QUARTER ENDED MARCH 29, 2008





PAGEPART
                I
            FINANCIAL
                INFORMATIONItem
                1.
            Condensed
                Consolidated Financial Statements (unaudited)Condensed
                Consolidated Balance Sheets as of March 29, 2008 and December 31,
                2007
            3Condensed
                Consolidated Statements of Operations for the three months ended
                March 29,
                2008 and March 31, 2007
            4Condensed
                Consolidated Statements of Cash Flows for the three months ended
                March 29,
                2008 and March 31, 2007
            5Notes
                to Condensed Consolidated Financial Statements
            7Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            29Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            37Item
                4.
            Controls
                and Procedures
            38PART
                II
            OTHER
                INFORMATIONItem
                1.
            Legal
                Proceedings
            39Item
                1A.
            Risk
                Factors
            45Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            46Item
                6.
            Exhibits
            46SIGNATURES
            
            47


2


**PART
      I - FINANCIAL INFORMATION**


**ITEM
      1. FINANCIAL STATEMENTS**




**PAR
      PHARMACEUTICAL COMPANIES, INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


(In
      Thousands, Except Share Data)


(Unaudited)




**March
                29,**
            
            **December
                31,****2008**
            
            **2007****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            231,193
            
            $
            200,132Available
                for sale debt and marketable equity securities
            
            
            67,893
            
            
            85,375Accounts
                receivable, net
            
            
            84,035
            
            
            64,182Inventories
            
            
            65,183
            
            
            84,887Prepaid
                expenses and other current assets
            
            
            14,023
            
            
            14,294Deferred
                income tax assets
            
            
            56,921
            
            
            56,921Income
                taxes receivable
            
            
            13,475
            
            
            17,516Total
                current assets
            
            
            532,723
            
            
            523,307Property,
                plant and equipment, at cost lessaccumulated
                depreciation and amortization
            
            
            83,316
            
            
            82,650Available
                for sale debt and marketable equity securities
            
            
            5,959
            
            
            6,690Investment
                in joint venture
            
            
            6,433
            
            
            6,314Other
                investments
            
            
            2,500
            
            
            2,500Intangible
                assets, net
            
            
            33,643
            
            
            36,059Goodwill
            
            
            63,729
            
            
            63,729Deferred
                financing costs and other assets
            
            
            2,314
            
            
            2,544Non-current
                deferred income tax assets, net
            
            
            57,935
            
            
            57,730Total
                assets
            
            $
            788,552
            
            $
            781,523******LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Current
                portion of long-term debt
            
            $
            200,000
            
            $
            200,000Accounts
                payable
            
            
            30,513
            
            
            32,200Payables
                due to distribution agreement partners
            
            
            45,253
            
            
            36,479Accrued
                salaries and employee benefits
            
            
            6,713
            
            
            16,596Accrued
                expenses and other current liabilities
            
            
            32,211
            
            
            27,518Total
                current liabilities
            
            
            314,690
            
            
            312,793Long-term
                debt, less current portion
            
            
            -
            
            
            -Other
                long-term liabilities
            
            
            31,448
            
            
            30,975Commitments
                and contingencies
            
            
            -
            
            
            -Stockholders’
                equity:Preferred
                Stock, par value $0.0001 per share, authorized6,000,000
                shares; none issued and outstanding
            
            
            -
            
            
            -Common
                Stock, par value $0.01 per share, authorized90,000,000
                shares, issued 37,203,975 and 36,460,461 shares
            
            
            372
            
            
            364Additional
                paid-in-capital
            
            
            278,411
            
            
            274,963Retained
                earnings
            
            
            232,781
            
            
            230,195Accumulated
                other comprehensive loss
            
            
            (1,680
            )
            
            (1,362
            )Treasury
                stock, at cost, 2,658,335 and 2,604,977 shares
            
            
            (67,470
            )
            
            (66,405
            )Total
                stockholders’ equity
            
            
            442,414
            
            
            437,755Total
                liabilities and stockholders’ equity
            
            $
            788,552
            
            $
            781,523





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





3


**PAR
      PHARMACEUTICAL COMPANIES, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


(In
      Thousands, Except Per Share Data)


(Unaudited)




**Three
                Months Ended****March 29,**
              **2008**
            
            **March 31,**
              **2007**Revenues:Net
                product sales
            
            $
            151,237
            
            $
            222,589Other
                product related revenues
            
            
            3,691
            
            
            11,621Total
                revenues
            
            
            154,928
            
            
            234,210Cost
                of goods sold
            
            
            105,407
            
            
            146,521Gross
                margin
            
            
            49,521
            
            
            87,689Operating
                expenses:Research
                and development
            
            
            17,158
            
            
            14,039Selling,
                general and administrative
            
            
            31,346
            
            
            32,557Settlements,
                net
            
            
            -
            
            
            (578
            )Total
                operating expenses
            
            
            48,504
            
            
            46,018Gain
                on sale of product rights and other
            
            
            (1,625
            )
            
            (20,000
            )Operating
                income
            
            
            2,642
            
            
            61,671Other
                expense, net
            
            
            -
            
            
            (19
            )Equity
                in loss of joint venture
            
            
            (20
            )
            
            (148
            )Realized
                gain on sale of marketable securities
            
            
            -
            
            
            1,397Interest
                income
            
            
            3,014
            
            
            2,684Interest
                expense
            
            
            (1,667
            )
            
            (1,718
            )Income
                from continuing operations before provision for income
                taxes
            
            
            3,969
            
            
            63,867Provision
                for income taxes
            
            
            1,443
            
            
            22,353Income
                from continuing operations
            
            
            2,526
            
            
            41,514Discontinued
                operations:Gain
                from discontinued operations
            
            
            505
            
            
            -Provision
                for income taxes
            
            
            445
            
            
            -Gain
                from discontinued operations
            
            
            60
            
            
            -Net
                income
            
            $
            2,586
            
            $
            41,514Basic
                earnings****per share of common stock:Income
                from continuing operations
            
            $
            0.08
            
            $
            1.20Gain
                from discontinued operations
            
            
            0.00
            
            
            -Net
                income
            
            $
            0.08
            
            $
            1.20Diluted
                earnings per share of common stock:Income
                from continuing operations
            
            $
            0.08
            
            $
            1.19Gain
                from discontinued operations
            
            
            0.00
            
            
            -Net
                income
            
            $
            0.08
            
            $
            1.19Weighted
                average number of common shares outstanding:Basic
            
            
            33,220
            
            
            34,618Diluted
            
            
            33,587
            
            
            34,997





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


4


**PAR
      PHARMACEUTICAL COMPANIES, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


(In
      Thousands)


(Unaudited)





**Three
                Months Ended****March
                29,**
            
            **March
                31,****2008**
            
            **2007****Cash
                flows from operating activities:**Net
                income
            
            $
            2,586
            
            $
            41,514Deduct:
                Gain from discontinued operations, net of tax
            
            
            60
            
            
            -Income
                from continuing operations
            
            $
            2,526
            
            $
            41,514Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            6,274
            
            
            7,347Gain
                on marketable securities, net
            
            
            -
            
            
            (1,397
            )Equity
                in loss of joint venture
            
            
            20
            
            
            148Allowances
                against accounts receivable
            
            
            (18,924
            )
            
            7,978Share-based
                compensation expense
            
            
            3,463
            
            
            3,702Loss
                on disposal of fixed assets
            
            
            21
            
            
            -Excess
                tax benefits on exercise of nonqualified stock options
            
            
            (194
            )
            
            (138
            )Other
            
            
            (50
            )
            
            102**Changes
                in assets and liabilities:**Increase
                in accounts receivable
            
            
            (929
            )
            
            (55,965
            )Decrease
                in inventories
            
            
            19,704
            
            
            18,648Decrease
                in prepaid expenses and other assets
            
            
            1,006
            
            
            1,858Decrease
                in accounts payable, accrued expenses and other
                liabilities
            
            
            (6,947
            )
            
            (7,458
            )Increase
                in payables due to distribution agreement partners
            
            
            8,774
            
            
            50Decrease
                in net income taxes receivable
            
            
            3,735
            
            
            20,298**Net
                cash provided by operating activities**
            
            
            18,479
            
            
            36,687**Net
                cash related to operating activities from discontinued
                operations**
            
            
            -
            
            
            -**Cash
                flows from investing activities:**Capital
                expenditures
            
            
            (4,023
            )
            
            (1,719
            )Purchases
                of intangibles
            
            
            -
            
            
            (600
            )Purchases
                of available for sale debt securities
            
            
            (17,305
            )
            
            (36,415
            )Proceeds
                from maturity and sale of available for sale debt and marketable
                equity
                securities
            
            
            34,995
            
            
            31,085Acquisition
                of subsidiary, contingent payment
            
            
            -
            
            
            (5,000
            )Capital
                contributions to joint venture
            
            
            (591
            )
            
            (1,244
            )**Net
                cash provided by (used in) investing activities**
            
            
            13,076
            
            
            (13,893
            )**Net
                cash related to investing activities from discontinued
                operations**
            
            
            -
            
            
            -**Cash
                flows from financing activities:**Proceeds
                from issuances of common stock upon exercise of stock
                options
            
            
            301
            
            
            124Proceeds
                from the issuance of common stock under the Employee Stock Purchase
                Program
            
            
            75
            
            
            -Excess
                tax benefits on exercise of nonqualified stock options
            
            
            194
            
            
            138Purchase
                of treasury stock
            
            
            (1,064
            )
            
            (745
            )Payments
                of short-term debt related to financed insurance premiums
            
            
            -
            
            
            (1,805
            )Principal
                payments under long-term and other borrowings
            
            
            -
            
            
            (20
            )**Net
                cash used in financing activities**
            
            
            (494
            )
            
            (2,308
            )**Net
                cash related to financing activities from discontinued
                operations**
            
            
            -
            
            
            -**Net
                increase in cash and cash equivalents**
            
            
            31,061
            
            
            20,486Cash
                and cash equivalents at beginning of period
            
            
            200,132
            
            
            120,991**Cash
                and cash equivalents at end of period**
            
            $
            231,193
            
            $
            141,477Supplemental
                disclosure of cash flow information:Cash
                (received) paid during the period for:Income
                taxes, net
            
            $
            (2,291
            )
            $
            2,056


5





**Three
                Months Ended****March
                29,**
            
            **March
                31,****2008**
            
            **2007**Interest
            
            $
            2,875
            
            $
            2,926Non-cash
                transactions:(Decrease)
                increase in fair value of available for sale debt and marketable
                equity
                securities
            
            $
            (523
            )
            $
            6,022Capital
                expenditures incurred but not yet paid
            
            $
            1,916
            
            $
            112Capital
                contribution to joint venture not yet paid
            
            $
            138
            
            $
            148





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


6





**PAR
      PHARMACEUTICAL COMPANIES, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**March
      29, 2008**


(In
      thousands, except per share amounts or as otherwise noted)


(Unaudited)





Par
      Pharmaceutical Companies, Inc. operates primarily through its wholly owned
      subsidiary, Par Pharmaceutical, Inc. (collectively referred to herein as the
      “Company”), in two business segments, for the development, manufacture and
      distribution of generic pharmaceuticals and branded pharmaceuticals in the
      United States. In 2007, the Company began operating the brand pharmaceutical
      segment under the name Strativa Pharmaceuticals. The Company also wholly owns
      Kali Laboratories, Inc. (“Kali”), a generic pharmaceutical research and
      development company located in Somerset, New Jersey. Marketed products are
      principally in the solid oral dosage form (tablet, caplet and two-piece
      hard-shell capsule). The Company also distributes several oral suspension
      products and certain products in the semi-solid form of a cream.





**Note
      1** **-** **Basis of** **Presentation** **:**





The
      accompanying condensed consolidated financial statements at March 29, 2008
      and
      for the three-month periods ended March 29, 2008 and March 31, 2007 are
      unaudited; in the opinion of the Company’s management, however, such statements
      include all adjustments necessary to present fairly the information presented
      therein. The condensed consolidated balance sheet at December 31, 2007 was
      derived from the Company’s audited consolidated financial statements included in
      the Company’s 2007 Annual Report on Form 10-K.





Pursuant
      to accounting requirements of the Securities and Exchange Commission (the “SEC”)
      applicable to quarterly reports on Form 10-Q, the accompanying condensed
      consolidated financial statements and these Notes do not include all disclosures
      required by accounting principles generally accepted in the United States
      (“GAAP”) for audited financial statements. Accordingly, these statements should
      be read in conjunction with the Company’s 2007 Annual Report on Form 10-K.
      Results of operations for interim periods are not necessarily indicative of
      those that may be achieved for full fiscal years.





**Note
      2 – Recent Accounting Pronouncements:**





In
      December 2007, the Financial Accounting Standards Board (“FASB”) ratified Emerging
      Issue Task Force Issue No.
      07-1
      (“EITF 07-1”), *Accounting
      for Collaborative Arrangements* .
      The key
      elements of EITF 07-1 **** relate
      to: ( *a* )
      the
      scope of the issue; ( *b* )
      the
      income statement presentation of transactions with third parties; ( *c* )
      the
      income statement presentation of payments between parties to the collaborative
      arrangement; ( *d* )
      the
      disclosures about collaborative arrangements that should be required in the
      financial statements of the parties to the collaborative arrangements; and
      ( *e* )
      the
      transition method. A contractual arrangement falls within the scope of EITF
      07-1
      if the arrangement requires the parties to be active participants and the
      arrangement exposes the parties to significant risks and rewards that are tied
      to the commercial success of the endeavor. Costs incurred and revenue generated
      on sales to third parties should be reported in the statement of operations
      based on the guidance in EITF Issue No. 99-19, *Reporting
      Revenue Gross as a Principal versus Net as an Agent* .
      The
      equity method of accounting should not be applied to a collaborative arrangement
      within the scope of this issue without the creation of a separate legal entity
      for the arrangement. P ayments
      between parties to the collaborative arrangement should be presented in the
      statement of operations based on the nature of the arrangement and each entity's
      business operations, the contractual terms of the arrangement as well as if
      existing GAAP is applicable. EITF 07-1 requires companies to disclose the nature
      and purpose of the arrangement, its rights and obligations under the
      arrangement, the accounting policy
      applied to the arrangement, and the amounts attributable to transactions between
      other participants to the collaborative arrangement and where in the statement
      of operations these amounts have been classified. EITF 07-1 requires that
      companies comply in its first fiscal year beginning after December 15, 2008
      and
      transition to the guidance in this issue by retrospectively applying the
      guidance to all periods presented for all arrangements existing at the effective
      date, unless it is impracticable to do so. The impracticability assessment
      should be made on an arrangement-by-arrangement basis and certain disclosures
      would be required if a company utilizes the impracticability exception. The
      Company is currently evaluating the potential impact of adopting EITF
      07-1 on
      its
      condensed consolidated financial statements, but does not expect a material
      impact upon adoption.





In
      December 2007, the FASB issued FASB Statement No. 141 (Revised 2007) (“SFAS
      141R”), *Business Combinations* .
      SFAS
      141R will significantly change the accounting for business combinations. Under
      SFAS 141R, an acquiring entity will be required to recognize all the assets
      acquired and liabilities assumed in a transaction at the acquisition date fair
      value with limited exceptions. SFAS 141R will change the accounting treatment
      for certain specific items, including; acquisition costs will be generally
      expensed as incurred, minority interests will be valued at fair value at the
      acquisition date, acquired contingent liabilities will be recorded at fair
      value
      at the acquisition date and subsequently measured at either the higher of such
      amount or the amount determined under existing guidance for non-acquired
      contingencies, in-process research and development will be recorded at fair
      value as an indefinite-lived intangible asset at the acquisition date,
      restructuring costs associated with a business combination will be generally
      expensed subsequent to the acquisition date, and changes in deferred tax asset
      valuation allowances and income tax uncertainties after the acquisition date
      generally will affect income tax expense. SFAS 141R also includes a substantial
      number of new disclosure requirements. SFAS 141R applies prospectively to
      business combinations for which the acquisition date is on or after the
      beginning of the first annual reporting period beginning on or after December
      15, 2008. Earlier adoption is prohibited *.* The
      Company will be required to record and disclose business combinations following
      existing GAAP until January 1, 2009.


7





In
      December 2007, SFAS No. 160, *Noncontrolling
      Interests in Consolidated Financial Statements - an amendment of ARB No. 51* (“SFAS
      160”), was issued. SFAS 160 requires entities to report noncontrolling
      (minority) interests as a component of stockholders’ equity on the balance
      sheet; include all earnings of a consolidated subsidiary in consolidated results
      of operations; and treat all transactions between an entity and noncontrolling
      interest as equity transactions between the parties. SFAS 160 is effective
      for
      the Company’s fiscal year beginning 2009 and adoption is prospective only;
      however, presentation and disclosure requirements described above must be
      applied retrospectively. The Company is currently evaluating the potential
      impact of adopting SFAS 160  on
      its
      condensed consolidated financial statements, but does not expect a material
      impact upon adoption.





In
      June
      2007, the FASB ratified Emerging Issue Task Force Issue No. 07-3 (“EITF 07-3”), *Accounting
      for Non-Refundable Advance Payments for Goods or Services to Be Used in Future
      Research and Development Activities* ,
      which
      requires nonrefundable advance payments for goods and services that will be
      used
      or rendered for future research and development activities to be deferred and
      capitalized. These amounts will be recognized as an expense in the period that
      the related goods are delivered or the related services are performed or when
      an
      entity does not expect the goods to be delivered or services to be rendered.
      EITF 07-3 is effective for the fiscal years beginning after December 31, 2007,
      including interim periods within those fiscal years. The Company’s adoption of
      the provisions of EITF 07-3, beginning January 1, 2008 did not have a material
      impact on its condensed consolidated financial statements.





In
      February 2007, the FASB issued SFAS No. 159 *The
      Fair Value Option for Financial Assets and Financial Liabilities — Including an
      Amendment of FASB Statement No. 115* (“SFAS
      159”), which becomes effective for fiscal periods beginning after November 15,
      2007.  Under SFAS 159, companies may elect to measure specified financial
      assets and liabilities at fair value that are not otherwise measured at fair
      value, with changes in fair value recognized in earnings each subsequent
      reporting period.  This election, called the “fair value option,” will
      enable some companies to reduce volatility in reported earnings caused by
      measuring related assets and liabilities differently.  SFAS 159 also
      establishes presentation and disclosure requirements designed to draw a
      comparison between the different measurement attributes a company elects for
      similar types of assets and liabilities. The Company did not elect the “fair
      value option” for any of its eligible financial assets or liabilities and
      therefore the Company’s adoption of SFAS 159 did not have a material impact on
      its condensed consolidated financial statements.




In
      September 2006, the FASB issued SFAS No. 157 *Fair
      Value Measurements* (“SFAS
      157”).  SFAS 157 establishes a common definition for fair value to be
      applied to GAAP guidance requiring use of fair value, establishes a framework
      for measuring fair value, and expands disclosure about such fair value
      measurements. SFAS
      157
      applies to fair value measurements that are already required or permitted by
      other accounting standards, except for measurements of share-based payments
      and
      measurements that are similar to, but not intended to be, fair value. The FASB
      has previously concluded in those accounting pronouncements that fair value
      is
      the relevant measurement attribute. Accordingly, this Statement does not require
      any new fair value measurements. SFAS
      157
      is effective for fiscal years beginning after November 15, 2007.  In
      November 2007, FASB granted a one year deferral for the implementation of SFAS
      157 for non-financial assets and liabilities. The Company’s adoption of SFAS 157
      with respect to financial assets and liabilities as of January 1, 2008 did
      not
      have a material impact on its condensed consolidated financial statements.
      Refer
      to Note 20, “Fair Value Measurements.”





**Note
      3 - Share-Based Compensation:**





The
      Company adopted Statement of Financial Accounting Standards No. 123 (Revised
      2004), “Share-Based Payment” (“SFAS 123R”), effective January 1, 2006. SFAS 123R
      requires companies to recognize compensation expense in the amount equal to
      the
      fair value of all share-based payments granted to employees. The Company elected
      the modified prospective transition method and, therefore, adjustments to prior
      periods were not required as a result of adopting SFAS 123R. Under this method,
      the provisions of SFAS 123R apply to all awards granted after the date of
      adoption and to any unrecognized expense of non-vested awards at the date of
      adoption based on the grant date fair value. Under SFAS 123R, the Company will
      recognize share-based compensation ratably over the service period applicable
      to
      the award. SFAS 123R also amends SFAS No. 95, “Statement of Cash Flows,” to
      require that excess tax benefits that have been reflected as operating cash
      flows be reflected as financing cash flows. In accordance with SFAS 123R, $194
      and $138 of excess tax benefits for the three months ended March 29, 2008 and
      March 31, 2007, respectively, have been classified as both an operating cash
      outflow and financing cash inflow.


8





The
      Company grants share-based awards under its various plans, which provide for
      the
      granting of non-qualified stock options, restricted stock (including restricted
      stock with market conditions) and restricted stock units to the employees of
      the
      Company and others. Stock options, restricted stock and restricted stock units
      generally vest ratably over four years, and stock options have a maximum term
      of
      ten years.





As
      of
      March 29, 2008, there were approximately 5.5 million shares of common stock
      available for future stock option grants. The Company issues new shares of
      common stock when stock option awards are exercised. Stock
      option awards outstanding under the Company’s current plans have been granted at
      exercise prices that were equal to the market value of the Company’s common
      stock on the date of grant.





*Stock
      Options*





The
      Company uses the Black-Scholes stock option pricing model to estimate the fair
      value of stock option awards with the following weighted average
      assumptions:




**For the three**
            
            **For the three****months ended**
            
            **months ended****March 29,**
            
            **March 31,****2008**
            
            **2007****Risk-free
                interest rate**
            
            
            3.0
            %
            
            4.6
            %**Expected
                life (in years)**
            
            
            6.3
            
            
            6.2**Expected
                Volatility**
            
            
            48.5
            %
            
            53.8
            %**Dividend**
            
            
            0
            %
            
            0
            %




The
      Black-Scholes option pricing model was developed for use in estimating the
      fair
      value of traded options, which have no vesting restrictions and are fully
      transferable. The
      Company compiled historical data on an employee-by-employee basis from the
      grant
      date through the settlement date. The results of analyzing the historical data
      showed that there were three distinct populations of optionees, the Executive
      Officers Group, the Outside Directors Group, and the All Others Group. The
      expected life of options represents the period of time that the options are
      expected to be outstanding and is based generally on historical trends. However,
      b ecause
      none of the Company’s existing options have reached their full 10-year term, and
      also because the majority of such options granted are out-of-the-money and
      the
      expected life of out-of-the-money options is uncertain, the Company opted to
      use
      the “simplified” method for “plain vanilla” options described in SAB 107. The
“simplified method” calculation is the average of the vesting term plus the
      original contractual term divided by 2. The
      Company anticipates that most grants in the future will be four-year graded
      vesting; however, Outside Directors will continue to have one-year vesting.
      The
      Company will revisit this assumption at least annually or sooner if
      circumstances warrant. The risk-free rate is based on the yield on the Federal
      Reserve treasury rate with a maturity date corresponding to the expected term
      of
      the option granted. The expected volatility assumption is based on the
      historical volatility of the Company’s common stock over a term equal to the
      expected term of the option granted. SFAS
      123R
      also requires forfeitures to be estimated at the time of grant and revised,
      if
      necessary, in subsequent periods if actual forfeitures differ from those
      estimates. It
      is
      assumed that no dividends will be paid during the entire term of the options. All option
      valuation models require input of highly subjective assumptions. Because the
      Company's employee stock options have characteristics significantly different
      from those of traded options, and because changes in subjective input
      assumptions can materially affect the fair value estimate, the actual value
      realized at the time the options are exercised may differ from the estimated
      values computed above. The
      weighted average per share fair values of options granted in the three month
      periods ended March 29, 2008 and March 31, 2007 were $9.92 and $13.86,
      respectively.




Set
      forth
      below is the impact on the Company’s results of operations of recording
      share-based compensation from its stock options for the three-month periods
      ended March 29, 2008 and March 31, 2007:





**For the three months ended****March 29,**
            
            **March 31,****2008**
            
            **2007**Cost
                of sales
            
            $
            62
            
            $
            168Research
                and development
            
            
            156
            
            
            422Selling,
                general and administrative
            
            
            560
            
            
            1,518Total,
                pre-tax
            
            $
            778
            
            $
            2,108Tax
                benefit of share-based compensation
            
            
            (296
            )
            
            (822
            )Total,
                net of tax
            
            $
            482
            
            $
            1,286




The
      incremental stock-based compensation expense decreased both basic and diluted
      earnings per share by $0.01 per share for the three-month period ended March
      29,
      2008 and by $0.04 per share for the three-month period ended March 31, 2007.


9





The
      following is a summary of the Company’s stock option activity:




Weighted
            
            Weighted
            
            AggregateAverage
            
            Average
            
            IntrinsicShares
            
            Exercise Price
            
            Remaining Life
            
            ValueBalance
                at December 31, 2007
            
            
            4,526
            
            $
            34.76Granted
            
            
            2
            
            
            19.56Exercised
            
            
            (42
            )
            
            7.11Forfeited
            
            
            (85
            )
            
            30.86Balance
                at March 29, 2008
            
            
            4,401
            
            $
            35.09
            
            
            5.6
            
            $
            1,596Exercisable
                at March 29, 2008
            
            
            3,584
            
            $
            37.70
            
            
            4.9
            
            $
            1,434Vested
                and expected to vest at March 29, 2008
            
            
            4,282
            
            $
            35.43
            
            
            5.3
            
            $
            1,566




The
      total
      fair value of shares vested during the three-month periods ended March 29,
      2008
      and March 31, 2007 was $5,253 and $6,501, respectively. As of March 29, 2008,
      the total compensation cost related to all non-vested stock options granted to
      employees but not yet recognized was approximately $8,972. This cost will be
      amortized on a straight-line basis over the remaining weighted average vesting
      period of 2.3 years.





*Restricted
      Stock/Restricted Stock Units*





Outstanding
      restricted stock and restricted stock units generally vest ratably over four
      years. The related share-based compensation expense is recorded over the
      requisite service period, which is the vesting period. The fair value of
      restricted stock is based on the market value of the Company’s common stock on
      the date of grant.





In
      the
      quarter ended March 31, 2007, the Company accelerated the vesting of 7
      outstanding non-vested restricted shares in connection with the termination
      of
      an executive. The effect of this acceleration resulted in additional
      compensation expense of $154 in the quarter ended March 31, 2007.





The
      impact on the Company’s results of operations of recording share-based
      compensation from restricted stock for the three-month periods ended March
      29,
      2008 and March 31, 2007 was as follows:




**For
                the three months ended****March
                29,**
            
            **March
                31,****2008**
            
            **2007**Cost
                of sales
            
            $
            164
            
            $
            115Research
                and development
            
            
            410
            
            
            288Selling,
                general and administrative
            
            
            1,475
            
            
            1,191Total,
                pre-tax
            
            $
            2,049
            
            $
            1,594Tax
                benefit of stock-based compensation
            
            
            (779
            )
            
            (622
            )Total,
                net of tax
            
            $
            1,270
            
            $
            972




The
      following is a summary of the Company’s restricted stock activity (shares in
      thousands) **:**




Weighted
            
            AggregateAverage
            
            IntrinsicShares
            
            Grant
                Price
            
            ValueNon-vested
                balance at December 31, 2007
            
            
            698
            
            $
            26.35Granted
            
            
            318
            
            
            21.52Vested
            
            
            (141
            )
            
            29.04Forfeited
            
            
            (22
            )
            
            26.82Non-vested
                balance at March 29, 2008
            
            
            853
            
            $
            24.09
            
            $
            14,763





The
      following is a summary of the Company’s restricted stock unit activity (shares
      in thousands) **:**




Weighted
            
            AggregateAverage
            
            IntrinsicShares
            
            Grant
                Price
            
            ValueNon-vested
                balance at December 31, 2007
            
            
            173
            
            $
            23.53Granted
            
            
            29
            
            
            22.79Vested
            
            
            (13
            )
            
            31.59Forfeited
            
            
            (9
            )
            
            21.68Non-vested
                balance at March 29, 2008
            
            
            180
            
            $
            22.95
            
            $
            3,110


10




As
      of
      March 29, 2008, the total compensation cost related to all non-vested restricted
      stock and restricted stock units (excluding restricted stock grants with market
      conditions described below) granted to employees but not yet recognized was
      approximately $22.5 million; this cost will be amortized on a straight-line
      basis over the remaining weighted average vesting period of approximately 2.8
      years. At March 29, 2008, approximately 0.9 million shares remain available
      for
      restricted stock (including restricted stock with market conditions described
      below) and restricted stock unit grants.





*Restricted
      Stock Grants With Market Conditions*




In
      the
      first quarter of 2008, the Company issued restricted stock grants with market
      conditions for the first time. Restricted stock grants issued to certain
      employees of the Company have a three-year cliff vesting schedule and are
      contingent upon multiple market conditions that are factored into the fair
      value
      of the restricted stock at grant date. Vesting will occur if the applicable
      continued employment condition is satisfied and the Total Stockholder Return
      ("TSR") on the Company’s common stock exceeds a minimum TSR relative to the
      Company’s stock price at the beginning of the three-year vesting period, the TSR
      meets or exceeds the median of a defined peer group of approximately 15
      companies, and/or the TSR exceeds the Standard and Poor’s 400 Mid Cap Index
      ("S&P 400") over the three-year measurement period beginning on
      January 1 in the year of grant and ending after three years on
      December 31. A maximum number of 720 shares of common stock could be issued
      after the three-year vesting period depending on the achievement of the TSR
      goals. No shares of common stock will be issued if the Company’s TSR is below 6%
      annualized return over the three-year vesting period. Any shares earned will
      be
      distributed after the end of the three-year period. In all circumstances,
      restricted stock granted does not entitle the holder the right, or obligate
      the
      Company, to settle the restricted stock in cash.





The
      effect of the market conditions on the restricted stock issued to certain
      employees of the Company is reflected in the fair value on the grant date for
      the quarter ended March 29, 2008. The restricted stock grants with market
      conditions were valued using a Monte Carlo simulation. The Monte Carlo
      simulation estimates the fair value based on the expected term of the award,
      risk-free interest rate, expected dividends, and the expected volatility for
      the
      Company, its peer group, and the S&P 400. The expected term was estimated
      based on the vesting period of the awards (3 years), the risk-free interest
      was
      based on the yield on the Federal Reserve treasury rate with a maturity matching
      the vesting period (2.6%). The expected dividends were assumed to be zero for
      the Company. Volatility was based on historical volatility over the expected
      term (40%). Restricted stock that included multiple market conditions granted
      during the quarter ended March 29, 2008 had a grant date fair value per
      restricted share of $24.78.





The
      following table summarizes the components of the Company's stock-based
      compensation related to its restricted stock grants with market conditions
      recognized in the Company's financial statements for
      the
      three-month periods ended March 29, 2008 and March 31, 2007:


**For the three months ended****March
                29,**
            
            **March
                31,****2008**
            
            **2007**Cost
                of sales
            
            $
            51
            
            $
            -Research
                and development
            
            
            127
            
            
            -Selling,
                general and administrative
            
            
            458
            
            
            -Total,
                pre-tax
            
            $
            636
            
            $
            -Tax
                benefit of stock-based compensation
            
            
            (242
            )
            
            -Total,
                net of tax
            
            $
            394
            
            $
            -




As
      of March 29, 2008, $8.2 million of total unrecognized compensation
      cost, net of estimated forfeitures, related to restricted stock grants with
      market conditions is expected to be recognized over a weighted average period
      of
      approximately 2.8 years.





A
      summary of the restricted stock grants with market conditions activity for
      the
      quarter ended March 29, 2008 follows (shares
      in thousands) :


Weighted AverageGrant
                Date
            
            AggregateFair
                Value
            
            IntrinsicShares
            
            Per
                Share
            
            ValueNon-vested
                balance at December 31, 2007
            
            
            -
            
            $
            -Granted
            
            
            384
            
            
            24.78Vested
            
            
            -
            
            
            -Forfeited
            
            
            (1
            )
            
            24.78Non-vested
                balance at March 29, 2008
            
            
            383
            
            $
            24.78
            
            $
            6,630





The
      total grant date fair value of restricted stock grants with market conditions
      during the quarter ended March 29, 2008 was $8.9 million.




11




*Employee
      Stock Purchase Program:*





The
      Company maintains an Employee Stock Purchase Program (the “Program”). The
      Program is designed to qualify as an employee stock purchase plan under Section
      423 of the Internal Revenue Code of 1986, as amended. It enables eligible
      employees to purchase shares of the Company’s common stock at a 5% discount to
      the fair market value. An aggregate of 1,000 shares of common stock has been
      reserved for sale to employees under the Program. Employees purchased 4 shares
      during the three-month period ended March 29, 2008. There was no Program
      activity during the three months ended March 31, 2007 as the Program was
      suspended by the Company from July 2006 to December 2007.





**Note
      4** **-** **Available for Sale Debt and Marketable Equity Securities:**





At
      March
      29, 2008 and December 31, 2007, all of the Company’s investments in debt and
      marketable equity securities were classified as available for sale and, as
      a
      result, were reported at their estimated fair values on the condensed
      consolidated balance sheets. Refer to Note 20, “Fair Value Measurements.” The
      following is a summary of amortized cost and estimated fair value of the
      Company’s debt and marketable equity securities available for sale at March 29,
      2008:




**Estimated****Unrealized**
            
            **Fair****Cost**
            
            **Gain**
            
            **(Loss)**
            
            **Value**Securities
                issued by government agencies
            
            $
            26,237
            
            $
            25
            
            $
            -
            
            $
            26,262Debt
                securities issued by various state and local municipalities and
                agencies
            
            
            36,427
            
            
            184
            
            
            -
            
            
            36,611Other
                debt securities
            
            
            10,069
            
            
            16
            
            
            (1,656
            )
            
            8,429Available
                for sale debt securities
            
            
            72,733
            
            
            225
            
            
            (1,656
            )
            
            71,302Marketable
                equity securities available for saleHana
                Biosciences, Inc.
            
            
            3,850
            
            
            -
            
            
            (1,300
            )
            
            2,550Total
            
            $
            76,583
            
            $
            225
            
            $
            (2,956
            )
            $
            73,852





Of
      the
      $3.0 million of unrealized loss as of March 29, 2008, $1.7 million has been
      in
      an unrealized loss position for greater than one year. The Company believes
      that
      these losses are not other-than-temporary in accordance with FASB
      Staff Position Nos. FAS 115-1 / 124-1, “The Meaning of Other-Than-Temporary
      Impairment and Its Application to Certain Investments,” due to its assessment
      that all amounts due according to the contractual terms of the related debt
      security will be collected and its ability and intent to hold the related debt
      security for a reasonable period of time sufficient for a recovery of fair
      value
      up to (or beyond) the cost of the investment. The
      Company has classified a certain other debt security that matures in 2015 as
      a
      noncurrent asset on its condensed consolidated balance sheet as of March 29,
      2008 due to its intent to hold the investment for a period of time greater
      than
      12 months.




The
      Company recorded an unrealized loss of $0.1 million for the quarter ended March
      29, 2008, which was included in other comprehensive income to reflect the change
      in estimated fair value of its investment in Hana Biosciences, Inc. (“Hana”).
      The Company evaluated the near-term prospects of Hana in relation to the
      severity and duration of the period that the investment has been in an
      unrealized loss position. The investment has been in an unrealized loss position
      for less than 6 months as of March 29, 2008. Based on that evaluation and the
      Company's ability and intent to hold those investments for a reasonable period
      of time sufficient for a forecasted recovery of fair value, the Company does
      not
      consider the investment to be other-than-temporarily impaired at March 29,
      2008.
      The Company has classified its investment in Hana as a noncurrent asset on
      its
      condensed consolidated balance sheet as of March 29, 2008 due to its intent
      to
      hold the investment for a period of time greater than 12 months.





The
      following is a summary of amortized cost and estimated fair value of the
      Company’s investments in debt and marketable equity securities available for
      sale at December 31, 2007:


**Estimated****Unrealized**
            
            **Fair****Cost**
            
            **Gain**
            
            **(Loss)**
            
            **Value**Securities
                issued by government agencies
            
            $
            46,177
            
            $
            24
            
            $
            -
            
            $
            46,201Debt
                securities issued by various state and local municipalities and
                agencies
            
            
            24,226
            
            
            -
            
            
            (3
            )
            
            24,223Other
                debt securities
            
            
            15,020
            
            
            -
            
            
            (1,029
            )
            
            13,991Auction
                rate securities
            
            
            5,000
            
            
            -
            
            
            -
            
            
            5,000Available
                for sale debt securities
            
            
            90,423
            
            
            24
            
            
            (1,032
            )
            
            89,415Marketable
                  equity securities available for sale Hana
                  Biosciences, Inc.
            
            
            3,850
            
            
            -
            
            
            (1,200
            )
            
            2,650Total
            
            $
            94,273
            
            $
            24
            
            $
            (2,232
            )
            $
            92,065




12




*Auction
      Rate Securities*




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





The
      following is a summary of the contractual maturities of the Company’s available
      for sale debt securities at March 29, 2008:


**March
                29, 2008****Estimated
                Fair****Cost**
            
            **Value**Less
                than one year
            
            $
            22,515
            
            $
            22,548Due
                between 1-2 years
            
            
            32,309
            
            
            32,494Due
                between 2-5 years
            
            
            12,844
            
            
            12,851Due
                after 5 years
            
            
            5,065
            
            
            3,409Total
            
            $
            72,733
            
            $
            71,302




**Note
      5** **-** **Other Investments:**





**Balance
                at March 29, 2008**
            
            **Carrying
                Value**IntelliPharmaCeutics
                Ltd.
            
            $
            2,500Total
                other investments
            
            $
            2,500





**Balance
                at December 31, 2007**
            
            **Carrying
                Value**IntelliPharmaCeutics
                Ltd.
            
            $
            2,500Total
                other investments
            
            $
            2,500





The
      Company assesses whether temporary or other-than-temporary losses on its
      investments have occurred due to declines in fair value or other market
      conditions. At March 29, 2008 and December 31, 2007, the Company believed the
      carrying values of its cost method investments was equal to their fair values.




In
      August
      2007, the Company announced that it entered into a stock purchase agreement
      to
      acquire an equity interest in IntelliPharmaCeutics Ltd. (“IPC Ltd.”), a
      privately held Delaware company. The terms of the agreement included a $5.0
      million private placement investment that represents a 4.2 percent equity
      interest in IntelliPharmaCeutics Corp. (“IPC Corp.”), the operating subsidiary
      of IPC Ltd. The Company recorded its investment in IPC Corp. at $2.5 million
      based on the Company’s assessment of the fair value of its investment and
      charged $2.5 million, which represents a non-refundable upfront license payment,
      to research and development expense in the third quarter of 2007. Because IPC
      Ltd. is privately-held and accounted for under the cost method, the Company
      monitors the investment on a periodic basis to evaluate whether any declines
      in
      value become other-than-temporary.




13




**Note
      6** **-** **Accounts Receivable:**




The
      Company recognizes revenue for product sales when title and risk of loss have
      transferred to its customers, when reliable estimates of rebates, chargebacks,
      returns and other adjustments can be made, and when collectibility is reasonably
      assured. This is generally at the time that products are received by the
      customers. Upon recognizing revenue from a sale, the Company records estimates
      for chargebacks, rebates and incentive programs, product returns, cash discounts
      and other sales reserves that reduce accounts receivable.


**March
                29,**
            
            **December
                31,****2008**
            
            **2007**Gross
                trade accounts receivable
            
            $
            217,256
            
            $
            216,327Chargebacks
            
            
            (43,987
            )
            
            (46,006
            )Rebates
                and incentive programs
            
            
            (32,959
            )
            
            (42,859
            )Returns
            
            
            (40,493
            )
            
            (47,102
            )Cash
                discounts and other
            
            
            (15,762
            )
            
            (16,158
            )Doubtful
                accounts
            
            
            (20
            )
            
            (20
            )Accounts
                receivable, net
            
            $
            84,035
            
            $
            64,182





**Allowance
                for doubtful accounts****For the three-month period ended****March 29, 2008**
            
            **March 31, 2007**Balance
                at beginning of period
            
            $
            (20
            )
            $
            (2,465
            )Additions
                – charge to expense
            
            
            -
            
            
            -Adjustments
                and/or deductions
            
            
            -
            
            
            2,443Balance
                at end of period
            
            $
            (20
            )
            $
            (22
            )





The
      following tables summarize the activity for the three months ended March 29,
      2008 and March 31, 2007, respectively, in the accounts affected by the estimated
      provisions described below:


**For
                the three months ended March 29, 2008****Accounts
                receivable reserves**
            
            **Beginning**
              **balance**
            
            **Provision**
              **recorded**
              **for
                current**
              **period**
              **sales**
            
            **(Provision)**
              **reversal**
              **recorded**
              **for
                prior**
              **period sales**
            
            **Credits**
              **processed**
            
            **Ending**
              **balance**Chargebacks
            
            $
            (46,006
            )
            $
            (107,639
            )
            $
            (539
            )(1)
            $
            110,197
            
            $
            (43,987
            )Rebates
                and incentive programs
            
            
            (42,859
            )
            
            (24,207
            )
            
            (1,571
            )
            
            35,678
            
            
            (32,959
            )Returns
            
            
            (47,102
            )
            
            (4,904
            )
            
            4,293
            
            
            7,220
            
            
            (40,493
            )Cash
                discounts and other
            
            
            (16,158
            )
            
            (12,274
            )
            
            349
            
            
            12,321
            
            
            (15,762
            )Total
            
            $
            (152,125
            )
            $
            (149,024
            )
            $
            2,532
            
            $
            165,416
            
            $
            (133,201
            )**Accrued
                liabilities**(2)
            
            $
            (17,684
            )
            $
            (7,361
            )
            $
            805
            
            $
            536
            
            $
            (23,704
            )





**For
                the three months ended March 31, 2007****Accounts
                receivable reserves**
            
            **Beginning**
              **balance**
            
            **Provision**
              **recorded**
              **for
                current**
              **period**
              **sales**
            
            **(Provision)**
              **reversal**
              **recorded**
              **for
                prior**
              **period sales**
            
            **Credits**
              **processed**
            
            **Ending**
              **balance**Chargebacks
            
            $
            (51,891
            )
            $
            (88,364
            )
            $
            --
            (1)
            $
            92,531
            
            $
            (47,724
            )Rebates
                and incentive programs
            
            
            (85,888
            )
            
            (55,192
            )
            
            2,699
            
            
            50,889
            
            
            (87,492
            )Returns
            
            
            (42,905
            )
            
            (10,770
            )
            
            (794
            )
            
            6,099
            
            
            (48,370
            )Cash
                discounts and other
            
            
            (18,038
            )
            
            (14,382
            )
            
            211
            
            
            6,652
            
            
            (25,557
            )Total
            
            $
            (198,722
            )
            $
            (168,708
            )
            $
            2,116
            
            $
            156,171
            
            $
            (209,143
            )**Accrued
                liabilities**(2)
            
            $
            (10,583
            )
            $
            (4,644
            )
            $
            -
            
            $
            547
            
            $
            (14,680
            )





(1)
            Unless
                specific in nature, the amount of provision or reversal of reserves
                related to prior periods for chargebacks is not determinable on a
                product
                or customer specific basis; however, based upon historical analysis
                and
                analysis of activity in subsequent periods, the Company has determined
                that its chargeback estimates remain
                reasonable.




14




(2)
            Includes
                amounts due to customers for which no underlying accounts receivable
                exists, including Medicaid rebates. The Company included additional
                amounts that were part of accrued expenses and other current liabilities
                on the condensed consolidated balance sheets as of December 31, 2006
                ($171), March 31, 2007 ($332) and December 31, 2007 ($869) in the
                tables
                above that are similar to the previously disclosed amounts due to
                customers for which no underlying accounts receivable exists.





The
      Company sells its products directly to wholesalers, retail drug store chains,
      drug distributors, mail order pharmacies and other direct purchasers and
      customers that purchase its products indirectly through the wholesalers,
      including independent pharmacies, non-warehousing retail drug store chains,
      managed health care providers and other indirect purchasers. The Company has
      entered into agreements at negotiated contract prices with those health care
      providers that purchase products through the Company’s wholesale customers at
      those contract prices. Chargeback credits are issued to wholesalers for the
      difference between the Company’s invoice price to the wholesaler and the
      contract price through which the product is resold to health care providers.
      Approximately 72% and 55% **** of
      the
      Company’s net product sales were derived from the wholesale distribution channel
      for the three months ended March 29, 2008 and March 31, 2007, respectively.
      The
      information that the Company considers when establishing its chargeback reserves
      includes contract and non-contract sales trends, average historical contract
      pricing, actual price changes, processing time lags and customer inventory
      information from its three largest wholesale customers. The Company’s chargeback
      provision and related reserve vary with changes in product mix, changes in
      customer pricing and changes to estimated wholesaler inventory.





Customer
      rebates and incentive programs are generally provided to customers as an
      incentive for the customers to continue to carry the Company’s products or
      replace competing products in their distribution channels with those products
      sold by the Company. Rebate programs are based on a customer’s dollar purchases
      made during an applicable monthly, quarterly or annual period. The Company
      also
      provides indirect rebates,
      which are rebates paid to indirect customers that have purchased the Company’s
      products from a wholesaler under a contract with the Company. The
      incentive programs include stocking or trade show promotions where additional
      discounts may be given on a new product or certain existing products as an
      added
      incentive to stock the Company’s products. The Company may, from time to time,
      also provide price and/or volume incentives on new products that have multiple
      competitors and/or on existing products that confront new competition in order
      to attempt to secure or maintain a certain market share. The information that
      the Company considers when establishing its rebate and incentive program
      reserves are rebate agreements with and purchases by each customer, tracking
      and
      analysis of promotional offers, projected annual sales for customers with annual
      incentive programs, actual rebates and incentive payments made, processing
      time
      lags, and for indirect rebates, the level of inventory in the distribution
      channel that will be subject to indirect rebates. The Company does not provide
      incentives designed to increase shipments to its customers that it believes
      would result in out-of-the ordinary course of business inventory for them.
      The
      Company regularly reviews and monitors estimated or actual customer inventory
      information at its three largest wholesale customers for its key products to
      ascertain whether customer inventories are in excess of ordinary course of
      business levels.





Pursuant
      to a drug rebate agreement with the Centers for Medicare and Medicaid Services,
      TriCare and similar supplemental agreements with various states, the Company
      provides such states with a rebate on drugs dispensed under government programs.
      The Company determines its estimate of Medicaid rebate accrual primarily based
      on historical experience of claims submitted by the various states and any
      new
      information regarding changes in the Medicaid program that might impact the
      Company’s provision for Medicaid rebates. In determining the appropriate accrual
      amount the Company considers historical payment rates; processing lag for
      outstanding claims and payments; and levels of inventory in the distribution
      channel. The Company reviews the accrual and assumptions on a quarterly basis
      against actual claims data to help ensure that the estimates made are
      reliable.





The
      Company accepts returns of product according to the following criteria: (i)
      the
      product returns must be approved by authorized personnel in writing or by
      telephone with the lot number and expiration date accompanying any request
      and
      (ii) the Company generally will accept returns of products from any customer
      and
      will provide the customer with a credit memo for such returns if such products
      are returned within six months prior to, and until 12 months following, such
      products’ expiration date. The Company records a provision for product returns
      based on historical experience, including actual rate of expired and damaged
      returns, average remaining shelf-lives of products sold, which generally range
      from 12 to 36 months, and estimated return dates. Additionally the Company
      considers other factors when estimating its current period return provision,
      including levels of inventory in the distribution channel, significant market
      changes that may impact future expected returns, and actual product returns,
      and
      may record additional provisions for specific returns that it believes are
      not
      covered by the historical rates.





The
      Company offers cash discounts to its customers, generally 2% of the sales price,
      as an incentive for paying within invoice terms, which generally range from
      30
      to 90 days. The Company accounts for cash discounts by reducing accounts
      receivable by the full amount of the discounts that the Company expects its
      customers to take. In addition to the significant gross-to-net sales adjustments
      described above, the Company periodically makes other sales adjustments. The
      Company generally accounts for these other gross-to-net adjustments by
      establishing an accrual in the amount equal to its estimate of the adjustments
      attributable to the sale.





The
      Company may at its discretion provide price adjustments due to various
      competitive factors, through shelf-stock adjustments on customers’ existing
      inventory levels. There are circumstances under which the Company may not
      provide price adjustments to certain customers and consequently, as a matter
      of
      business strategy, may lose future sales volume to competitors rather than
      reduce its pricing.




15




As
      detailed above, the Company has the experience and access to relevant
      information that it believes are necessary to reasonably estimate the amounts
      of
      such deductions from gross revenues. Some of the assumptions used by the Company
      for certain of its estimates are based on information received from third
      parties, such as wholesale customer inventories and market data, or other market
      factors beyond the Company’s control. The estimates that are most critical to
      the establishment of these reserves, and therefore, would have the largest
      impact if these estimates were not accurate, are estimates related to contract
      sales volumes, average contract pricing, customer inventories and return
      volumes. The Company regularly reviews the information related to these
      estimates and adjusts its reserves accordingly, if and when actual experience
      differs from previous estimates. With the exception of the product returns
      allowance, the ending balances of accounts receivable reserves and allowances
      generally are processed during a two-month to four-month period.





*Use
      of Estimates in Reserves*


The
      Company believes that its reserves, allowances and accruals for items that
      are
      deducted from gross revenues are reasonable and appropriate based on current
      facts and circumstances. It is possible, however, that other parties applying
      reasonable judgment to the same facts and circumstances could develop different
      allowance and accrual amounts for items that are deducted from gross revenues.
      Additionally, changes in actual experience or changes in other qualitative
      factors could cause the Company’s allowances and accruals to fluctuate,
      particularly with newly launched or acquired products. The Company reviews
      the
      rates and amounts in its allowance and accrual estimates on a quarterly basis.
      If future rates and amounts are significantly greater than those reflected
      in
      its recorded reserves, the resulting adjustments to those reserves would
      decrease the Company’s reported net revenues; conversely, if actual product
      returns, rebates and chargebacks are significantly less than those reflected
      in
      its recorded reserves, then the resulting adjustments to those reserves would
      increase its reported net revenues. If the Company were to change its
      assumptions and estimates, its reserves would change, which would impact the
      net
      revenues that the Company reports. The
      Company regularly reviews the information related to these estimates and adjusts
      its reserves accordingly, if and when actual experience differs from previous
      estimates.





*Major
      Customers*


The
      amounts due from the Company’s four largest customers, McKesson Corporation,
      AmerisourceBergen Corporation, Cardinal Health Inc., and Walgreen Co., accounted
      for approximately 34%, 21%, 14% and 6%, respectively, of the gross accounts
      receivable balance at March 29, 2008 and approximately 31%, 21%, 17%, and 7%,
      respectively, of the gross accounts receivable balance at December 31,
      2007.





**Note
      7** **-** **Inventories:**





**March
                29,**
            
            **December
                31,****2008**
            
            **2007**Raw
                materials and supplies
            
            $
            19,246
            
            $
            22,815Work-in-process
            
            
            4,253
            
            
            2,630Finished
                goods
            
            
            41,684
            
            
            59,442$
            65,183
            
            $
            84,887





Inventory
      write-offs were $3.1 million and $4.6 million for the quarters ended March
      29,
      2008 and March 31, 2007, respectively. The Company capitalizes inventory costs
      associated with certain products prior to regulatory approval and product
      launch, based on management's judgment of reasonably certain future commercial
      use and net realizable value. The Company could be required to permanently
      write
      down previously capitalized costs related to pre-launch inventories upon a
      change in such judgment, or due to a denial or delay of approval by regulatory
      bodies, or a delay in commercialization, or other potential factors. As of
      March
      29, 2008, the Company had inventories related to products that were not
      available to be marketed of $9.2 million, comprised of pre-launch inventories
      of
      $7.0 million (of which $5.6 million is for a specific partnered product
      anticipated to launch in the second quarter of 2008) and research and
      development inventories of $2.2 million. Should the launch anticipated for
      the
      second quarter of 2008 be delayed, inventory write-offs may occur to the extent
      the Company is unable to recover the full value of its inventory investment.




16




**Note
      8 – Property, Plant and Equipment, net:**





**March
                29,**
            
            **December
                31,****2008**
            
            **2007**Land
            
            $
            1,882
            
            $
            1,882Buildings
            
            
            25,977
            
            
            25,947Machinery
                and equipment
            
            
            50,039
            
            
            49,302Office
                equipment, furniture and fixtures
            
            
            5,476
            
            
            5,476Computer
                software and hardware
            
            
            30,104
            
            
            28,989Leasehold
                improvements
            
            
            14,861
            
            
            14,865Construction
                in progress
            
            
            10,590
            
            
            8,205138,929
            
            
            134,666Less
                accumulated depreciation and amortization
            
            
            55,613
            
            
            52,016$
            83,316
            
            $
            82,650





Depreciation
      and amortization expense related to property, plant and equipment was $3,858
      and
      $3,541 for the three months ended March 29, 2008 and March 31, 2007,
      respectively.





**Note
      9** **-** **Intangible Assets, net:**





**March
                29,**
            
            **December
                31,****2008**
            
            **2007**Trademark
                licensed from Bristol-Myers Squibb Company, net of accumulated
                amortization of $2,489 and $2,155
            
            $
            7,512
            
            $
            7,846Teva
                Pharmaceutical Industries, Inc. Asset Purchase Agreement, net of
                accumulated amortization of $3,480 and $3,193
            
            
            5,007
            
            
            5,294Ivax
                License Agreement, net of accumulated amortization of $5,630 and
                $5,068
            
            
            2,370
            
            
            2,932Paddock
                Licensing Agreement, net of accumulated amortization of $1,500 and
                $1,250
            
            
            4,500
            
            
            4,750Spectrum
                Development and Marketing Agreement, net of accumulated amortization
                of $0
                and $0
            
            
            5,000
            
            
            5,000Genpharm,
                Inc. Distribution Agreement, net of accumulated amortization of $7,041
                and
                $6,860
            
            
            3,792
            
            
            3,973Bristol-Myers
                Squibb Company Asset Purchase Agreement, net of accumulated amortization
                of $10,167 and $9,749
            
            
            1,532
            
            
            1,950FSC
                Laboratories Agreement, net of accumulated amortization of $3,939
                and
                $3,814
            
            
            1,883
            
            
            2,008Intellectual
                property, net of accumulated amortization of $1,009 and
                $940
            
            
            1,682
            
            
            1,751Other
                intangible assets, net of accumulated amortization of $4,883 and
                $4,693
            
            
            365
            
            
            555$
            33,643
            
            $
            36,059




The
      Company recorded amortization expense related to intangible assets of $2,416
      and
      $3,806, respectively, for the three month periods ended March 29, 2008 and
      March
      31, 2007, and such expense is included in cost of goods sold. During the
      three-month period ended March 31, 2007, the Company made a $600 milestone
      payment to Nortec Development, Inc. related to the commercialization of
      propranolol HCl ER that was recorded in “other intangible assets.” Amortization
      expense related to the intangible assets currently being amortized is expected
      to total approximately $9,934 for the remainder of 2008, $7,771 in 2009, $6,648
      in 2010, $5,214 in 2011, $3,325 in 2012 and $751 thereafter.





The
      Company evaluates all intangible assets for impairment quarterly or whenever
      events or other changes in circumstances indicate that the carrying value of
      an
      asset may no longer be recoverable. As of March 29, 2008, the Company believes
      its net intangible assets are recoverable.





**Note
      10** **-** **Income Taxes:**




The
      Company reflects interest and penalties attributable to income taxes, to the
      extent they arise, as a component of its income tax provision or benefit as
      well
      as its outstanding income tax assets and liabilities.




The
      IRS
      is currently examining the Company’s 2003-2006 federal income tax returns. Prior
      periods have either been audited or are no longer subject to IRS audit. The
      Company is currently under audit in one state jurisdiction for the years
      2003-2005. In most other state jurisdictions, the Company is no longer subject
      to examination by tax authorities for years prior to 2003.




Current
      deferred income tax assets at March 29, 2008 and December 31, 2007 consisted
      of
      temporary differences primarily related to accounts receivable reserves.
      Non-current deferred income tax assets at March 29, 2008 and December 31, 2007
      consisted of the tax benefit related to purchased call options, acquired
      in-process research and development and timing differences primarily related
      to
      intangible assets and stock options.




17




The
      Company’s effective tax rates for continuing operations for the three months
      ended March 29, 2008 and March 31, 2007 were 36% and 35%,
      respectively.





**Note
      11 - Long-Term Debt:**




*Long-Term
      Debt*


**March
                29,**
            
            **December
                31,****2008**
            
            **2007**Senior
                subordinated convertible notes (a)
            
            $
            200,000
            
            $
            200,000Less
                current portion
            
            
            (200,000
            )
            
            (200,000
            )$
            -
            
            $
            -





(a)
            Senior
                subordinated convertible notes in the aggregate principal amount
                of
                $200,000. The notes bear interest at an annual rate of 2.875%,
                payable semi-annually on March 30 and September 30 of each year.
                The notes
                are convertible into common stock at an initial conversion price
                of $88.76
                per share, upon the occurrence of certain events. Upon conversion,
                the
                Company has agreed to satisfy the conversion obligation in cash in
                amount
                equal to the principal amount of the notes converted. The notes mature
                on
                September 30, 2010, unless earlier converted, accelerated or
                repurchased.  The Company may not redeem the notes prior to
                their maturity date.On
                March 29, 2008, the senior subordinated convertible notes had a quoted
                market value of $176,750.See
                “Legal Proceedings” in Note 14, “Commitments, Contingencies and Other
                Matters” for discussion involving notices of default and acceleration the
                Company received from the Trustee of the Company’s 2.875% Senior
                Subordinated Convertible Notes due 2010 and the related litigation.
                Until
                the matter is resolved, the Company is recording the payment obligations
                as a current liability as of March 29, 2008 because the Court in
                the
                matter could (i) rule against the Company’s position and (ii) determine
                that the appropriate remedy would be theaccelerated
                paymentof
                the Notes. Accordingly, the Company cannot consider the possibility
                of
                accelerated payment to be remote.




**Note
      12** **-** **Changes in Stockholders’ Equity:**


Changes
      in the Company’s Common Stock, Additional Paid-In Capital and Accumulated Other
      Comprehensive Loss accounts during the three-month period ended March 29, 2008
      were as follows:





**Accumulated****Additional**
            
            **Other****Common
                Stock**
            
            **Paid-In**
            
            **Comprehensive****Shares**
            
            **Amount**
            
            **Capital**
            
            **Loss**Balance,
                December 31, 2007
            
            
            36,461
            
            $
            364
            
            $
            274,963
            
            $
            (1,362
            )Unrealized
                loss on available for sale securities, net of tax
            
            
            -
            
            
            -
            
            
            -
            
            
            (318
            )Exercise
                of stock options
            
            
            42
            
            
            -
            
            
            301
            
            
            -Tax
                benefit from exercise of stock options
            
            
            -
            
            
            -
            
            
            194
            
            
            -Tax
                deficiency related to vesting of restricted stock
            
            
            -
            
            
            -
            
            
            (529
            )
            
            -Issuance
                of common stock under the Employee StockPurchase
                Program
            
            
            -
            
            
            -
            
            
            75
            
            
            -Forfeitures
                of restricted stock
            
            
            (8
            )
            
            -
            
            
            -
            
            
            -Issuances
                of restricted stock
            
            
            709
            
            
            8
            
            
            (8
            )
            
            -Compensatory
                arrangements
            
            
            -
            
            
            -
            
            
            3,463
            
            
            -Other
            
            
            -
            
            
            -
            
            
            (48
            )
            
            -Balance,
                March 29, 2008
            
            
            37,204
            
            $
            372
            
            $
            278,411
            
            $
            (1,680
            )




18




**Three
                months ended****March
                29,**
            
            **March
                31,****2008**
            
            **2007****Comprehensive
                Income:**Net
                income
            
            $
            2,586
            
            $
            41,514Other
                comprehensive income:Unrealized
                (loss) gain on available for sale securities, net of tax
            
            
            (318
            )
            
            3,640Comprehensive
                Income
            
            $
            2,268
            
            $
            45,154





In
      April
      2004, the Board authorized the repurchase of up to $50.0 million of the
      Company’s common stock. Repurchases are made, subject to compliance with
      applicable securities laws, from time to time in the open market or in privately
      negotiated transactions, whenever
      it appears prudent to do so .
      Shares
      of common stock acquired through the repurchase program are available for
      reissuance for general corporate purposes. In 2007, the Company announced that
      its Board approved an expansion of its share repurchase program allowing for
      the
      repurchase of up to $75 million of the Company’s common stock, inclusive of the
      $17.8 million remaining from the April 2004 authorization. The
      authorized amount remaining for stock repurchases under the repurchase program
      was $43.6 million, as of March 29, 2008. The repurchase program has no
      expiration date.





**Note
      13** **-** **Earnings Per Share:**




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


**Three months ended****March 29, 2008**
            
            **March 31, 2007**Income
                from continuing operations
            
            $
            2,526
            
            $
            41,514Gain
                from discontinued operations
            
            
            505
            
            
            -Provision
                for income taxes
            
            
            445
            
            
            -Gain
                from discontinued operations
            
            
            60
            
            
            -Net
                income
            
            $
            2,586
            
            $
            41,514**Basic:**Weighted
                average number of common shares outstanding
            
            
            33,220
            
            
            34,618Income
                from continuing operations
            
            $
            0.08
            
            $
            1.20Gain
                from discontinued operations
            
            
            0.00
            
            
            -Net
                income per share of common stock
            
            $
            0.08
            
            $
            1.20**Assuming
                dilution:**Weighted
                average number of common shares outstanding
            
            
            33,220
            
            
            34,618Effect
                of dilutive securities
            
            
            367
            
            
            379Weighted
                average number of common and common
              equivalent
                shares outstanding
            
            
            33,587
            
            
            34,997Income
                from continuing operations
            
            $
            0.08
            
            $
            1.19Gain
                from discontinued operations
            
            
            0.00
            
            
            -Net
                income per share of common stock
            
            $
            0.08
            
            $
            1.19





Outstanding
      options of 3,968 and 4,788 as of March 29, 2008 and March 31, 2007,
      respectively, were not included in the computation of diluted earnings per
      share
      because their exercise prices were greater than the average market price of
      the
      common stock during the respective periods and their inclusion would, therefore,
      have been anti-dilutive. In addition, outstanding warrants sold concurrently
      with the sale of the subordinated convertible notes in September 2003 and issued
      in conjunction with the acquisition of Kali in June 2004 were not included
      in
      the computation of diluted earnings per share as of March 29, 2008 and March
      31,
      2007. The warrants related to the notes are exercisable for an aggregate of
      2,253 shares of common stock at an exercise price of $105.20 per share and
      the
      warrants related to the Kali acquisition are exercisable for an aggregate of
      150
      shares of common stock at an exercise price of $47.00 per share.




19




**Note
      14** **-** **Commitments, Contingencies and Other Matters:**




*Legal
      Proceedings*




**Contractual
      Matters**




On
      May 3, 2004, Pentech Pharmaceuticals, Inc. (“Pentech”) filed an action
      against the Company in the United States District Court for the Northern
      District of Illinois. This action alleges that the Company breached its contract
      with Pentech relating to the supply and marketing of paroxetine
      (Paxil Ò )
      and
      that the Company breached fiduciary duties allegedly owed to Pentech. The
      Company and Pentech are in dispute over the amount of gross profit share due
      to
      them. Discovery in this case has concluded. The Court denied cross motions
      for
      summary judgment relating to the construction of the contract, and denied
      Pentech’s motion for summary judgment against the Company’s fraudulent
      inducement counterclaim. The Company also filed a motion for summary judgment
      against Pentech’s breach of fiduciary duty claim, and that motion was granted. A
      trial date has not yet been set. The Company intends to defend vigorously this
      action.





Unless
      otherwise indicated in the details provided below, the Company cannot predict
      with certainty the outcome or the effects on the Company of the litigations
      described below. The outcome of these
      litigations could include substantial damages, the imposition of substantial
      fines, penalties, and injunctive or administrative remedies, however unless
      otherwise indicated, the Company at this time is not able to estimate the
      possible loss or range of loss, if any, associated with these legal
      proceedings.





**Corporate
      Litigation**




The
      Company and certain of its executive officers have been named as defendants
      in
      several purported stockholder class action lawsuits filed on behalf of
      purchasers of common stock of the Company between April 29, 2004 and
      July 5, 2006. The lawsuits followed the Company’s July 5, 2006
      announcement regarding the restatement of certain of its financial statements
      and allege that the Company and certain members of its management engaged in
      violations of the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”), by issuing false and misleading statements concerning the Company’s
      financial condition and results. The class actions have been consolidated and
      are pending in the United States District Court, District of New Jersey. The
      Court has appointed co-lead plaintiffs and co-lead counsel. Co-lead plaintiffs
      filed a Consolidated Amended Complaint on April 30, 2007, purporting to
      represent purchasers of common stock of the Company between July 23, 2001 and
      July 5, 2006. Defendants filed a motion to dismiss the Amended Complaint on
      June
      29, 2007. The Company intends, and the members of management named as defendants
      have stated their intentions, to vigorously defend the lawsuits and any
      additional lawsuits that may hereafter be filed with respect to the restatement.




On
      August 14, 2006, individuals claiming to be stockholders of the Company
      filed a derivative action in the U.S. District Court for the Southern District
      of New York, purportedly on behalf of the Company, against the current and
      certain former directors and certain current and former officers of the Company
      and the Company as a nominal defendant. The plaintiffs in this action allege
      that, among other things, the named defendants breached their fiduciary duties
      to the Company based on substantially the same factual allegations as the class
      action lawsuits referenced above. The plaintiffs also alleged that certain
      of
      the defendants have been unjustly enriched based on their receipt of allegedly
      backdated options to purchase shares of common stock of the Company, and seek
      to
      require those defendants to disgorge any profits made in connection with their
      exercise of such options and additional attendant damages relating to allegedly
      backdated options during the period from January 1, 1996 to the present.
      The action has been transferred to the United States District Court, District
      of
      New Jersey. On June 29, 2007, the plaintiffs filed their amended complaint
      and
      in connection therewith, dropped their claims related to the alleged stock
      option backdating. Defendants have made a motion to dismiss the complaint,
      which
      motion has been fully briefed. The Company intends and each of the individuals
      named as defendants have stated their intentions to vigorously defend against
      the remaining allegations.





On
      September 1, 2006, the Company received a notice of default from the
      American Stock Transfer & Trust Company, as trustee (the “Trustee”) of the
      Company’s 2.875% Senior Subordinated Convertible Notes due 2010 (the “Notes”).
      The Trustee claims, in essence, that the Company’s failure to include financial
      statements in its Quarterly Report on Form 10-Q for the second quarter of 2006
      constituted a default under Section 6.2 of the Indenture, dated as of
      September 30, 2003 (the “Indenture”), between the Company, as issuer, and
      the Trustee, relating to the Notes. The notice of default asserted that if
      the
      purported default continued unremedied for 30 days after the receipt of the
      notice, an “event of default” would occur under the Indenture. Under the
      Indenture, the occurrence of an event of default would give the Trustee or
      certain holders of the Notes the right to declare all unpaid principal and
      accrued interest on the Notes immediately due and payable. On October 2,
      2006, the Company received a notice of acceleration from the Trustee purporting
      to accelerate payment of the Notes.




The
      Company believes that it has complied with its obligations under the Indenture
      relating to the Notes. Therefore, the Company believes that the above-mentioned
      notice of default and notice of acceleration are invalid and without merit.
      Under the Indenture, the Company is required only to provide the Trustee with
      copies of its annual and other reports (or copies of such portions of such
      reports as the SEC may by rules and regulations prescribe) that it is required
      to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act within
      15 calendar days after it files such annual and other reports with the SEC.
      Moreover, the Company’s Indenture specifically contemplates providing the
      Trustee with portions of reports. On August 24, 2006 (within 15 days of filing
      with the SEC), the Company provided to the Trustee a copy of its Quarterly
      Report on Form 10-Q for the second quarter of 2006. The Company’s Form 10-Q did
      not include the Company’s financial statements for the second quarter of 2006
      and related Management’s Discussion and Analysis due to the Company’s work to
      restate certain of its past financial statements, and, therefore, in accordance
      with SEC rules, the Company filed a Form 12b-25 Notification of Late Filing
      disclosing the omissions. The Company’s Form 12b-25 also was provided to the
      Trustee on August 24, 2006. Accordingly, the Company believes that it complied
      with the Indenture provision in question.




20




After
      the
      Company communicated its position to the Trustee, the Trustee filed a lawsuit,
      on October 19, 2006, on behalf of the holders of the Notes in the Supreme
      Court of the State of New York, County of New York, alleging a breach of the
      Indenture and of an alleged covenant of good faith and fair dealing. The lawsuit
      demands, among other things, that the Company pay the holders of the Notes
      either the principal, any accrued and unpaid interest and additional interest
      (as such term is defined in the Indenture), if any, or the difference between
      the fair market value of the Notes on October 2, 2006 and par, whichever
      the Trustee elects, or in the alternative, damages to be determined at trial,
      alleged by the Trustee to exceed $30.0 million. The Company filed a Notice
      of Removal to remove the lawsuit to the U.S. District Court for the Southern
      District of New York and has filed its answer to the complaint in that Court.
      On
      January 19, 2007, the Trustee filed a motion for summary judgment along
      with supporting documentation. On February 16, 2007, the Company filed its
      response to the Trustee’s motion for summary judgment and cross-moved for
      summary judgment in its favor. The Court has not yet ruled on the motions.
      Until
      the matter is resolved, the Company is recording the payment obligations as
      a
      current liability on the condensed consolidated balance sheets because the
      Court
      in the matter could (i) rule against the Company’s position and (ii) determine
      that the appropriate remedy would be the accelerated payment of the convertible
      notes.





**Patent
      Related Matters**





On
      July
      15, 2003, the Company filed a lawsuit against Roxane Laboratories, Inc.
      (“Roxane”) in the United States District Court for the District of New Jersey.
      The Company alleged that Roxane had infringed the Company’s U.S. Patents
      numbered 6,593,318 and 6,593,320 and that the infringement was willful. Roxane
      has denied these allegations and has counterclaimed for declaratory judgments
      of
      non-infringement and invalidity of both patents. On September 8, 2006, the
      Court
      issued a claim construction ruling on certain claim terms in dispute between
      the
      parties. Based on that construction, the Court ruled in favor of the Company
      and
      dismissed Roxane’s motion for summary judgment of non-infringement. On November
      8, 2006, the Court ruled that the claims at issue in these patents were invalid
      as non-enabled on summary judgment. On December 8, 2006, the Company appealed
      the ruling to the Federal Circuit Court of Appeals, highlighting the district
      court’s failure to apply its own claim construction and to consider the
      testimony of the Company’s experts before awarding summary judgment to Roxane.
      On October 26, 2007, the U.S. Circuit Court of Appeals for the Federal Circuit
      affirmed the New Jersey District Court's ruling of invalidity for
      non-enablement. In January 2008, the District Court conducted a hearing on
      Roxane’s application for attorneys’ fees under 35 U.S.C. section 285. Briefs in
      opposition for both sides were filed on March 10, 2008 and a motion hearing
      was
      set for April 7, 2008. On April 10, 2008, the District Court rejected Roxane’s
      request for attorneys’ fees.




On
      March
      10, 2006, Apotex Inc. and Apotex Corp. (“Apotex”) filed a lawsuit against the
      Company in the United States District Court for New Jersey, seeking a
      declaratory judgment that four of the Company’s patents relating to megestrol
      acetate oral suspension are invalid, unenforceable and not infringed by an
      Apotex product that was launched in the third quarter of 2006. The Company
      has
      moved for a preliminary injunction against Apotex pending resolution of the
      litigation and has asserted counterclaims that the Apotex product infringes
      at
      least one claim of U.S. Patent 6,593,318. The
      Company was granted a stay and the action was terminated without prejudice
      on
      April 9, 2007 pending final resolution of the Roxane appeal. On February 6,
      2008, a joint stipulation of dismissal and order with prejudice was signed
      by
      the Judge in the case with each party only liable for its own costs and
      attorneys’ fees.




On
      April
      28, 2006, CIMA Labs, Inc. (“CIMA”) and Schwarz Pharma, Inc. (“Schwarz Pharma”)
      filed separate lawsuits against the Company in the United States District Court
      for the District of New Jersey (CIMA Labs, Inc. et al. v. Par Pharmaceutical
      Companies, Inc. et al., (Civil Action Nos. 06-CV-1970, 1999 (DRD)(ES)). CIMA
      and
      Schwarz Pharma each have alleged that the Company infringed U.S. Patent Nos.
      6,024,981 (the “’981 patent”) and 6,221,392 (the “’392 patent”) by submitting a
      Paragraph IV certification to the FDA for approval of alprazolam orally
      disintegrating tablets. CIMA owns the ’981 and ’392 patents and Schwarz Pharma
      is CIMA’s exclusive licensee. The two lawsuits were consolidated on January 29,
      2007. In response to the lawsuit, the Company has answered and counterclaimed
      denying CIMA’s and Schwarz Pharma’s infringement allegations, asserting that the
’981 and ’392 patents are not infringed and are invalid and/or unenforceable.
      The parties have exchanged written discovery. All 40 claims in the ’981 patent
      were rejected in a non-final office action in a reexamination proceeding at
      the
      United States Patent and Trademark Office (“PTO”) on February 24, 2006. The PTO
      again rejected all 40 claims in a second non-final office action dated February
      24, 2007. The ‘392 patent is also the subject of a reexamination proceeding. The
      Company will continue to monitor these ongoing reexamination proceedings. CIMA
      has moved to stay this lawsuit pending the outcome of the reexamination
      proceedings and to consolidate this lawsuit with another lawsuit in the same
      district involving the same patents (CIMA Labs, Inc. et al. v. Actavis Group
      hf
      et al., (Civil Action No. 07-CV-0893 (DRD) (ES)). A hearing on these motions
      was
      held on May 30, 2007. The Company intends to vigorously defend this lawsuit
      and
      pursue its counterclaims.




21




The
      Company entered into a licensing agreement with developer Paddock Laboratories,
      Inc. (“Paddock”) to market testosterone 1% gel, a generic version of Unimed
      Pharmaceuticals, Inc.’s (“Unimed”) product Androgel®. Pursuant to this
      agreement, the Company is responsible for management of any litigation and
      payment of all legal fees associated with this product. The product, if
      successfully brought to market, would be manufactured by Paddock and marketed
      by
      the Company. Paddock has filed an ANDA (that is pending with the FDA) for the
      testosterone 1% gel product. As a result of the filing of the ANDA, Unimed
      and
      Laboratories Besins Iscovesco (“Besins”), co-assignees of the patent-in-suit,
      filed a lawsuit against Paddock in the United States District Court for the
      Northern District of Georgia, alleging patent infringement on August 22, 2003.
      The Company has an economic interest in the outcome of this litigation by virtue
      of its licensing agreement with Paddock. Unimed and Besins sought an injunction
      to prevent Paddock from manufacturing the generic product. On November 18,
      2003,
      Paddock answered the complaint and filed a counterclaim, seeking a declaration
      that the patent-in-suit is invalid and/or not infringed by Paddock’s product. On
      September 13, 2006, the Company acquired from Paddock all rights to the ANDA
      for
      testosterone 1% gel, a generic version of Unimed’s product Androgel® for $6
      million. The lawsuit was resolved by settlement. The settlement and license
      agreement terminates all on-going litigation. The
      settlement and license agreement also permits the Company to launch the generic
      version of the product no earlier than August 31, 2015 and no later than
      February 28, 2016, assuring the Company’s ability to market a generic version of
      Androgel® well before the expiration of the patents at issue. On
      March
      7, 2007, the Company was issued a Civil Investigative Demand seeking information
      and documents in connection with the court-approved settlement in 2006 of the
      patent infringement case, Unimed v. Paddock, in the U.S. District Court for
      Northern District of Georgia. The Bureau of Competition for the Federal Trade
      Commission (“FTC”) is investigating whether the settlement of the litigation
      constituted unfair methods of competition in a potential violation of Section
      5
      of the FTC Act. The Company believes it has complied with all applicable laws
      in
      connection with the court-approved settlement and it intends to co-operate
      with
      the FTC in this matter.




On
      October 4, 2006, Novartis Corporation, Novartis Pharmaceuticals Corporation,
      and
      Novartis International AG (collectively “Novartis”) filed a lawsuit against the
      Company in the United States District Court for the District of New Jersey.
      Novartis alleged that the Company and Kali infringed U.S. Patent No. 6,162,802
      (the “’802 patent”) by submitting a Paragraph IV certification to the FDA for
      approval of amlodipine and benazepril hydrochloride combination capsules. The
      Company and its subsidiaries denied Novartis’ allegation, asserting that the
’802 patent is not infringed and is invalid. The parties are currently engaged
      in discovery regarding the claims with expert discovery due to the Court by
      June
      13, 2008. The Company intends to defend vigorously this action and pursue its
      counterclaims against Novartis.





On
      December 19, 2006, Reliant Pharmaceuticals, Inc. (“Reliant”) filed a lawsuit
      against the Company in the United States District Court for the District of
      Delaware (Reliant Pharmaceuticals, Inc. v. Par Pharmaceutical Inc., (Civil
      Action Nos. 06-CV-774-JJF)). Reliant alleged, in its Complaint, that the Company
      infringed U.S. Patent No. 5,681,588 (the “’588 patent”) by submitting a
      Paragraph IV certification to the FDA for approval to market generic 325 mg
      Propafenone HCl SR capsules. On January 26, 2007, Reliant amended its complaint
      to add the additional allegation that the Company infringed the ‘588 patent by
      submitting a Paragraph IV certification to the FDA for approval to market
      generic 225 mg and 425 mg—in addition to the 325 mg—Propafenone HCl SR capsules.
      The Company has answered and counterclaimed denying Reliant’s infringement
      allegations, and asserting that the ’588 patent is invalid and unenforceable. A
      scheduling order has been entered under which a claim construction hearing
      was
      held on April 2, 2008 and under which all fact and expert discovery will be
      completed by May 30, 2008. The parties have begun discovery and Reliant has
      filed a motion to disqualify the Company’s counsel, a motion that was denied in
      September 2007 with ongoing written discovery on the issue. The Company intends
      to vigorously defend this lawsuit and pursue its counterclaims.




On
      May 9,
      2007, Purdue Pharma Products L.P. (“Purdue”), Napp Pharmaceutical Group Ltd.
      (“Napp”), Biovail Laboratories International SRL (“Biovail”), and Ortho-McNeil,
      Inc. (“Ortho-McNeil”) filed a lawsuit against the Company in the United States
      District Court for the District of Delaware. The complaint alleges infringement
      of U.S. Patent No. 6,254,887 (the “’887 patent”) because the Company submitted a
      Paragraph IV certification to the FDA for approval of 200mg extended release
      tablets containing tramadol hydrochloride. On May 30, 2007, the Company filed
      its answer and counterclaim to the complaint seeking a declaration of
      noninfringement and invalidity of the '887 patent. A subsequent complaint was
      served on July 2, 2007 in the same District Court. The new complaint alleges
      that the Company's 100mg and 200mg extended release tablets containing tramadol
      hydrochloride infringe the ‘887 patent. The Company filed its answer and
      counterclaim on July 23, 2007 and will assert all available defenses in addition
      to seeking a declaration of noninfringement and invalidity of the '887 patent.
      On October 24, 2007, plaintiffs filed an amended complaint in the Delaware
      District Court in view of the Company's amendment of its ANDA to include the
      300
      mg strength of extended release tramadol. A scheduling order has been entered
      in
      the case requiring that fact discovery be completed by May 15, 2008; expert
      discovery completed by August 15, 2008; a Markman hearing be held July 2008;
      and
      a trial date set for November 10, 2008. The
      Company intends to defend this action vigorously and pursue its counterclaims
      against Purdue, Napp, Biovail and Ortho-McNeil.




On
      July
      6, 2007, Sanofi-Aventis and Debiopharm, S.A. filed a lawsuit against the Company
      and its development partner, MN Pharmaceuticals ("MN"), in the United States
      District Court for the District of New Jersey. The complaint alleges
      infringement of U.S. Patent Nos. 5,338,874 and 5,716,988 because the Company
      and
      MN submitted a Paragraph IV certification to the FDA for approval of 50 mg/10
      ml, 100 mg/20 ml, and 200 mg/40 ml oxaliplatin by injection. The
      Company and MN filed their answer and counterclaims on October 10, 2007. On
      January 14, 2008, following MN's amendment of its ANDA to include oxaliplatin
      injectable 5 mg/ml, 40 ml vial, Sanofi-Aventis filed a complaint asserting
      infringement of the '874 and the '998 patents. The Company and MN filed their
      answer and counterclaim on February 20, 2008. The Company and MN intend to
      defend these actions vigorously and pursue their counterclaims against Sanofi
      and Debiopharm.




22




On
      September 21, 2007, Sanofi-Aventis and Sanofi-Aventis U.S., LLC
      (“Sanofi-Aventis”) filed a lawsuit against the Company and its development
      partner, Actavis South Atlantic LLC ("Actavis"), in the United States District
      Court for the District of Delaware. The complaint alleges infringement of U.S.
      Patent Nos. 4,661,491 and 6,149,940 because the Company and Actavis submitted
      a
      Paragraph IV certification to the FDA for approval of 10 mg alfuzosin
      hydrochloride extended release tablets. The Company filed its answer and
      counterclaims on October 24, 2007. The Company filed its amended answer and
      counterclaims on November 19, 2007. On April 3, 2008, the Judge in Delaware
      ordered all actions in the case stayed pending the plaintiff’s motion for
      transfer and consolidation under the rules governing multi-district litigation.
      The Company intends to defend this action vigorously and pursue its
      counterclaims against Sanofi-Aventis.





On
      October 1, 2007, Elan Corporation, PLC (“Elan”) filed a lawsuit against the
      Company and its development partner, IntelliPharmaCeutics Corp., and
      IntelliPharmaCeutics Ltd. ("IPC") in the United States District Court for the
      District of Delaware. On October 5, 2007, Celgene Corporation (“Celgene”) and
      Novartis filed a lawsuit against IPC in the United States District Court for
      the
      District of New Jersey. The complaint in the Delaware case alleged infringement
      of U.S. Patent Nos. 6,228,398 and 6,730,325 because the Company submitted a
      Paragraph IV certification to the FDA for approval of 5, 10, 15, and 20 mg
      dexmethylphenidate hydrochloride extended release capsules. Elan filed an
      amended Complaint on October 15, 2007. The original complaint in the New Jersey
      case alleged infringement of U.S. Patent Nos. 6,228,398; 6,730,325; 5,908,850;
      6,355,656; 6,528,530; 5,837,284; and 6,635,284 because the Company and IPC
      submitted a Paragraph IV certification to the FDA for approval of 5, 10, 15,
      and
      20 mg dexmethylphenidate extended release capsules. The Company and IPC filed
      their answer and counterclaims in the Delaware case on November 19, 2007.
      Celgene and Novartis filed an amended complaint on October 15, 2007 and the
      Company and IPC filed their answer and counterclaims in the New Jersey case
      on
      November 20, 2007. The Company and IPC filed an amended answer in Delaware
      December 12, 2007, and Elan filed their answer and motion to consolidate the
      cases on January 2, 2008. On February 20, 2008, the judge in the Delaware
      litigation consolidated all 4 related cases pending in Delaware and entered
      a
      scheduling order providing for April 15, 2009 as the deadline for all discovery
      and August 17, 2009 as the date for a bench trial. A Rule 16 conference was
      held
      for the New Jersey litigation on March 4, 2008 setting a deadline of December
      12, 2008 for all discovery. The Company intends to defend these actions
      vigorously and pursue its counterclaims against Elan, Celgene and
      Novartis.





On
      September 13, 2007, Santarus, Inc. (“Santarus”), and
      The
      Curators of the University of Missouri (“Missouri”) filed a lawsuit against the
      Company in the United States District Court for the District of Delaware. The
      complaint alleges infringement of U.S. Patent Nos. 6,699,885; 6,489,346; and
      6,645,988 because the Company submitted a Paragraph IV certification to the
      FDA
      for approval of 20 mg and 40 mg omeprazole/sodium bicarbonate capsules. The
      Company filed its answer and counterclaims on October 17, 2007.
      A
      scheduling conference was held February 11, 2008, setting September 8, 2008
      as
      the date for the claim construction hearing and July 13, 2009 as the first
      day
      of the bench trial. On March 4, 2008, the cases pertaining to the Company’s
      ANDAs for omeprazole capsules and omeprazole oral suspension (see below) were
      consolidated for all purposes. The
      Company intends to defend this action vigorously and pursue its counterclaims
      against Santarus and Missouri.





On
      December 11, 2007, AstraZeneca Pharmaceuticals, LP, AstraZeneca UK Ltd., IPR
      Pharmaceuticals, Inc. and Shionogi Seiyaku Kabushiki Kaisha filed a lawsuit
      against the Company in the United States District Court for the District of
      Delaware. The complaint alleges patent infringement because the Company
      submitted a Paragraph IV certification to the FDA for approval of 5 mg, 10
      mg,
      20 mg and 40 mg rosuvastatin calcium tablets. The
      Company filed its answer and counterclaims on January 31, 2008. The Company
      intends to defend these actions vigorously and pursue its counterclaims against
      AstraZeneca Pharmaceuticals, LP, AstraZeneca UK Ltd., IPR Pharmaceuticals,
      Inc.
      and Shionogi Seiyaku Kabushiki Kaisha.




On
      December 20, 2007, Santarus, Inc. (“Santarus”), and The Curators of the
      University of Missouri (“Missouri”) filed a lawsuit against the Company in the
      United States District Court for the District of Delaware. The complaint alleges
      infringement of U.S. Patent Nos. 6,699,885; 6,489,346; 6,780,882; and 6,645,988
      because the Company submitted a Paragraph IV certification to the FDA for
      approval of 20 mg and 40 mg omeprazole/sodium bicarbonate powders for oral
      suspension. The Company filed its answer on January 10, 2008 and filed its
      amended answer and counterclaims on January 30, 2008. On March 4, 2008, the
      cases pertaining to the Company’s ANDAs for omeprazole capsules (see above) and
      omeprazole oral suspension were consolidated for all purposes. The Company
      intends to defend this action vigorously against Santarus and
      Missouri.




23




**Industry
      Related Matters**





On
      September 10, 2003, the Company and a number of other generic and brand
      pharmaceutical companies were sued by Rockland County in New York State (the
      suit has since been joined by additional New York counties) that 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. On August 4, 2004, the
      Company 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. On June 15, 2005, a consolidated
      complaint was filed on behalf of a number of the New York counties and the
      City
      of New York. This case was transferred to the United States District Court
      for
      the District of Massachusetts for coordinated and consolidated pre-trial
      proceedings. The complaint filed by Erie County in New York was not included
      in
      the consolidated complaint and has been removed to federal district court.
      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 the Company and 12 other leading generic pharmaceutical companies,
      alleging principally that the Company 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. 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, the Company 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 was denied on August 15, 2005.
      The Commonwealth of Massachusetts subsequently filed an amended complaint,
      and
      the defendants, including the Company, have filed a motion to dismiss the
      amended complaint. 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, all of which have been removed to federal district court. The
      lawsuit brought by the State of Alabama was remanded to the Alabama state court
      on August 11, 2005. Following the remand, on October 13, 2005, the Court denied
      the defendants’ motion to dismiss, but granted in part the defendants’ motion
      for a more definite statement, and further ruled that the State may amend its
      complaint within 90 days. On October 20, 2005, the State of Mississippi filed
      in
      the Chancery Court for Hinds County, Mississippi a complaint naming the Company
      (among other companies) as a defendant. The Company intends to defend vigorously
      these actions.





On
      April
      27, 2006, the State of Hawaii filed a complaint naming the Company as a
      defendant that has alleged violations of laws related to participation in the
      Medicaid program. The Hawaii complaint pleads causes of action for (i) false
      claims; (ii) unfair or deceptive acts or practices; (iii) unfair competition;
      (iv) violation of the Deceptive Trade Practices Act; (v) non-disclosure; and
      (vi) unjust enrichment. The complaint seeks general and special damages; treble
      damages, or in the alternative, punitive damages; costs, pre-judgment and
      post-judgment interest, and attorneys’ fees; injunctive relief; and such other
      and further relief or equitable relief as the Court deems just and proper.
      The
      Company intends to defend this action vigorously.




On
      May 8,
      2006, the County of Oswego filed a complaint against the Company and certain
      other pharmaceutical companies. This complaint pleads causes of action for
      (i)
      fraud; (ii) violation of New York Social Services Law § 366-b; (iii) violation
      of New York Social Services Law § 145-b; (iv) violation of New York General
      Business Law § 349; (v) unjust enrichment; and (vi) fraudulent concealment. The
      County of Schenectady filed a similar complaint on May 9, 2006. The Company
      intends to defend these actions vigorously.




With
      respect to the Erie action, on September 7, 2006, the New York Supreme Court
      for
      the County of Erie granted the defendants' joint motion to dismiss in part
      and
      denied it in part. The defendants then removed the Erie action for a second
      time
      to the United States District Court for the Western District of New York on
      October 11, 2006, and the case was subsequently transferred to the United States
      District Court for the District of Massachusetts for coordinated and
      consolidated pre-trial proceedings. A motion to remand to State Court is
      currently pending.




The
      County of Nassau, New York filed a Second Amended Complaint in its action
      against a number of other generic and brand pharmaceutical companies, naming
      the
      Company as a defendant on January 30, 2006. The case has been consolidated,
      for
      purposes of discovery and briefing, with the action filed by a number of other
      New York counties and the City of New York. The matters are presently in the
      United States District Court for the District of Massachusetts for coordinated
      and consolidated pre-trial proceedings. On March 3, 2006, the Company and the
      other defendants filed motions to dismiss the Second Amended Complaint filed
      by
      Nassau County and the consolidated complaint brought by the other counties
      and
      the City of New York. These motions were granted in part and denied in part
      on
      April 2, 2007. On June 8, 2007, the City of New York and various other New
      York
      counties, this time including Nassau County, filed a First Amended Consolidated
      Complaint. On June 22, 2007, the defendants filed a joint motion to dismiss
      the
      First Amended Consolidated Complaint. The Court granted the defendants' motion
      in part and denied it in part on July 30, 2007. On October 5, 2007, the City
      of
      New York and various other New York counties filed a Revised First Amended
      Consolidated Complaint, which the Company answered on October 26,
      2007.




With
      respect to the Oswego and Schenectady matters, the cases have been transferred
      to the United States District Court for the District of Massachusetts for
      coordinated and consolidated pre-trial proceedings. On September 17, 2007,
      the
      United States District Court for the District of Massachusetts granted the
      motions filed by Erie, Oswego, and Schenectady Counties to remand their
      respective cases to New York state court. Each of these three matters was
      subsequently remanded to the New York Supreme Courts for the Counties of Erie,
      Oswego, and Schenectady, respectively. On November 28, 2007, the defendants
      filed a joint motion, with the State of New York Litigation Coordinating Panel,
      to coordinate the three actions. This motion is currently pending.




The
      Company's motion to dismiss the Commonwealth of Massachusetts' First Amended
      Complaint was denied on August 15, 2005. The Company answered the Commonwealth's
      First Amended Complaint on November 14, 2005.




24




With
      respect to the Alabama action, the Company filed an answer to the Second Amended
      Complaint on January 30, 2006. On October 11, 2006, the defendants for the
      second time removed the case to the United States District Court for the Middle
      District of Alabama. On November 2, 2006, the matter was again remanded to
      State
      court. Certain defendants, including the Company, filed motions in September
      2006 to sever or for separate trials. The trial court denied these motions.
      On
      June 1, 2007, upon the petitions of certain defendants, including the Company,
      the Supreme Court of Alabama granted a writ of mandamus and ordered the trial
      court to sever the claims against all defendants.




With
      respect to the Illinois action, the United States District Court for the
      District of Massachusetts granted the State of Illinois' motion to remand on
      September 17, 2007. The case was remanded to the Circuit Court of Cook County,
      Illinois. On November 19, 2007, certain defendants, including the Company,
      filed
      a new joint motion to dismiss the First Amended Complaint. This motion is
      currently pending.




The
      court
      denied the defendants’ motions to dismiss in the action brought by the
      Commonwealth of Kentucky on June 23, 2006. The Company answered the First
      Amended Complaint on July 19, 2006. The Commonwealth of Kentucky filed a Second
      Amended Complaint on September 28, 2007. The Company answered the Second Amended
      Complaint on October 15, 2007.




With
      respect to the Mississippi action, the Special Masters assigned to the case
      recommended the denial of the defendants' motion to dismiss on September 22,
      2006. On October 2, 2006, the defendants objected to the Special Masters'
      recommendation. The Court had not ruled on this objection at the time the case
      was removed to federal district court. Also, after removal, the matter was
      transferred to the United States District Court for the District of
      Massachusetts for coordinated and consolidated pre-trial proceedings, where
      the
      State's motion to remand is pending. The case was remanded to the Chancery
      Court
      of Hinds County, Mississippi. On December 13, 2007, the Court denied the
      defendants’ pending motion to dismiss. The defendants appealed the trial court's
      decision to the Supreme Court of Mississippi on January 3, 2008. This appeal
      is
      currently pending.




With
      respect to the Hawaii matter, the State's motion to remand the action was
      granted on November 30, 2006. On January 12, 2007, the defendants filed a joint
      motion to dismiss the State's First Amended Complaint. This motion was denied
      on
      April 11, 2007, and the Company answered the First Amended Complaint on April
      23, 2007.




The
      State
      of Alaska filed an Amended Complaint on October 17, 2006, naming the Company
      and
      other pharmaceutical companies as defendants. The Alaska complaint pleads causes
      of action for (i) violation of the Alaska Unfair Trade Practices and Consumer
      Protection Act and (ii) unjust enrichment. The complaint seeks monetary damages;
      declarative relief; injunctive relief; compensatory, restitution, and/or
      disgorgement damages; civil penalties; punitive damages; costs, attorneys'
      fees,
      and prejudgment interest; and other relief deemed just and equitable by the
      Court. The defendants filed a joint motion to dismiss the State's Amended
      Complaint on January 5, 2007. This motion was denied on May 7, 2007. The Company
      intends to defend this action vigorously.




The
      State
      of South Carolina filed two related actions against the Company and other
      pharmaceutical companies on December 1, 2006. One of these Complaints seeks
      relief on behalf of the South Carolina Medicaid Agency and the other seeks
      relief on behalf of the South Carolina State Health Plan. Both South Carolina
      Complaints plead causes of action for (i) violation of the South Carolina Unfair
      Trade Practices Act; (ii) unjust enrichment; and (iii) injunctive relief. Both
      Complaints seek monetary damages and prejudgment interest; treble damages,
      attorneys' fees, and costs; civil penalties; disgorgement; injunctive relief;
      and other relief deemed just and equitable by the Court. On January 26, 2007,
      the Company moved to dismiss each Complaint or, in the alternative, for a more
      definite statement with respect to each Complaint. These motions are currently
      pending.




The
      State
      of Idaho filed a Complaint against the Company and various other pharmaceutical
      companies on January 26, 2007. The Idaho Complaint pleads causes of action
      for
      (i) violation of the Idaho Consumer Protection Act; and (ii) unjust enrichment.
      The State seeks declaratory and injunctive relief; monetary damages; civil
      penalties; disgorgement; attorneys' fees and costs; and other relief deemed
      just
      and equitable by the Court. On March 30, 2007, the defendants filed a joint
      motion to dismiss the State's Complaint. On August 31, 2007, the Court granted
      in part the defendants' joint motion to dismiss and denied it in part. On
      October 1, 2007, the Company answered the State's Complaint.




On
      April
      5, 2007, the County of Orange, New York, filed a Complaint against the Company
      and various other pharmaceutical companies. The Orange County Complaint pleads
      causes of action for (i) violations of the Racketeer Influenced and Corrupt
      Practices Act; (ii) violation of various federal and state Medicaid laws; (iii)
      unfair trade practices; and (iv) common law claims for breach of contract,
      unjust enrichment, fraud, and fraudulent concealment. The County seeks actual,
      statutory, and treble damages, including interest; declaratory relief;
      disgorgement; restitution; attorneys' fees, experts' fees, and costs; and other
      relief deemed just and equitable by the Court. The Orange County action was
      transferred to the United States District Court for the District of
      Massachusetts for coordinated and consolidated pretrial proceedings. On
      September 6, 2007, that Court entered an order adding Orange County to the
      First
      Amended Consolidated Complaint filed by the City of New York and various other
      New York counties.




On
      September 21, 2007, the State of Utah filed a Complaint against the Company
      and
      various other pharmaceutical companies. The Utah Complaint pleads causes of
      action for (i) violations of the Utah False Claims Act and (ii) common law
      fraudulent misrepresentation. The State seeks actual, statutory, and treble
      damages, including prejudgment interest; restitution; attorneys' fees, experts'
      fees, and costs; and other relief deemed just and equitable by the Court. On
      November 20, 2007, the Judicial Panel on Multidistrict Litigation issued an
      order conditionally transferring the case to the United States District Court
      for the District of Massachusetts for coordinated and consolidated pretrial
      proceedings. The State then filed a motion to remand the case to state court,
      on
      December 7, 2007, and a motion to vacate the conditional transfer order, on
      December 12, 2007. These motions are currently pending.




25




On
      October 9, 2007, the State of Iowa filed a Complaint against the Company and
      various other pharmaceutical companies. The Iowa Complaint pleads causes of
      action for (i) violations of the Iowa Consumer Fraud Act, (ii) common law
      fraudulent misrepresentation, (iii) common law unjust enrichment and (iv)
      reporting of false best price information in violation of 42 USC Sec 1396R-8.
      The State seeks (i) a declaration that the Company committed the alleged
      violations, (ii) injunctive relief against the continuation of the alleged
      violations, (iii) actual, statutory damages, including prejudgment interest
      for
      the claim of unjust enrichment, (iv) actual, statutory damages, including
      prejudgment interest for the claim of fraudulent misrepresentation, (v) actual
      and punitive damages for alleged fraud, and (vi) an accounting of alleged
      illegal profits and a disgorgement of same, restitution, attorneys' fees,
      experts' fees, and costs and other relief deemed just and equitable by the
      Court. The Iowa action has been transferred to the United States District Court
      for the District of Massachusetts for coordinated and consolidated pretrial
      proceedings.







In
        March
        2008, the Company received a letter request from the Attorney General of
        the
        State of Michigan. The request seeks documents and information relating to
        nominal price transactions. The Company is responding to the request and
        will
        cooperate with the inquiry.




****


**Other**





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




**Note
      15 – Investment in Joint Venture:**




On
      April
      15, 2002, Rhodes Technology (“Rhodes”) and the Company created a joint venture,
      SVC Pharma (“SVC”), to research, develop, commercialize and market
      pharmaceutical preparations for human therapy. The parties agreed to capitalize
      the joint venture with equal contributions and all profits or losses are to
      be
      shared equally between Rhodes and the Company. The Company accounts for this
      investment under the equity method of accounting in accordance with APB No.
      18, *the
      Equity Method of Accounting for Investments in Common Stock* .
      As of
      March 29, 2008, the Company’s net investment in SVC totaled approximately
      $6,433. The investment in SVC is reviewed for impairment each reporting period.
      Any impairment deemed to be “other-than temporary” will be recognized in the
      appropriate period and the basis will be adjusted. As of March 29, 2008, the
      Company believes its investment in SVC was not impaired. Should the anticipated
      launch of the product being developed by SVC be affected due
      to a
      denial or delay of approval by regulatory bodies, a delay in commercialization,
      or other potential risk factors, investment impairment charges may
      occur
      to the extent the Company is unable to recover the full value of its investment.





**Note
      16 – Discontinued Operations - Related Party Transaction:**




In
      January 2006, the Company announced the divestiture of FineTech, effective
      December 31, 2005. The Company transferred the business for no proceeds to
      Dr.
      Arie Gutman, president and chief executive officer of FineTech. Dr. Gutman
      also
      resigned from the Company’s Board of Directors. The results of FineTech
      operations have been classified as discontinued for all periods presented
      because the Company had no continuing involvement in FineTech. In January 2008,
      Dr. Gutman sold FineTech to a third party. Under the terms of the divestiture,
      the Company recorded a receivable of $505 on the condensed consolidated balance
      sheet as of March 29, 2008 to reflect the Company’s share of the net proceeds of
      the sale transaction. The $505 has been classified as discontinued operations
      on
      the condensed consolidated statement of operations for the three months ended
      March 29, 2008.





**Note
      17** **-** **Segment Information:**




Starting
      in the third quarter of 2005, the Company operates in two reportable business
      segments: generic pharmaceuticals and branded pharmaceuticals. In 2007, the
      Company began operating the brand pharmaceutical segment under the name Strativa
      Pharmaceuticals. Strativa products are marketed under brand names through
      marketing programs that are designed to generate physician and consumer loyalty.
      These branded products generally are patent protected, which provides a period
      of market exclusivity during which they are sold with little or no competition.
      Generic pharmaceutical products are the chemical and therapeutic equivalents
      of
      reference brand drugs. The Drug Price Competition and Patent Term Restoration
      Act of 1984 provides that generic drugs may enter the market upon the approval
      of an ANDA and the expiration, invalidation or circumvention of any patents
      on
      corresponding brand drugs, or the expiration of any other market exclusivity
      periods related to the brand drugs.




The
      business segments of the Company were determined based on management’s reporting
      and decision-making requirements in accordance with SFAS No. 131, “Disclosures
      about Segments of an Enterprise and Related Information.” The Company believes
      that its generic products represent a single operating segment because the
      demand for these products is mainly driven by consumers seeking a lower cost
      alternative to brand name drugs. The Company’s generic drugs are developed using
      similar methodologies, for the same purpose (e.g., seeking bioequivalence with
      a
      brand name drug nearing the end of its market exclusivity period for any reason
      discussed above). The Company’s generic products are produced using similar
      processes and standards mandated by the FDA, and the Company’s generic products
      are sold to similar customers. Based on the economic characteristics, production
      processes and customers of the Company’s generic products, the Company has
      determined that its generic pharmaceuticals are a single reportable business
      segment. The Company’s chief operating decision maker does not review the
      generic segment in any more granularity, such as at the therapeutic or other
      classes or categories. Certain of the Company’s expenses, such as the direct
      sales force and other sales and marketing expenses and specific research and
      development expenses, are charged directly to either of the two segments. Other
      expenses, such as general and administrative expenses and non-specific research
      and development expenses are allocated between the two segments based on
      assumptions determined by the Company’s management.




26




The
      financial data for the two business segments are as follows:


**Three
                months ended****March
                29,**
            
            **March
                31,****2008**
            
            **2007**Revenues:Generic
            
            $
            129,884
            
            $
            214,736Strativa
            
            
            25,044
            
            
            19,474Total
                revenues
            
            $
            154,928
            
            $
            234,210Gross
                margin:Generic
            
            $
            30,132
            
            $
            73,483Strativa
            
            
            19,389
            
            
            14,206Total
                gross margin
            
            $
            49,521
            
            $
            87,689Operating
                income:Generic
            
            $
            1,679
            
            $
            43,850Strativa
            
            
            963
            
            
            17,821Total
                operating income
            
            $
            2,642
            
            $
            61,671Other
                expense, net
            
            
            -
            
            
            (19
            )Equity
                in loss of joint venture
            
            
            (20
            )
            
            (148
            )Realized
                gain on sale of marketable securities
            
            
            -
            
            
            1,397Interest
                income
            
            
            3,014
            
            
            2,684Interest
                expense
            
            
            (1,667
            )
            
            (1,718
            )Provision
                for income taxes
            
            
            1,443
            
            
            22,353Income
                from continuing operations
            
            $
            2,526
            
            $
            41,514





The
      Company’s chief operating decision maker does not review the Company’s assets,
      depreciation or amortization by business segment at this time as they are not
      material to its branded operations. Therefore, such allocations by segment
      are
      not provided.




Total
      revenues of the Company’s top selling products were as follows:


**Product**
            
            **For the three months ended**
              **March 29, 2008**
            
            **For the three months**
              **ended March 31, 2007***Generic*Metoprolol
                succinate ER (Toprol-XL®)
            
            $
            43,298
            
            $
            12,342Fluticasone
                (Flonase®)
            
            
            17,762
            
            
            49,930Cabergoline
                (Dostinex®)
            
            
            7,982
            
            
            11,395Meclizine
                Hydrochloride (Anitvert®)
            
            
            6,513
            
            
            1,855Various
                amoxicillin products (Amoxil®)
            
            
            5,588
            
            
            19,711Propranolol
                HCl ER (Inderal LA®)
            
            
            5,455
            
            
            31,252Ibuprofen
                Rx (Advil®, Nuprin®, Motrin®)
            
            
            3,279
            
            
            4,288Methimazole
                (Tapazole®)
            
            
            3,019
            
            
            2,810Hydralazine
                Hydrochloride (Apresoline®)
            
            
            2,586
            
            
            2,646Megestrol
                oral suspension (Megace®)
            
            
            2,065
            
            
            806Ranitidine
                HCl Syrup (Zantac®)
            
            
            1,863
            
            
            4,151Lovastatin
                (Mevacor®)
            
            
            1,340
            
            
            3,774Glyburide
                & Metformin HCl (Glucovance®)
            
            
            (31
            )
            
            4,449Tramadol
                HCl and acetaminophen tablets (Ultracet®)
            
            
            (92
            )
            
            5,687Polyethylene
                glycol (Miralax®)
            
            
            (189
            )
            
            4,293Other
                product related revenues (2)
            
            
            1,048
            
            
            9,121Other
                (1)
            
            
            28,398
            
            
            46,226Total
                Generic Revenues
            
            $
            129,884
            
            $
            214,736*Strativa*Megace®
                ES
            
            $
            22,401
            
            $
            16,974Other
                product related revenues (2)
            
            
            2,643
            
            
            2,500Total
                Strativa Revenues
            
            $
            25,044
            
            $
            19,474




27




(1)
            The
                further detailing of revenues of the Company’s other approximately 60
                generic products is impracticable due to the low volume of revenues
                associated with each of these generic products. No single product
                in the
                other category is in excess of 3% of total generic revenues for three
                month periods ended March 29, 2008 or March 31,
                2007.





(2)
            Other
                product related revenues represents licensing and royalty related
                revenues
                from profit sharing agreements related to products such as ondansetron
                ODT, the generic version of Zofran ODT®, nifedipine ER, the generic
                version of Procardia®, doxycycline monohydrate, the generic version of
                Adoxa®, and quinapril, the generic version of Accupril®. Other product
                related revenues included in the Strativa business relate to a
                co-promotion arrangement with
                Solvay.





During
      the first quarter of 2008, the Company recognized a gain on the sale of product
      rights of $1,000 related to the sale of two ANDAs related to two generic
      products. In November 2007, the Company entered into an agreement to provide
      certain information and other deliverables related to Megace ® ES  to
      enable
      the formal technology transfer to a third party that is seeking to commercialize
      Megace ® ES  outside
      of the U.S. The Company recorded $625 in the quarter ended March 29, 2008 in
      Strativa’s operating results when the Company’s obligations were fulfilled
      related to this agreement.





**Note
      18** **-** **Research and Development Agreements:**





In
      January 2008, the Company entered into an exclusive license agreement with
      Alfacell Corporation (“Alfacell”).  Under the agreement, the Company
      received the exclusive U.S. commercialization rights to Alfacell’s
      ONCONASE ® (ranpirnase).  In exchange for the U.S. commercialization rights, the
      Company made an initial payment to Alfacell of $5 million and will make a
      subsequent payment of up to $30 million upon (and subject to) Alfacell’s receipt
      of FDA approval for the product.  If ONCONASE ® receives
      FDA approval, the Company will commercialize the product in the United States
      and pay Alfacell royalties on net sales of the product, and Alfacell will be
      eligible to receive additional milestone payments if net sales reach certain
      threshold amounts in any given calendar year.  In addition, Alfacell may be
      eligible to receive milestone payments upon the achievement of certain
      development and regulatory milestones with respect to future indications for
      ONCONASE ® .
       Under a separate supply agreement between Alfacell and the Company,
      Alfacell will supply commercial quantities of ONCONASE ® to the
      Company.





**Note
      19** **-** **Subsequent Events:**





On
      April
      21, 2008, Strativa announced that its development partner, BioAlliance, reported
      preliminary, top-line results for a Phase III study of Loramyc®  (miconazole
      Lauriad®) mucoadhesive buccal tablets, in the treatment of oropharyngeal
      candidiasis (OPC). Top line data show that Loramyc®  achieved
      its primary endpoint of noninferiority to Mycelex®  Troche
      (clotrimazole) in the complete resolution of signs and symptoms of OPC (complete
      clinical cure). The randomized, double-blind, double-dummy study was conducted
      in 577 HIV-positive patients in 40 sites in the United States, Canada, and
      South
      Africa. All secondary endpoints were also met. Loramyc®, which is approved in
      Europe and currently being marketed in France, is an antifungal delivered in
      a
      mucoadhesive buccal tablet designed to enable local once-daily dosing of the
      active ingredient at the site of infection.


On
        May 7,
        2008 the Company announced an amendment to its agreement with Spectrum
        Pharmaceuticals and paid $20 million pursuant to which the Company
        will increase its share of the profits from 38% to 95% for the commercialization
        of the authorized generic versions of GlaxoSmithKline's (“GSK”)
        Imitrex ® Injection.  Based
        on
        a settlement agreement between  Spectrum
        Pharmaceuticals and GSK,
        the
        Company will be permitted to sell generic versions of certain sumatriptan
        injection products with an expected launch date no later than November
        2008.


****
 **Note
          20 - Fair Value Measurements**
  As
          described in Note
          2
“Recent Accounting Pronouncements,” t he
          Company adopted SFAS 157 with respect to financial assets and liabilities
          as of
          January 1, 2008. SFAS 157 defines fair value as the price that would be
          received
          for an asset or paid to transfer a liability (an exit price) in the principal
          or
          most advantageous market for the asset or liability in an orderly transaction
          between market participants on the measurement date. SFAS 157 requires
          that
          assets and liabilities carried at fair value be classified and disclosed
          in one
          of the following three categories:
  Level
                  1:
                quoted
                    market prices in active markets for identical assets and liabilities.
                    Active market means a market in which transactions for assets
                    or
                    liabilities occur with “sufficient frequency” and volume to provide
                    pricing information on an ongoing unadjusted basis. The Company’s Level 1
                    assets include a short-term investment in a time deposit and
                    the Company’s
                    investment inHana
                    Biosciences, Incthat is traded in an active exchange market.
 Level
                  2:
                observable
                    inputs other than Level 1 prices, such as quoted prices for similar
                    assets
                    or liabilities; or other inputs that are observable or can be
                    corroborated
                    by observable market data for substantially the full term of
                    the assets or
                    liabilities. The Company’s Level 2 assets primarily includedebt
                    securities including governmental agency and municipal securities,
                    and
                    corporate bondswith quoted prices that are traded less frequently than exchange-traded
                    instruments, whose value is determined using a pricing model
                    with inputs
                    that are observable in the market or can be derived principally
                    from or
                    corroborated by observable market
                    data.
 Level
                  3:
                unobservable
                    inputs that are not corroborated by market
                    data.
 
 The
          fair
          value of the Company’s financial assets and liabilities measured at fair value
          on a recurring basis were as follows:
  **Estimated
                    Fair Value at March 29, 2008**
                
                **Level
                    1**
                
                **Level
                    2**
                
                **Level
                    3**Securities
                    issued by government agencies (Note 4)
                
                $
                26,262
                
                $
                -
                
                $
                26,262
                
                $
                -Debt
                    securities issued by various state and local municipalities and
                    agencies
                    (Note 4)
                
                
                36,611
                
                
                -
                
                
                36,611
                
                
                -Other
                    debt securities (Note 4)
                
                
                8,429
                
                
                5,020
                
                
                3,409
                
                
                -Marketable
                    equity securities available for saleHana
                    Biosciences, Inc. (Note 4)
                
                
                2,550
                
                
                2,550
                
                
                -
                
                
                -Total
                    investments in debt and marketable equity securities
                
                $
                73,852
                
                $
                7,570
                
                $
                66,282
                
                $
                -
 The
          Company’s Level 2 assets are valued at the quoted market price from broker or
          dealer quotations.
  
 28




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





Certain
      statements in this Report constitute “forward-looking statements” within the
      meaning of the Private Securities Litigation Reform Act of 1995, including
      those
      concerning management’s expectations with respect to future financial
      performance, trends and future events, particularly relating to sales of current
      products and the 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 using words such as “estimates,”
“plans,” “projects,” “anticipates,” “continuing,” “ongoing,” “expects,”
“intends,” “believes,” “forecasts” or similar words and phrases. Factors that
      might affect such forward-looking statements set forth in this Report 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 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 periods
      on
      products, and
      future new product launches, and (x)
      general industry and economic conditions. To the extent that any statements
      made
      in this Report contain information that is not historical, such statements
      are
      essentially forward-looking and are subject to certain risks and uncertainties,
      including the risks described above as well as the risks and uncertainties
      discussed from time to time in other of the Company's filings with the SEC,
      including its Annual Reports on Form 10-K and Current Reports on Form 8-K.
      Any
      forward-looking statements included in this Quarterly Report on Form 10-Q are
      made as of the date hereof only, based on information available to the Company
      as of the date hereof, and, subject to any applicable law to the contrary,
      the
      Company assumes no obligation to publicly update any forward-looking statements,
      whether as a result of new information, future events or otherwise.





**The
      financial data contained in this section is in thousands or as otherwise
      noted.**





The
      following discussion should be read in conjunction with the Company’s Condensed
      Consolidated Financial Statements and related Notes to Condensed Consolidated
      Financial Statements contained elsewhere in this Form 10-Q.





**OVERVIEW**




Critical
      to the growth of the Company is its introduction of new manufactured and
      distributed products at selling prices that generate adequate gross margins.
      The
      Company, through its internal generic development program and various strategic
      alliances and relationships, seeks to introduce new products that have less
      competition and to broaden its product list. The Company plans to continue
      to
      invest in its generic internal research and development efforts, brand marketing
      strategy and its strategic alliances and relationships throughout 2008 and
      beyond. Also, the Company will continue seeking additional products for sale
      through new and existing distribution agreements or acquisitions of
      complementary products and businesses, additional first-to-file opportunities
      and unique dosage forms to differentiate its products in the marketplace. The
      Company pays a percentage of the gross profits or sales to its strategic
      partners on sales of products covered by its distribution agreements. Generally,
      products that the Company develops internally, and to which it is not required
      to split any profits with strategic partners, contribute higher gross margins
      than products covered by distribution agreements.





**GENERIC
      BUSINESS**


In
        November 2008, the Company expects to launch authorized generic versions
        of
        Imitrex ® (sumatriptan) injection 4mg and 6mg starter kits and 4mg and 6mg prefilled
        syringe cartridges pursuant to a supply and distribution agreement with
        GlaxoSmithKline plc (“GSK”).  On May 7, 2008 the Company announced an
        amendment to its agreement with Spectrum Pharmaceuticals and
        paid $20 million pursuant to which the Company will increase its share of
        the profits from 38% to 95% for the commercialization of the authorized generic
        versions of GSK's Imitrex ® Injection.  New
        product launches in 2007 included propranolol HCl extended release (“ER”)
        capsules, a product resulting from the Company’s strategic partnership with
        Nortec Development Associates, Inc., ranitidine HCl syrup, pursuant to a
        supply
        and distribution agreement with GSK and the launch of metoprolol succinate
        ER 25
        mg in the fourth quarter of 2006 and additional strengths (50mg, 100mg, and
        200mg) in the third quarter 2007, pursuant to a supply and distribution
        agreement with AstraZeneca (“AZ”).


In
      addition, the Company’s investment in its generic first-to-file development
      strategy is expected to yield approximately eleven new product launches during
      2009 and 2010 based on one or more of the following: expiry of the 30-month
      stay
      period; patent expiry date; expiry of regulatory exclusivity; and date certain
      due to settlement agreement. However, such dates may change due to several
      circumstances, extended litigation, outstanding citizens petitions, other
      regulatory requirements set forth by the FDA, and stays of litigation. These
      launches will be significant mileposts for the Company as many of these products
      are first-to-file opportunities with significant gross margins. In addition,
      the
      Company has a growing pipeline and a strong track record of first-to-file drugs.
      Looking ahead, the Company will strive to average six to ten first-to-file
      applications per year with a goal of more than half of its products coming
      from
      internal development.




29




**STRATIVA**




For
      Strativa, the Company will continue to accelerate its brand growth through
      products primarily focused on supportive care. The Company also intends to
      continue to grow Megace ® ES and
      leverage its existing infrastructure as the Company prepares to expand its
      branded drug portfolio. The Company anticipates the following three potential
      new product filings in 2008 for Strativa, thus contributing to its goal of
      generating annualized brand total revenues in excess of $250 million by the
      end
      of 2010.





In
      July
      2005, the Company received FDA approval for its first New Drug Application
      (“NDA”), filed pursuant to Section 505(b)(2) of the Federal Food, Drug and
      Cosmetic Act, and immediately began marketing megestrol acetate oral suspension
      NanoCrystal ® Dispersion
      (“Megace ® ES”).
      Megace ® ES
      is
      indicated for the treatment of anorexia, cachexia or any unexplained significant
      weight loss in patients with a diagnosis of AIDS and is utilizing the
      Megace ® brand
      name that the Company has licensed from Bristol-Myers Squibb Company (“BMS”).




In
      September 2006, the Company entered into an extended-reach agreement with Solvay
      Pharmaceuticals, Inc. (“Solvay”) that provides for the Company’s branded sales
      force to co-promote Androgel ® ,
      as well
      as future versions of the product or other products that are mutually agreed
      upon, for a period of six years. As compensation for its marketing and sales
      efforts, the Company will receive up to $10 million annually, paid quarterly,
      for the six-year period. The Company has progressed on its business plan during
      2007 by acquiring the rights to additional branded products currently in Phase
      III clinical trials.




In
      July
      2007, the Company also acquired an exclusive licensing agreement under which
      the
      Company will receive commercialization rights in the U.S. to BioAlliance
      Pharma's Loramyc® (miconazole Lauriad®), an antifungal therapy for the treatment
      of oropharyngeal candidiasis, an opportunistic infection commonly found in
      immunocompromised patients, including those with HIV and cancer.




In
      August
      2007, the Company also acquired the North American commercial rights to
      Zensana TM (ondansetron HCl) Oral Spray from Hana Biosciences, Inc. (“Hana”). Ondansetron
      is used to prevent nausea and vomiting after chemotherapy, radiation and
      surgery, and following successful development and approval, Zensana TM could be
      among the first in its class of 5-HT3 antagonist anti-emetic therapies to be
      available in an oral spray form. The Company also announced that it has entered
      into an agreement with NovaDel, to collaborate in the reformulation of
      Zensana TM .
      Following completion of reformulation efforts already under way, the Company
      will reconfirm the product's pharmacokinetic profile and resubmit the NDA to
      the
      FDA.




In
      January 2008, the Company announced that it entered into an exclusive licensing
      agreement with Alfacell Corporation (“Alfacell”) to acquire the
      commercialization rights in the United States and its territories for ONCONASE ® (ranpirnase). ONCONASE ® is in
      Phase III development for the treatment of inoperable malignant mesothelioma,
      a
      rare cancer affecting the lungs usually associated with exposure to asbestos. ONCONASE ® was
      previously granted orphan drug status as well as fast-track development status
      by the FDA for the treatment of malignant mesothelioma.





**OTHER
      CONSIDERATIONS**




In
      addition to the substantial costs of product development, the Company may incur
      significant legal costs in bringing certain products to market. Litigation
      concerning patents and proprietary rights is often protracted and expensive.
      Pharmaceutical companies with patented brand products are increasingly suing
      companies that produce generic forms of their patented brand name products
      for
      alleged patent infringement or other violations of intellectual property rights,
      which could delay or prevent the entry of such generic products into the market.
      Generally, a generic drug may not be marketed until the applicable patent(s)
      on
      the brand name drug expires. When an ANDA is filed with the FDA for approval
      of
      a generic drug, the filing person may certify either that the patent listed
      by
      the FDA as covering the branded product is about to expire, in which case the
      ANDA will not become effective until the expiration of such patent, or that
      the
      patent listed as covering the branded drug is invalid or will not be infringed
      by the manufacture, sale or use of the new drug for which the ANDA is filed.
      In
      either case, there is a risk that a branded pharmaceutical company may sue
      the
      filing person for alleged patent infringement or other violations of
      intellectual property rights. Because a substantial portion of the Company’s
      current business involves the marketing and development of generic versions
      of
      brand products, the threat of litigation, the outcome of which is inherently
      uncertain, is always present. Such litigation is often costly and
      time-consuming, and could result in a substantial delay in, or prevent, the
      introduction and/or marketing of products, which could have a material adverse
      effect on the Company’s business, financial condition, prospects and results of
      operations.




30




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





Net
      sales
      and gross margins derived from generic pharmaceutical products often follow
      a
      pattern based on regulatory and competitive factors that are believed by the
      Company’s management to be unique to the generic pharmaceutical industry. As the
      patent(s) for a brand name product and the related exclusivity period(s) expire,
      the first generic manufacturer to receive regulatory approval from the FDA
      for a
      generic equivalent of the product is often able to capture a substantial share
      of the market. At that time, however, the branded company may license an
      authorized generic product to a competing generic company. As additional generic
      manufacturers receive regulatory approvals for competing products, the market
      share and the price of that product have typically declined, often
      significantly, depending on several factors, including the number of
      competitors, the price of the brand product and the pricing strategy of the
      new
      competitors.





**RESULTS
      OF OPERATIONS**




The
      following table shows the revenues, gross margin, and operating income by
      segment for the three months ended March 29, 2008 and March 31,
      2007:




**Three months ended****March 29,**
            
            **March
                31,****2008**
            
            **2007**Revenues:Generic
            
            $
            129,884
            
            $
            214,736Strativa
            
            
            25,044
            
            
            19,474Total
                revenues
            
            $
            154,928
            
            $
            234,210Gross
                margin:Generic
            
            $
            30,132
            
            $
            73,483Strativa
            
            
            19,389
            
            
            14,206Total
                gross margin
            
            $
            49,521
            
            $
            87,689Operating
                income:Generic
            
            $
            1,679
            
            $
            43,850Strativa
            
            
            963
            
            
            17,821Total
                operating income
            
            $
            2,642
            
            $
            61,671




**Revenues**


Total
      revenues for the three months ended March 29, 2008 were $154,928, decreasing
      $79,282, or 33.9%, from total revenues of $234,210 for the three months ended
      March 31, 2007. Revenues for generic products for the three months ended March
      29, 2008 were $129,884, decreasing $84,852, or 39.5%, from generic revenues
      of
      $214,736 for the three months ended March 31, 2007. Lower generic revenues
      in
      2008 were primarily due to competitive pressure, including for fluticasone,
      which decreased $32,168, propranolol, which decreased $25,797, various
      amoxicillin products, which decreased $14,123, tramadol HCl and acetaminophen
      tablets, which decreased $5,779, glyburide/metformin, which decreased $4,480,
      cabergoline, which decreased $3,413, ranitidine HCl syrup, which decreased
      $2,288, and lower royalties driven by ondansetron tablets which launched during
      the fourth quarter of 2006. Partially offsetting these decreases were increased
      sales of metoprolol resulting from the launch of additional strengths in the
      third quarter of 2007 (increase of $30,956). Net sales of distributed products
      were approximately $87,040 or 56% of the Company’s total product revenues in the
      first quarter of 2008, and $118,830, or 51% of the Company’s total revenues in
      the first quarter of 2007. The Company is substantially dependent upon
      distributed products for its overall sales and any inability by its suppliers
      to
      meet demand could adversely affect the Company’s future sales.




Revenues
      for the Strativa segment were $25,044 for the three months ended March 29,
      2008,
      increasing $5,570, or 28.6%, from Strativa revenues of $19,474 for the three
      months ended March 31, 2007, due to increased net sales of Megace ® ES.





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




31




The
      Company’s gross revenues before deductions for chargebacks, rebates and
      incentive programs (including rebates paid under federal and state government
      Medicaid drug reimbursement programs), sales returns and other sales allowances
      were $307,976 for the three months ended March 29, 2008 compared to $405,446
      for
      the three months ended March 31, 2007. Deductions from gross revenues were
      $153,048 for the three months ended March 29, 2008 compared to $171,236 for
      the
      three months ended March 31, 2007. These deductions are discussed in the Notes
      to condensed consolidated financial statements – Note 6 – “Accounts
      Receivable.” The total gross-to-net sales adjustments as a percentage of gross
      sales increased to 49.7% for the three months ended March 29, 2008 compared
      to
      42.2% for the three months ended March 31, 2007, primarily due to increased
      pricing pressure for key products and lower royalty income in 2008, tempered
      by
      improved returns experience and a trend toward customer net pricing programs.
      Among the top selling products that did not have sales in the corresponding
      prior year three month period were metoprolol succinate ER 50 mg, 100 mg, and
      200 mg.





As
      detailed above, the Company has the experience and the access to relevant
      information that it believes are necessary to reasonably estimate the amounts
      of
      such deductions from gross revenues. Some of the assumptions used by the Company
      for certain of its estimates are based on information received from third
      parties, such as wholesale customer inventory data and market data, or other
      market factors beyond the Company’s control. The estimates that are most
      critical to the establishment of these reserves, and therefore would have the
      largest impact if these estimates were not accurate, are estimates related
      to
      expected contract sales volumes, average contract pricing, customer inventories
      and return levels. The Company regularly reviews the information related to
      these estimates and adjusts its reserves accordingly, if and when actual
      experience differs from previous estimates. With the exception of the product
      returns allowance, the ending balances of account receivable reserves and
      allowances generally are eliminated during a two- to four-month period, on
      average.





The
      Company recognizes revenue for product sales when title and risk of loss have
      transferred to its customers and when collectibility is reasonably assured.
      This
      is generally at the time that products are received by the customers. Upon
      recognizing revenue from a sale, the Company records estimates for chargebacks,
      rebates and incentives, returns, cash discounts and other sales reserves that
      reduce accounts receivable.





The
      following tables summarize the activity for the three months ended March 29,
      2008 and March 31, 2007 in the accounts affected by the estimated provisions
      described below:


**For the three months ended March 29, 2008****Beginning**
                **balance**
              
              **Provision**
                **recorded**
                **for current**
                **period**
                **sales**
              
              **(Provision)**
                **reversal**
                **recorded**
                **for prior**
                **period sales**
              
              **Credits**
                **processed**
              
              **Ending**
                **balance****Accounts
                  receivable reserves**Chargebacks
              
              $
              (46,006
              )
              $
              (107,639
              )
              $
              (539
              )(1)
              $
              110,197
              
              $
              (43,987
              )Rebates
                  and incentive programs
              
              
              (42,859
              )
              
              (24,207
              )
              
              (1,571
              )
              
              35,678
              
              
              (32,959
              )Returns
              
              
              (47,102
              )
              
              (4,904
              )
              
              4,293
              
              
              7,220
              
              
              (40,493
              )Cash
                  discounts and other
              
              
              (16,158
              )
              
              (12,274
              )
              
              349
              
              
              12,321
              
              
              (15,762
              )Total
              
              $
              (152,125
              )
              $
              (149,024
              )
              $
              2,532
              
              $
              165,416
              
              $
              (133,201
              )**Accrued
                  liabilities**(2)
              
              $
              (17,684
              )
              $
              (7,361
              )
              $
              805
              
              $
              536
              
              $
              (23,704
              )




32




**For the three months ended March 31, 2007****Beginning**
                **Balance**
              
              **Provision**
                **recorded**
                **for current**
                **period**
                **sales**
              
              **(Provision)**
                **reversal**
                **recorded**
                **for prior**
                **period sales**
              
              **Credits**
                **Processed**
              
              **Ending**
                **balance****Accounts
                  receivable reserves**Chargebacks
              
              $
              (51,891
              )
              $
              (88,364
              )
              $
              -
              (1)
              $
              92,531
              
              $
              (47,724
              )Rebates
                  and incentive programs
              
              
              (85,888
              )
              
              (55,192
              )
              
              2,699
              
              
              50,889
              
              
              (87,492
              )Returns
              
              
              (42,905
              )
              
              (10,770
              )
              
              (794
              )
              
              6,099
              
              
              (48,370
              )Cash
                  discounts and other
              
              
              (18,038
              )
              
              (14,382
              )
              
              211
              
              
              6,652
              
              
              (25,557
              )Total
              
              $
              (198,722
              )
              $
              (168,708
              )
              $
              2,116
              
              $
              156,171
              
              $
              (209,143
              )**Accrued
                  liabilities**(2)
              
              $
              (10,583
              )
              $
              (4,644
              )
              $
              -
              
              $
              547
              
              $
              (14,680
              )





(1)
            Unless
                specific in nature, the amount of provision or reversal of reserves
                related to prior periods for chargebacks is not determinable on a
                product
                or customer specific basis; however, based upon historical analysis
                and
                analysis of activity in subsequent periods, the Company has determined
                that its chargeback estimates remain
                reasonable.





(2)
            Includes
                amounts due to customers for which no underlying accounts receivable
                exists, including Medicaid rebates. The Company included additional
                amounts that were part of accrued expenses and other current liabilities
                on the condensed consolidated balance sheets as of December 31, 2006
                ($171), March 31, 2007 ($332) and December 31, 2007 ($869) in the
                tables
                above that are similar to the previously disclosed amounts due to
                customers for which no underlying accounts receivable exists.





*Use
      of Estimates in Reserves*





The
      Company believes that its reserves, allowances and accruals for items that
      are
      deducted from gross revenues are reasonable and appropriate based on current
      facts and circumstances. It is possible, however, that other parties applying
      reasonable judgment to the same facts and circumstances could develop different
      allowance and accrual amounts for items that are deducted from gross revenues.
      Additionally, changes in actual experience or changes in other qualitative
      factors could cause the Company’s allowances and accruals to fluctuate,
      particularly with newly launched or acquired products. The Company reviews
      the
      rates and amounts in its allowance and accrual estimates on a quarterly basis.
      If future estimated rates and amounts are significantly greater than those
      reflected in its recorded reserves, the resulting adjustments to those reserves
      would decrease the Company’s reported net revenues; conversely, if actual
      product returns, rebates and chargebacks are significantly less than those
      reflected in its recorded reserves, the resulting adjustments to those reserves
      would increase its reported net revenues. If the Company were to change its
      assumptions and estimates, its reserves would change, which would impact the
      net
      revenues that the Company reports. The
      Company regularly reviews the information related to these estimates and adjusts
      its reserves accordingly, if and when actual experience differs from previous
      estimates.





**Gross
      Margin**





The
      Company’s gross margin of $49,521 (32.0% of total revenues) for the three months
      ended March 29, 2008 decreased $38,168 from $87,689 (37.4% of total revenues)
      for the three months ended March 31, 2007. This decrease in gross margin is
      attributed to the decreased sales of existing products resulting from
      competitive pressure and lower royalty income. The generic products gross margin
      of $30,132 (23.2% of generic revenues) for the three months ended March 29,
      2008
      decreased $43,351 from $73,483 (34.2% of generic revenues) for the three months
      ended March 31, 2007 primarily due to lower sales of fluticasone, propranolol,
      various amoxicillin products, tramadol HCl and acetaminophen tablets,
      glyburide/metformin, cabergoline and ranitidine syrup and lower royalties
      primarily from ondansetron tablets. Partially offsetting these decreases were
      increased sales of metoprolol resulting from the launch of additional strengths
      during the third quarter of 2007. Strativa gross margin of $19,389 (77.4% of
      Strativa revenues) **** for
      the
      three months ended March 29, 2008 increased by $5,183 from $14,206 (72.9% of
      Strativa revenues) for the three months ended March 31, 2007 due to higher
      net
      sales of Megace ® ES. The
      Company’s gross margin percentage decreased from 37.4% to 32.0% driven primarily
      by the increased sales of lower margin metoprolol, lower royalty income and
      lower sales of higher margin products such as propranolol which launched in
      February of 2007, tempered by increased net sales of Megace ® ES.




33




**Operating
      Expenses**





**** ***Research
      and Development***




The
      Company’s research and development expenses of $17,158 (11.1% of total revenues)
      for the three months ended March 29, 2008 increased $3,119, or 22.2%, from
      $14,039 (6.0% of total revenues) for the three months ended March 31, 2007.
      The
      increase in expense is primarily attributable to costs incurred in support
      of
      the Company’s strategy related to expansion of its Strativa segment, principally
      through in-licensing compounds in late-stage development. These increases are
      partially offset by lower costs of $1,903 related to PAR 101, which was divested
      in the first quarter of 2007.




In
      January 2008, the Company entered into an exclusive licensing agreement with
      Alfacell Corporation to acquire the commercialization rights to
      ONCONASE ® (ranpirnase) in the United States and its territories. ONCONASE ® is in
      Phase III clinical development for the treatment of inoperable malignant
      mesothelioma, a rare cancer affecting the lungs usually associated with exposure
      to asbestos. Under the terms of the agreement, the Company made an initial
      payment of $5 million in cash to Alfacell, which was included in research and
      development expense.




Although
      there can be no such assurance, research and development expenses for 2008,
      including payments to be made to unaffiliated companies and milestone payments
      are expected to decrease by approximately 20% to 25% from 2007.




***Selling,
      General and Administrative Expenses***




Total
      selling, general and administrative (“SG&A”) expenses of $31,346 for the
      three months ended March 29, 2008 decreased $1,211 or 3.7% from $32,557 for
      the
      three months ended March 31, 2007. The decrease in expense is driven by lower
      expenses related to sales and marketing of Megace ® ES
      ($2,225), lower finance and accounting costs ($1,056), and lower stock –based
      compensation related employment costs. These savings were tempered by increased
      legal fees ($2,570) related to ongoing litigation.




Although
      there can be no such assurance, SG&A expenses, excluding the impact of
      Strativa spending for potential pre-launch activities, in 2008 are expected
      to
      decrease by 10% to 12% from fiscal year 2007 and may also fluctuate due to
      legal
      costs associated with the Company’s product litigations related to the success
      of its first-to-file generic strategy.





***Settlements,
      net***





In
      August
      2003, the Company and Perrigo Pharmaceuticals Company entered into a product
      development manufacturing and supply agreement to commercialize various
      products. In March 2007, the parties terminated the agreement. The terms of
      the
      settlement resulted in a net gain for the Company in the amount of $378 for
      the
      three months ended March 31, 2007.





In
      September 1999, the Company entered into an agreement to develop, manufacture
      and market the pharmaceutical formulation naturbinol with Resolution Chemicals
      Limited (“Resolution”). In February 2007, the parties agreed to terminate this
      agreement. The terms of the settlement resulted in a net gain for the Company
      in
      the amount of $200 for the three months ended March 31, 2007.





***Gain
      on Sale of Product Rights and other***




During
      the first quarter of 2008, the Company recognized a gain on the sale of product
      rights of $1,000 related to the sale of two ANDAs. In November 2007, the Company
      entered into an agreement to provide certain information and other deliverables
      related to Megace ® ES  to
      enable
      the formal technology transfer to a third party that is seeking to commercialize
      Megace ® ES  outside
      of the U.S. The Company recorded $625 in the quarter ended March 29, 2008 when
      the Company’s obligations were fulfilled related to this agreement.





In
      May
      2005 the Company and Optimer entered into a joint development and collaboration
      agreement to commercialize Difimicin (PAR 101), an investigational drug to
      treat
      Clostridium difficle-associated diarrhea. On February 27, 2007 in exchange
      for
      $20,000 the Company returned the marketing rights to Optimer and recorded a
      corresponding gain on the sale of product rights.





**Realized
      Gain on Sale of Marketable Securities**




In
      February 2007, the Company sold approximately 1.1 million shares of its
      investment in Optimer stock for approximately $6.8 million and recognized a
      pre-tax gain of approximately $1.4 million for the three month period ended
      March 31, 2007.




34




**Equity
      in Loss of Joint Venture**





Equity
      in
      loss of joint venture was $20 and $148 for the three months ended March 29,
      2008
      and March 31, 2007, respectively. The amounts represent the Company’s share of
      loss in the joint venture created with Rhodes Technology (“Rhodes”) which
      primarily relates to research and development costs incurred by the joint
      venture to develop ANDAs. Should the anticipated launch of product being
      developed by SVC be affected due
      to a
      denial or delay of approval by regulatory bodies, a delay in commercialization,
      or other potential risk factors, investment impairment charges may
      occur
      to the extent the Company is unable to recover the full value of its investment.





**Interest
      Income**





Interest
      income was $3,014 and $2,684 for the three months ended March 29, 2008 and
      March
      31, 2007, respectively. Interest income principally includes interest income
      derived primarily from money market and other short-term investments.





**Interest
      Expense**





Interest
      expense was $1,667 and $1,718 for the three months ended March 29, 2008 and
      March 31, 2007, respectively. Interest expense principally includes interest
      payable on the Company’s convertible notes.





**Income
      Taxes**




The
      Company recorded a provision for income taxes of $1,443 and $22,353 for the
      three months ended March 29, 2008 and March 31, 2007, respectively. The
      Company’s effective tax rates for continuing operations for the three months
      ended March 29, 2008 and March 31, 2007 were 36% and 35%,
      respectively.





**Discontinued
      Operations**




In
      January 2006, the Company announced the divestiture of FineTech, effective
      December 31, 2005. The Company transferred the business for no proceeds to
      Dr.
      Arie Gutman, president and chief executive officer of FineTech. Dr. Gutman
      also
      resigned from the Company’s Board of Directors. The results of FineTech
      operations have been classified as discontinued for all periods presented
      because the Company had no continuing involvement in FineTech. In January 2008,
      Dr. Gutman sold FineTech to a third party. Under the terms of the divestiture,
      the Company recorded a receivable of $505 on the condensed consolidated balance
      sheet as of March 29, 2008 to reflect the Company’s share of the net proceeds of
      the sale transaction and classified the $505 as discontinued operations on
      the
      condensed consolidated statement of operations for the three months ended March
      29, 2008.





**FINANCIAL
      CONDITION**





**Liquidity
      and Capital Resources**





Cash
      and
      cash equivalents of $231,193 at March 29, 2008 increased $31,061 from
      $200,132 at December 31, 2007. Cash provided by operations was $18,479 for
      the
      three months ended March 29, 2008 driven by net income from continuing
      operations of $2,526 and adjusted primarily for depreciation and amortization
      of
      $6,274 and share-based compensation of $3,463. Net accounts receivable increased
      by $19,853 driven primarily by timing of customer collections while inventories
      declined $19,704 driven by lower demand for certain products due to increased
      competitive pressures and seasonality, which the Company had planned for and
      due
      to timing of receipts of certain purchased finished goods. Payables due to
      distribution agreement partners increased $8,774 due mainly to higher sales
      of
      partnered products. Cash flows provided by investing activities of $13,076
      were
      driven by net proceeds of $17,690 from the conversion of available for sale
      securities to shorter term investments that are classified as cash equivalents
      in response to market conditions that made investments in available for sale
      securities riskier than in prior periods, tempered by capital expenditures
      of
      $4,023. Cash used in financing activities of $494 was primarily due to the
      purchase of treasury stock related to shares surrendered to the Company to
      satisfy tax withholding obligations in connection with the vesting of restricted
      stock issued to employees.





The
      Company’s working capital, current assets minus current liabilities, of $218,033
      at March 29, 2008 increased $7,519 from $210,514 at December 31, 2007. The
      working capital ratio, which is calculated by dividing current assets by current
      liabilities, was 1.69x at March 29, 2008 compared to 1.67x at December 31,
      2007.
      The Company believes that its working capital ratio indicates the ability to
      meet its ongoing and foreseeable obligations for the next 12 fiscal
      months.





In
      2004,
      the Board authorized the repurchase of up to $50,000 of the Company’s common
      stock. Repurchases are made, subject to compliance with applicable securities
      laws, from time to time in the open market or in privately negotiated
      transactions. Shares of common stock acquired through the repurchase program
      are
      available for general corporate purposes. In 2007, the Company announced that
      its Board approved an expansion of its share repurchase program allowing for
      the
      repurchase of up to $75,000 of the Company’s common stock, inclusive of the
      $17,800 remaining from the April 2004 authorization. The Company repurchased
      1,643 shares of its common stock for approximately $31,400 pursuant to the
      expanded program in the fourth quarter of 2007. The
      authorized amount remaining for stock repurchases under the repurchase program
      was approximately $43,600,
      as of March 29, 2008.




35




In
      addition to its cash and cash equivalents, the Company had $67,893 of available
      for sale debt securities classified as current assets on the condensed
      consolidated balance sheet as of March 29, 2008. These available for sale debt
      securities were all available for immediate sale. The Company intends to
      continue to use its current liquidity to support the expansion of its business,
      increasing its generic research and development activities, entering into
      product license arrangements, potentially acquiring other complementary
      businesses and products and for general corporate purposes.





As
      of
      March 29, 2008, the Company had payables due to distribution agreement partners
      of $45,253 related primarily to amounts due under profit sharing agreements,
      particularly including an amount owed to Pentech with respect to paroxetine.
      The
      Company is expected to pay substantially all of these amounts, with the
      exception of the payable due to Pentech, which is being disputed in current
      litigation with Pentech, out of its working capital during the first two months
      of the second quarter of 2008. I n
      2004,
      Pentech filed a legal action against the Company alleging that the Company
      breached its contract with Pentech. The Company and Pentech are in dispute
      over
      the amount of gross profit share.




There
      have been no material changes to contractual obligations table presented as
      of
      December 31, 2007 in the Company’s Form 10-K.





In
      addition to its internal research and development costs, the Company, from
      time
      to time, enters into agreements with third parties for the development of new
      products and technologies. To date, the Company has entered into agreements
      and
      advanced funds and has commitments or contingent liabilities with several
      non-affiliated companies for products in various stages of development. These
      contingent payments or commitments are generally dependent on the third party
      achieving certain milestones or the timing of third-party research and
      development or legal expenses. Due to the uncertainty of the timing and/or
      realization of such contingent commitments, these obligations were not included
      in the contractual obligations table presented as of December 31, 2007 in the
      Company’s Form 10-K. Payments made pursuant to these agreements are either
      capitalized or expensed in accordance with the Company’s accounting policies.
      The total amount that ultimately could be due under agreements with
      contingencies is approximately $64,000 as of March 29, 2008.





The
      Company expects to continue to fund its operations, including its research
      and
      development activities, capital projects, in-licensing product activity and
      obligations under its existing distribution and development arrangements
      discussed herein, out of its working capital. Implementation of the Company’s
      business plan may require additional debt and/or equity financing; there can
      be
      no assurance that the Company will be able to obtain any such additional
      financing when needed on terms acceptable or favorable to it.





**Financing**





At
      March
      29, 2008, the Company’s total outstanding short and long-term debt, including
      the current portion, was $200,000. The amount consisted of senior subordinated
      convertible notes that the Company sold in 2003 pursuant to Rule 144A under
      the
      Securities Act of 1933, as amended.  The notes bear interest at an annual
      rate of 2.875%, payable semi-annually on March 30 and September 30 of each
      year.
      The notes are convertible into shares of common stock of the Company at an
      initial conversion price of $88.76 per share, only upon the occurrence of
      certain events. Upon redemption, the Company has agreed to satisfy the
      conversion obligation in cash in an amount equal to the principal amount of
      the
      notes converted. The notes mature on September 30, 2010, unless earlier
      converted, accelerated or repurchased.  The Company may not redeem the
      notes prior to the maturity date. The Trustee under the Indenture governing
      the
      Notes has alleged that the Company has defaulted in the performance of its
      obligations under the Indenture and has instituted a lawsuit in connection
      therewith. Accordingly, until the matter is resolved, the Company is recording
      the payment obligations under the Notes as a current liability on the Company’s
      condensed consolidated balance sheet as of March 29, 2008. Refer to Notes to
      condensed consolidated financial statements – Note 14 – “Commitments,
      Contingencies and Other Matters.”





**Critical
      Accounting Policies and Use of Estimates**




The
      Company’s critical accounting policies are set forth in its Annual Report on
      Form 10-K for the fiscal year ended December 31, 2007. There has been no change,
      update or revision to the Company’s critical accounting policies subsequent to
      the filing of the Company’s Form 10-K for the fiscal year ended December 31,
      2007.




36




*Inventories:*




Inventories
      are stated at the lower of cost (first-in, first-out basis) or market value.
      The
      Company establishes reserves for its inventory to reflect situations in which
      the cost of the inventory is not expected to be recovered. In evaluating whether
      inventory is stated at the lower of cost or market, management considers such
      factors as the amount of inventory on hand, estimated time required to sell
      such
      inventory, remaining shelf life and current expected market conditions,
      including level of competition. The Company records provisions for inventory
      to
      cost of goods sold.




The
      Company capitalizes
      costs associated with certain products prior to regulatory approval and product
      launch (“pre-launch inventories”) when it is reasonably certain that the
      pre-launch inventories will be saleable, based on management’s judgment of
      future commercial use and net realizable value. The Company could be required
      to
      expense previously capitalized costs related to pre-launch inventories upon
      a
      change in such judgment, due to a denial or delay of approval by regulatory
      bodies, a delay in commercialization, or other potential risk factors. If these
      risks were to materialize and the launch of such product were significantly
      delayed, the Company may have to write-off all or a portion of such pre-launch
      inventories and such amounts could be material. As
      of
      March 29, 2008, the Company had inventories related to products that were not
      available to be marketed of $9.2 million, comprised of research and development
      inventories of $2.2 million, and pre-launch inventories of $7.0 million, of
      which $5.6 million is for a specific partnered product anticipated to launch
      in
      the second quarter of 2008. Should the launch be delayed inventory write-offs
      may occur to the extent the Company is unable to recover the full value of
      its
      inventory investment.





**Recent
      Accounting Pronouncements Adopted as of January 1, 2008**




In
      June
      2007, the FASB ratified Emerging Issue Task Force Issue No. 07-3 (“EITF 07-3”), *Accounting
      for Non-Refundable Advance Payments for Goods or Services to Be Used in Future
      Research and Development Activities* ,
      which
      requires nonrefundable advance payments for goods and services that will be
      used
      or rendered for future research and development activities to be deferred and
      capitalized. These amounts will be recognized as expense in the period that
      the
      related goods are delivered or the related services are performed or when an
      entity does not expect the goods to be delivered or services to be rendered.
      EITF 07-3 is effective for the fiscal years beginning after December 31, 2007,
      including interim periods within those fiscal years. The Company’s adoption of
      the provisions of EITF 07-3, beginning January 1, 2008 did not have a material
      impact on its condensed consolidated financial statements.





In
      February 2007, the FASB issued SFAS No. 159 *The
      Fair Value Option for Financial Assets and Financial Liabilities — Including an
      Amendment of FASB Statement No. 115* (“SFAS
      159”), which becomes effective for fiscal periods beginning after November 15,
      2007.  Under SFAS 159, companies may elect to measure specified financial
      assets and liabilities at fair value that are not otherwise measured at fair
      value, with changes in fair value recognized in earnings each subsequent
      reporting period.  This election, called the “fair value option”, will
      enable some companies to reduce volatility in reported earnings caused by
      measuring related assets and liabilities differently.  SFAS 159 also
      establishes presentation and disclosure requirements designed to draw a
      comparison between the different measurement attributes a company elects for
      similar types of assets and liabilities. The Company did not elect the “fair
      value option” for any of its eligible financial assets or liabilities and
      therefore the Company’s adoption of SFAS 159 did not have a material impact on
      its condensed consolidated financial statements.




In
      September 2006, the FASB issued SFAS No. 157 *Fair
      Value Measurements* (“SFAS
      157”).  SFAS 157 establishes a common definition for fair value to be
      applied to GAAP guidance requiring use of fair value, establishes a framework
      for measuring fair value, and expands disclosure about such fair value
      measurements. SFAS
      157
      applies to fair value measurements that are already required or permitted by
      other accounting standards, except for measurements of share-based payments
      and
      measurements that are similar to, but not intended to be, fair value. The FASB
      has previously concluded in those accounting pronouncements that fair value
      is
      the relevant measurement attribute. Accordingly, this Statement does not require
      any new fair value measurements. SFAS
      157
      is effective for fiscal years beginning after November 15, 2007.  In
      November 2007, FASB granted a one year deferral for the implementation of SFAS
      157 for non-financial assets and liabilities. The Company’s adoption of SFAS 157
      with respect to financial assets and liabilities did not have a material impact
      on its condensed consolidated financial statements.





**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**




*Available
      for sale debt securities*




The
      primary objectives for the Company’s investment portfolio are liquidity and
      safety of principal. Investments are made with the intention to achieve the
      best
      available rate of return on traditionally low risk investments. The Company’s
      investment policy limits investments to certain types of instruments issued
      by
      institutions with investment-grade credit ratings, the U.S. government and
      U.S.
      governmental agencies. The Company is subject to market risk primarily from
      changes in the fair values of its investments in debt securities including
      governmental agency and municipal securities, and corporate bonds.
      These instruments are classified as available for sale securities for financial
      reporting purposes. A ten percent increase in interest rates would cause the
      fair value of the Company’s investments in available for sale debt securities to
      decline by approximately $0.3 million. Additional investments are made in
      overnight deposits and money market funds. These instruments are classified
      as
      cash and cash equivalents for financial reporting purposes, generally also
      have
      lower interest rate risk relative to its investments in debt securities and
      changes in interest rates generally have little or no impact on their fair
      values. For cash, cash equivalents and available for sale debt securities,
      a ten
      percent decrease in interest rates would decrease interest income by
      approximately $1.0 million. The Company does not have any financial obligations
      exposed to variability in interest rates.




37




The
      following table summarizes the available for sale securities that subject the
      Company to market risk at March 29, 2008 and December 31, 2007:




**March 29,**
              **2008**
            
            **December 31,**
              **2007**Securities
                issued by government agencies
            
            $
            26,262
            
            $
            46,201Debt
                securities issued by various state and local municipalities and
                agencies
            
            
            36,611
            
            
            24,223Other
                debt securities
            
            
            8,429
            
            
            13,991Marketable
                equity securities available for sale
            
            
            2,550
            
            
            2,650Auction
                rate securities
            
            
            -
            
            
            5,000Total
            
            $
            73,852
            
            $
            92,065




*Marketable
      equity securities available for sale*




In
      addition to the investments described above, the Company is also subject to
      market risk in respect to its investment in Hana. In August 2007, the Company
      made an equity investment in Hana for $5.0 million at a contractually agreed
      premium to the prevailing market price. Of this amount, $1.2 million was charged
      to research and development expense in the third quarter of 2007. The Company
      has classified its investment in Hana as a noncurrent asset on its consolidated
      balance sheet as of March 29, 2008 due to its contractual obligations with
      Hana
      and its ability and intent to hold the investment for a reasonable period of
      time (not anticipated to be less than 12 months) sufficient for a recovery
      of
      fair value up to (or beyond) the cost of the investment. The Company recorded
      an
      unrealized loss of $1.3 million as of March 29, 2008, which is
      included in other comprehensive income to reflect the estimated fair value
      of
      its investment in Hana. A 10% adverse change in the market price of Hana common
      stock would impact the fair value of the investment by approximately $0.3
      million.





**ITEM
      4. CONTROLS AND PROCEDURES**





***Disclosure
      Controls and Procedures***




The
      Company maintains disclosure controls and procedures that are designed to ensure
      that information required to be disclosed in the Company’s filings with the SEC
      is recorded, processed, summarized and reported within the time period specified
      in the SEC’s rules and forms, and that such information is accumulated and
      communicated to management, including the Company’s Chief Executive Officer
      (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely
      decisions regarding required disclosure based on the definition of “disclosure
      controls and procedures” as defined in Rule 13a-15(e) promulgated under the
      Securities Exchange Act of 1934, as amended (the “Exchange Act”). In designing
      and evaluating disclosure controls and procedures, the Company has recognized
      that any controls and procedures, no matter how well designed and operated,
      can
      provide only reasonable assurance of achieving the desired control objectives,
      and management is required to apply judgment in evaluating its controls and
      procedures. An evaluation was performed under the supervision and with the
      participation of Company management, including the CEO and the CFO, to assess
      the effectiveness of the design and operation of its disclosure controls and
      procedures (as defined under the Exchange Act) as of March 29, 2008. Based
      on
      that evaluation, the Company’s management, including its CEO and the CFO,
      concluded that the Company’s disclosure controls and procedures were not
      effective as of March 29, 2008 because it has not yet been concluded that the
      material weakness in the Company’s internal control over financial reporting
      related to the recording of proper income tax benefits from discontinued
      operations reported as of December 31, 2007 in the Company’s Form 10-K has been
      remediated.





***Changes
      in Internal Control over Financial Reporting***




There
      have been no significant changes in the Company's internal control over
      financial reporting identified during the quarter ended March 29, 2008, except
      for the implementation of measures described below under “Remediation of
      Material Weakness”.





***Remediation
      of Material Weakness***




The
      Company has taken the following steps to remediate the weakness mentioned above:
      1) replaced members of senior management and managers responsible for the
      oversight of income tax matters, 2) formalized a policy and procedure for the
      communication and review of non-routine tax matters by senior management, and
      3)
      as appropriate the Company will engage external tax advisors for advice with
      respect to non-routine tax matters.




38




The
      Company anticipates that these actions will remediate the material weakness.
      The
      effectiveness of its remediation efforts will not be known until the Company
      can
      test those controls in connection with the management tests of internal controls
      over financial reporting that the Company will perform as of December 31,
      2008.





**PART
      II. OTHER INFORMATION**





**ITEM
      1.****LEGAL PROCEEDINGS**




**Contractual
      Matters**




On
      May 3, 2004, Pentech Pharmaceuticals, Inc. (“Pentech”) filed an action
      against the Company in the United States District Court for the Northern
      District of Illinois. This action alleges that the Company breached its contract
      with Pentech relating to the supply and marketing of paroxetine
      (Paxil Ò )
      and
      that the Company breached fiduciary duties allegedly owed to Pentech. The
      Company and Pentech are in dispute over the amount of gross profit share due
      to
      them. Discovery in this case has concluded. The Court denied cross motions
      for
      summary judgment relating to the construction of the contract, and denied
      Pentech’s motion for summary judgment against the Company’s fraudulent
      inducement counterclaim. The Company also filed a motion for summary judgment
      against Pentech’s breach of fiduciary duty claim, and that motion was granted. A
      trial date has not yet been set. The Company intends to defend vigorously this
      action.





**Corporate
      Litigation**




The
      Company and certain of its executive officers have been named as defendants
      in
      several purported stockholder class action lawsuits filed on behalf of
      purchasers of common stock of the Company between April 29, 2004 and
      July 5, 2006. The lawsuits followed the Company’s July 5, 2006
      announcement regarding the restatement of certain of its financial statements
      and allege that the Company and certain members of its management engaged in
      violations of the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”), by issuing false and misleading statements concerning the Company’s
      financial condition and results. The class actions have been consolidated and
      are pending in the United States District Court, District of New Jersey. The
      Court has appointed co-lead plaintiffs and co-lead counsel. Co-lead plaintiffs
      filed a Consolidated Amended Complaint on April 30, 2007, purporting to
      represent purchasers of common stock of the Company between July 23, 2001 and
      July 5, 2006. Defendants filed a motion to dismiss the Amended Complaint on
      June
      29, 2007. The Company intends, and the members of management named as defendants
      have stated their intentions, to vigorously defend the lawsuits and any
      additional lawsuits that may hereafter be filed with respect to the restatement.




On
      August 14, 2006, individuals claiming to be stockholders of the Company
      filed a derivative action in the U.S. District Court for the Southern District
      of New York, purportedly on behalf of the Company, against the current and
      certain former directors and certain current and former officers of the Company
      and the Company as a nominal defendant. The plaintiffs in this action allege
      that, among other things, the named defendants breached their fiduciary duties
      to the Company based on substantially the same factual allegations as the class
      action lawsuits referenced above. The plaintiffs also alleged that certain
      of
      the defendants have been unjustly enriched based on their receipt of allegedly
      backdated options to purchase shares of common stock of the Company, and seek
      to
      require those defendants to disgorge any profits made in connection with their
      exercise of such options and additional attendant damages relating to allegedly
      backdated options during the period from January 1, 1996 to the present.
      The action has been transferred to the United States District Court, District
      of
      New Jersey. On June 29, 2007, the plaintiffs filed their amended complaint
      and
      in connection therewith, dropped their claims related to the alleged stock
      option backdating. Defendants have made a motion to dismiss the complaint,
      which
      motion has been fully briefed. The Company intends and each of the individuals
      named as defendants have stated their intentions to vigorously defend against
      the remaining allegations.





On
      September 1, 2006, the Company received a notice of default from the
      American Stock Transfer & Trust Company, as trustee (the “Trustee”) of the
      Company’s 2.875% Senior Subordinated Convertible Notes due 2010 (the “Notes”).
      The Trustee claims, in essence, that the Company’s failure to include financial
      statements in its Quarterly Report on Form 10-Q for the second quarter of 2006
      constituted a default under Section 6.2 of the Indenture, dated as of
      September 30, 2003 (the “Indenture”), between the Company, as issuer, and
      the Trustee, relating to the Notes. The notice of default asserted that if
      the
      purported default continued unremedied for 30 days after the receipt of the
      notice, an “event of default” would occur under the Indenture. Under the
      Indenture, the occurrence of an event of default would give the Trustee or
      certain holders of the Notes the right to declare all unpaid principal and
      accrued interest on the Notes immediately due and payable. On October 2,
      2006, the Company received a notice of acceleration from the Trustee purporting
      to accelerate payment of the Notes.




39




The
      Company believes that it has complied with its obligations under the Indenture
      relating to the Notes. Therefore, the Company believes that the above-mentioned
      notice of default and notice of acceleration are invalid and without merit.
      Under the Indenture, the Company is required only to provide the Trustee with
      copies of its annual and other reports (or copies of such portions of such
      reports as the SEC may by rules and regulations prescribe) that it is required
      to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act within
      15 calendar days after it files such annual and other reports with the SEC.
      Moreover, the Company’s Indenture specifically contemplates providing the
      Trustee with portions of reports. On August 24, 2006 (within 15 days of filing
      with the SEC), the Company provided to the Trustee a copy of its Quarterly
      Report on Form 10-Q for the second quarter of 2006. The Company’s Form 10-Q did
      not include the Company’s financial statements for the second quarter of 2006
      and related Management’s Discussion and Analysis due to the Company’s work to
      restate certain of its past financial statements, and, therefore, in accordance
      with SEC rules, the Company filed a Form 12b-25 Notification of Late Filing
      disclosing the omissions. The Company’s Form 12b-25 also was provided to the
      Trustee on August 24, 2006. Accordingly, the Company believes that it complied
      with the Indenture provision in question.




After
      the
      Company communicated its position to the Trustee, the Trustee filed a lawsuit,
      on October 19, 2006, on behalf of the holders of the Notes in the Supreme
      Court of the State of New York, County of New York, alleging a breach of the
      Indenture and of an alleged covenant of good faith and fair dealing. The lawsuit
      demands, among other things, that the Company pay the holders of the Notes
      either the principal, any accrued and unpaid interest and additional interest
      (as such term is defined in the Indenture), if any, or the difference between
      the fair market value of the Notes on October 2, 2006 and par, whichever
      the Trustee elects, or in the alternative, damages to be determined at trial,
      alleged by the Trustee to exceed $30.0 million. The Company filed a Notice
      of Removal to remove the lawsuit to the U.S. District Court for the Southern
      District of New York and has filed its answer to the complaint in that Court.
      On
      January 19, 2007, the Trustee filed a motion for summary judgment along
      with supporting documentation. On February 16, 2007, the Company filed its
      response to the Trustee’s motion for summary judgment and cross-moved for
      summary judgment in its favor. The Court has not yet ruled on the motions.
      Until
      the matter is resolved, the Company is recording the payment obligations as
      a
      current liability on the condensed consolidated balance sheets because the
      Court
      in the matter could (i) rule against the Company’s position and (ii) determine
      that the appropriate remedy would be the accelerated payment of the convertible
      notes.





**Patent
      Related Matters**





On
      July
      15, 2003, the Company filed a lawsuit against Roxane Laboratories, Inc.
      (“Roxane”) in the United States District Court for the District of New Jersey.
      The Company alleged that Roxane had infringed the Company’s U.S. Patents
      numbered 6,593,318 and 6,593,320 and that the infringement was willful. Roxane
      has denied these allegations and has counterclaimed for declaratory judgments
      of
      non-infringement and invalidity of both patents. On September 8, 2006, the
      Court
      issued a claim construction ruling on certain claim terms in dispute between
      the
      parties. Based on that construction, the Court ruled in favor of the Company
      and
      dismissed Roxane’s motion for summary judgment of non-infringement. On November
      8, 2006, the Court ruled that the claims at issue in these patents were invalid
      as non-enabled on summary judgment. On December 8, 2006, the Company appealed
      the ruling to the Federal Circuit Court of Appeals, highlighting the district
      court’s failure to apply its own claim construction and to consider the
      testimony of the Company’s experts before awarding summary judgment to Roxane.
      On October 26, 2007, the U.S. Circuit Court of Appeals for the Federal Circuit
      affirmed the New Jersey District Court's ruling of invalidity for
      non-enablement. In January 2008, the District Court conducted a hearing on
      Roxane’s application for attorneys’ fees under 35 U.S.C. section 285. Briefs in
      opposition for both sides were filed on March 10, 2008 and a motion hearing
      was
      set for April 7, 2008. On April 10, 2008, the District Court rejected Roxane’s
      request for attorneys’ fees.




On
      March
      10, 2006, Apotex Inc. and Apotex Corp. (“Apotex”) filed a lawsuit against the
      Company in the United States District Court for New Jersey, seeking a
      declaratory judgment that four of the Company’s patents relating to megestrol
      acetate oral suspension are invalid, unenforceable and not infringed by an
      Apotex product that was launched in the third quarter of 2006. The Company
      has
      moved for a preliminary injunction against Apotex pending resolution of the
      litigation and has asserted counterclaims that the Apotex product infringes
      at
      least one claim of U.S. Patent 6,593,318. The
      Company was granted a stay and the action was terminated without prejudice
      on
      April 9, 2007 pending final resolution of the Roxane appeal. On February 6,
      2008, a joint stipulation of dismissal and order with prejudice was signed
      by
      the Judge in the case with each party only liable for its own costs and
      attorneys’ fees.




On
      April
      28, 2006, CIMA Labs, Inc. (“CIMA”) and Schwarz Pharma, Inc. (“Schwarz Pharma”)
      filed separate lawsuits against the Company in the United States District Court
      for the District of New Jersey (CIMA Labs, Inc. et al. v. Par Pharmaceutical
      Companies, Inc. et al., (Civil Action Nos. 06-CV-1970, 1999 (DRD)(ES)). CIMA
      and
      Schwarz Pharma each have alleged that the Company infringed U.S. Patent Nos.
      6,024,981 (the “’981 patent”) and 6,221,392 (the “’392 patent”) by submitting a
      Paragraph IV certification to the FDA for approval of alprazolam orally
      disintegrating tablets. CIMA owns the ’981 and ’392 patents and Schwarz Pharma
      is CIMA’s exclusive licensee. The two lawsuits were consolidated on January 29,
      2007. In response to the lawsuit, the Company has answered and counterclaimed
      denying CIMA’s and Schwarz Pharma’s infringement allegations, asserting that the
’981 and ’392 patents are not infringed and are invalid and/or unenforceable.
      The parties have exchanged written discovery. All 40 claims in the ’981 patent
      were rejected in a non-final office action in a reexamination proceeding at
      the
      United States Patent and Trademark Office (“PTO”) on February 24, 2006. The PTO
      again rejected all 40 claims in a second non-final office action dated February
      24, 2007. The ‘392 patent is also the subject of a reexamination proceeding. The
      Company will continue to monitor these ongoing reexamination proceedings. CIMA
      has moved to stay this lawsuit pending the outcome of the reexamination
      proceedings and to consolidate this lawsuit with another lawsuit in the same
      district involving the same patents (CIMA Labs, Inc. et al. v. Actavis Group
      hf
      et al., (Civil Action No. 07-CV-0893 (DRD) (ES)). A hearing on these motions
      was
      held on May 30, 2007. The Company intends to vigorously defend this lawsuit
      and
      pursue its counterclaims.




40




The
      Company entered into a licensing agreement with developer Paddock Laboratories,
      Inc. (“Paddock”) to market testosterone 1% gel, a generic version of Unimed
      Pharmaceuticals, Inc.’s (“Unimed”) product Androgel®. Pursuant to this
      agreement, the Company is responsible for management of any litigation and
      payment of all legal fees associated with this product. The product, if
      successfully brought to market, would be manufactured by Paddock and marketed
      by
      the Company. Paddock has filed an ANDA (that is pending with the FDA) for the
      testosterone 1% gel product. As a result of the filing of the ANDA, Unimed
      and
      Laboratories Besins Iscovesco (“Besins”), co-assignees of the patent-in-suit,
      filed a lawsuit against Paddock in the United States District Court for the
      Northern District of Georgia, alleging patent infringement on August 22, 2003.
      The Company has an economic interest in the outcome of this litigation by virtue
      of its licensing agreement with Paddock. Unimed and Besins sought an injunction
      to prevent Paddock from manufacturing the generic product. On November 18,
      2003,
      Paddock answered the complaint and filed a counterclaim, seeking a declaration
      that the patent-in-suit is invalid and/or not infringed by Paddock’s product. On
      September 13, 2006, the Company acquired from Paddock all rights to the ANDA
      for
      testosterone 1% gel, a generic version of Unimed’s product Androgel® for $6
      million. The lawsuit was resolved by settlement. The settlement and license
      agreement terminates all on-going litigation. The settlement and license
      agreement also permits the Company to launch the generic version of the product
      no earlier than August 31, 2015 and no later than February 28, 2016, assuring
      the Company’s ability to market a generic version of Androgel® well before the
      expiration of the patents at issue. On March 7, 2007, the Company was issued
      a
      Civil Investigative Demand seeking information and documents in connection
      with
      the court-approved settlement in 2006 of the patent infringement case, Unimed
      v.
      Paddock, in the U.S. District Court for Northern District of Georgia. The Bureau
      of Competition for the Federal Trade Commission (“FTC”) is investigating whether
      the settlement of the litigation constituted unfair methods of competition
      in a
      potential violation of Section 5 of the FTC Act. The Company believes it has
      complied with all applicable laws in connection with the court-approved
      settlement and it intends to co-operate with the FTC in this
      matter.




On
      October 4, 2006, Novartis Corporation, Novartis Pharmaceuticals Corporation,
      and
      Novartis International AG (collectively “Novartis”) filed a lawsuit against the
      Company in the United States District Court for the District of New Jersey.
      Novartis alleged that the Company and Kali infringed U.S. Patent No. 6,162,802
      (the “’802 patent”) by submitting a Paragraph IV certification to the FDA for
      approval of amlodipine and benazepril hydrochloride combination capsules. The
      Company and its subsidiaries denied Novartis’ allegation, asserting that the
’802 patent is not infringed and is invalid. The parties are currently engaged
      in discovery regarding the claims with expert discovery due to the Court by
      June
      13, 2008. The Company intends to defend vigorously this action and pursue its
      counterclaims against Novartis.





On
      December 19, 2006, Reliant Pharmaceuticals, Inc. (“Reliant”) filed a lawsuit
      against the Company in the United States District Court for the District of
      Delaware (Reliant Pharmaceuticals, Inc. v. Par Pharmaceutical Inc., (Civil
      Action Nos. 06-CV-774-JJF)). Reliant alleged, in its Complaint, that the Company
      infringed U.S. Patent No. 5,681,588 (the “’588 patent”) by submitting a
      Paragraph IV certification to the FDA for approval to market generic 325 mg
      Propafenone HCl SR capsules. On January 26, 2007, Reliant amended its complaint
      to add the additional allegation that the Company infringed the ‘588 patent by
      submitting a Paragraph IV certification to the FDA for approval to market
      generic 225 mg and 425 mg—in addition to the 325 mg—Propafenone HCl SR capsules.
      The Company has answered and counterclaimed denying Reliant’s infringement
      allegations, and asserting that the ’588 patent is invalid and unenforceable. A
      scheduling order has been entered under which a claim construction hearing
      was
      held on April 2, 2008 and under which all fact and expert discovery will be
      completed by May 30, 2008. The parties have begun discovery and Reliant has
      filed a motion to disqualify the Company’s counsel, a motion that was denied in
      September 2007 with ongoing written discovery on the issue. The Company intends
      to vigorously defend this lawsuit and pursue its counterclaims.




On
      May 9,
      2007, Purdue Pharma Products L.P. (“Purdue”), Napp Pharmaceutical Group Ltd.
      (“Napp”), Biovail Laboratories International SRL (“Biovail”), and Ortho-McNeil,
      Inc. (“Ortho-McNeil”) filed a lawsuit against the Company in the United States
      District Court for the District of Delaware. The complaint alleges infringement
      of U.S. Patent No. 6,254,887 (the “’887 patent”) because the Company submitted a
      Paragraph IV certification to the FDA for approval of 200mg extended release
      tablets containing tramadol hydrochloride. On May 30, 2007, the Company filed
      its answer and counterclaim to the complaint seeking a declaration of
      noninfringement and invalidity of the '887 patent. A subsequent complaint was
      served on July 2, 2007 in the same District Court. The new complaint alleges
      that the Company's 100mg and 200mg extended release tablets containing tramadol
      hydrochloride infringe the ‘887 patent. The Company filed its answer and
      counterclaim on July 23, 2007 and will assert all available defenses in addition
      to seeking a declaration of noninfringement and invalidity of the '887 patent.
      On October 24, 2007, plaintiffs filed an amended complaint in the Delaware
      District Court in view of the Company's amendment of its ANDA to include the 300
      mg strength of extended release tramadol. A scheduling order has been entered
      in
      the case requiring that fact discovery be completed by May 15, 2008; expert
      discovery completed by August 15, 2008; a Markman hearing be held July 2008;
      and
      a trial date set for November 10, 2008. The
      Company intends to defend this action vigorously and pursue its counterclaims
      against Purdue, Napp, Biovail and Ortho-McNeil.




41




On
      July
      6, 2007, Sanofi-Aventis and Debiopharm, S.A. filed a lawsuit against the Company
      and its development partner, MN Pharmaceuticals ("MN"), in the United States
      District Court for the District of New Jersey. The complaint alleges
      infringement of U.S. Patent Nos. 5,338,874 and 5,716,988 because the Company
      and
      MN submitted a Paragraph IV certification to the FDA for approval of 50 mg/10
      ml, 100 mg/20 ml, and 200 mg/40 ml oxaliplatin by injection. The
      Company and MN filed their answer and counterclaims on October 10, 2007. On
      January 14, 2008, following MN's amendment of its ANDA to include oxaliplatin
      injectable 5 mg/ml, 40 ml vial, Sanofi-Aventis filed a complaint asserting
      infringement of the '874 and the '998 patents. The Company and MN filed their
      answer and counterclaim on February 20, 2008. The Company and MN intend to
      defend these actions vigorously and pursue their counterclaims against Sanofi
      and Debiopharm.




On
      September 21, 2007, Sanofi-Aventis and Sanofi-Aventis U.S., LLC
      (“Sanofi-Aventis”) filed a lawsuit against the Company and its development
      partner, Actavis South Atlantic LLC ("Actavis"), in the United States District
      Court for the District of Delaware. The complaint alleges infringement of U.S.
      Patent Nos. 4,661,491 and 6,149,940 because the Company and Actavis submitted
      a
      Paragraph IV certification to the FDA for approval of 10 mg alfuzosin
      hydrochloride extended release tablets. The Company filed its answer and
      counterclaims on October 24, 2007. The Company filed its amended answer and
      counterclaims on November 19, 2007. On April 3, 2008, the Judge in Delaware
      ordered all actions in the case stayed pending the plaintiff’s motion for
      transfer and consolidation under the rules governing multi-district litigation.
      The Company intends to defend this action vigorously and pursue its
      counterclaims against Sanofi-Aventis.





On
      October 1, 2007, Elan Corporation, PLC (“Elan”) filed a lawsuit against the
      Company and its development partner, IntelliPharmaCeutics Corp., and
      IntelliPharmaCeutics Ltd. ("IPC") in the United States District Court for the
      District of Delaware. On October 5, 2007, Celgene Corporation (“Celgene”) and
      Novartis filed a lawsuit against IPC in the United States District Court for
      the
      District of New Jersey. The complaint in the Delaware case alleged infringement
      of U.S. Patent Nos. 6,228,398 and 6,730,325 because the Company submitted a
      Paragraph IV certification to the FDA for approval of 5, 10, 15, and 20 mg
      dexmethylphenidate hydrochloride extended release capsules. Elan filed an
      amended Complaint on October 15, 2007. The original complaint in the New Jersey
      case alleged infringement of U.S. Patent Nos. 6,228,398; 6,730,325; 5,908,850;
      6,355,656; 6,528,530; 5,837,284; and 6,635,284 because the Company and IPC
      submitted a Paragraph IV certification to the FDA for approval of 5, 10, 15,
      and
      20 mg dexmethylphenidate extended release capsules. The Company and IPC filed
      their answer and counterclaims in the Delaware case on November 19, 2007.
      Celgene and Novartis filed an amended complaint on October 15, 2007 and the
      Company and IPC filed their answer and counterclaims in the New Jersey case
      on
      November 20, 2007. The Company and IPC filed an amended answer in Delaware
      December 12, 2007, and Elan filed their answer and motion to consolidate the
      cases on January 2, 2008. On February 20, 2008, the judge in the Delaware
      litigation consolidated all 4 related cases pending in Delaware and entered
      a
      scheduling order providing for April 15, 2009 as the deadline for all discovery
      and August 17, 2009 as the date for a bench trial. A Rule 16 conference was
      held
      for the New Jersey litigation on March 4, 2008 setting a deadline of December
      12, 2008 for all discovery. The Company intends to defend these actions
      vigorously and pursue its counterclaims against Elan, Celgene and
      Novartis.





On
      September 13, 2007, Santarus, Inc. (“Santarus”), and The Curators of the
      University of Missouri (“Missouri”) filed a lawsuit against the Company in the
      United States District Court for the District of Delaware. The complaint alleges
      infringement of U.S. Patent Nos. 6,699,885; 6,489,346; and 6,645,988 because
      the
      Company submitted a Paragraph IV certification to the FDA for approval of 20
      mg
      and 40 mg omeprazole/sodium bicarbonate capsules. The
      Company filed its answer and counterclaims on October 17, 2007.
      A
      scheduling conference was held February 11, 2008, setting September 8, 2008
      as
      the date for the claim construction hearing and July 13, 2009 as the first
      day
      of the bench trial. On March 4, 2008, the cases pertaining to the Company’s
      ANDAs for omeprazole capsules and omeprazole oral suspension (see below) were
      consolidated for all purposes. The
      Company intends to defend this action vigorously and pursue its counterclaims
      against Santarus and Missouri.





On
      December 11, 2007, AstraZeneca Pharmaceuticals, LP, AstraZeneca UK Ltd., IPR
      Pharmaceuticals, Inc. and Shionogi Seiyaku Kabushiki Kaisha filed a lawsuit
      against the Company in the United States District Court for the District of
      Delaware. The complaint alleges patent infringement because the Company
      submitted a Paragraph IV certification to the FDA for approval of 5 mg, 10
      mg,
      20 mg and 40 mg rosuvastatin calcium tablets. The
      Company filed its answer and counterclaims on January 31, 2008. The Company
      intends to defend these actions vigorously and pursue its counterclaims against
      AstraZeneca Pharmaceuticals, LP, AstraZeneca UK Ltd., IPR Pharmaceuticals,
      Inc.
      and Shionogi Seiyaku Kabushiki Kaisha.




42




On
      December 20, 2007, Santarus, Inc. (“Santarus”), and The Curators of the
      University of Missouri (“Missouri”) filed a lawsuit against the Company in the
      United States District Court for the District of Delaware. The complaint alleges
      infringement of U.S. Patent Nos. 6,699,885; 6,489,346; 6,780,882; and 6,645,988
      because the Company submitted a Paragraph IV certification to the FDA for
      approval of 20 mg and 40 mg omeprazole/sodium bicarbonate powders for oral
      suspension. The Company filed its answer on January 10, 2008 and filed its
      amended answer and counterclaims on January 30, 2008. On March 4, 2008, the
      cases pertaining to the Company’s ANDAs for omeprazole capsules (see above) and
      omeprazole oral suspension were consolidated for all purposes. The Company
      intends to defend this action vigorously against Santarus and
      Missouri.





**Industry
      Related Matters**





On
      September 10, 2003, the Company and a number of other generic and brand
      pharmaceutical companies were sued by Rockland County in New York State (the
      suit has since been joined by additional New York counties) that 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. On August 4, 2004, the
      Company 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. On June 15, 2005, a consolidated
      complaint was filed on behalf of a number of the New York counties and the
      City
      of New York. This case was transferred to the United States District Court
      for
      the District of Massachusetts for coordinated and consolidated pre-trial
      proceedings. The complaint filed by Erie County in New York was not included
      in
      the consolidated complaint and has been removed to federal district court.
      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 the Company and 12 other leading generic pharmaceutical companies,
      alleging principally that the Company 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. 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, the Company 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 was denied on August 15, 2005.
      The Commonwealth of Massachusetts subsequently filed an amended complaint,
      and
      the defendants, including the Company, have filed a motion to dismiss the
      amended complaint. 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, all of which have been removed to federal district
      court. The lawsuit brought by the State of Alabama was remanded to the Alabama
      state court on August 11, 2005. Following the remand, on October 13, 2005,
      the
      Court denied the defendants’ motion to dismiss, but granted in part the
      defendants’ motion for a more definite statement, and further ruled that the
      State may amend its complaint within 90 days. On October 20, 2005, the State
      of
      Mississippi filed in the Chancery Court for Hinds County, Mississippi a
      complaint naming the Company (among other companies) as a defendant. The Company
      intends to defend vigorously these actions.





On
      April
      27, 2006, the State of Hawaii filed a complaint naming the Company as a
      defendant that has alleged violations of laws related to participation in the
      Medicaid program. The Hawaii complaint pleads causes of action for (i) false
      claims; (ii) unfair or deceptive acts or practices; (iii) unfair competition;
      (iv) violation of the Deceptive Trade Practices Act; (v) non-disclosure; and
      (vi) unjust enrichment. The complaint seeks general and special damages; treble
      damages, or in the alternative, punitive damages; costs, pre-judgment and
      post-judgment interest, and attorneys’ fees; injunctive relief; and such other
      and further relief or equitable relief as the Court deems just and proper.
      The
      Company intends to defend this action vigorously.




On
      May 8,
      2006, the County of Oswego filed a complaint against the Company and certain
      other pharmaceutical companies. This complaint pleads causes of action for
      (i)
      fraud; (ii) violation of New York Social Services Law § 366-b; (iii) violation
      of New York Social Services Law § 145-b; (iv) violation of New York General
      Business Law § 349; (v) unjust enrichment; and (vi) fraudulent concealment. The
      County of Schenectady filed a similar complaint on May 9, 2006. The Company
      intends to defend these actions vigorously.




With
      respect to the Erie action, on September 7, 2006, the New York Supreme Court
      for
      the County of Erie granted the defendants' joint motion to dismiss in part
      and
      denied it in part. The defendants then removed the Erie action for a second
      time
      to the United States District Court for the Western District of New York on
      October 11, 2006, and the case was subsequently transferred to the United States
      District Court for the District of Massachusetts for coordinated and
      consolidated pre-trial proceedings. A motion to remand to State Court is
      currently pending.




The
      County of Nassau, New York filed a Second Amended Complaint in its action
      against a number of other generic and brand pharmaceutical companies, naming
      the
      Company as a defendant on January 30, 2006. The case has been consolidated,
      for
      purposes of discovery and briefing, with the action filed by a number of other
      New York counties and the City of New York. The matters are presently in the
      United States District Court for the District of Massachusetts for coordinated
      and consolidated pre-trial proceedings. On March 3, 2006, the Company and the
      other defendants filed motions to dismiss the Second Amended Complaint filed
      by
      Nassau County and the consolidated complaint brought by the other counties
      and
      the City of New York. These motions were granted in part and denied in part
      on
      April 2, 2007. On June 8, 2007, the City of New York and various other New
      York
      counties, this time including Nassau County, filed a First Amended Consolidated
      Complaint. On June 22, 2007, the defendants filed a joint motion to dismiss
      the
      First Amended Consolidated Complaint. The Court granted the defendants' motion
      in part and denied it in part on July 30, 2007. On October 5, 2007, the City
      of
      New York and various other New York counties filed a Revised First Amended
      Consolidated Complaint, which the Company answered on October 26,
      2007.




43




With
      respect to the Oswego and Schenectady matters, the cases have been transferred
      to the United States District Court for the District of Massachusetts for
      coordinated and consolidated pre-trial proceedings. On September 17, 2007,
      the
      United States District Court for the District of Massachusetts granted the
      motions filed by Erie, Oswego, and Schenectady Counties to remand their
      respective cases to New York state court. Each of these three matters was
      subsequently remanded to the New York Supreme Courts for the Counties of Erie,
      Oswego, and Schenectady, respectively. On November 28, 2007, the defendants
      filed a joint motion, with the State of New York Litigation Coordinating Panel,
      to coordinate the three actions. This motion is currently pending.




The
      Company's motion to dismiss the Commonwealth of Massachusetts' First Amended
      Complaint was denied on August 15, 2005. The Company answered the Commonwealth's
      First Amended Complaint on November 14, 2005.




With
      respect to the Alabama action, the Company filed an answer to the Second Amended
      Complaint on January 30, 2006. On October 11, 2006, the defendants for the
      second time removed the case to the United States District Court for the Middle
      District of Alabama. On November 2, 2006, the matter was again remanded to
      State
      court. Certain defendants, including the Company, filed motions in September
      2006 to sever or for separate trials. The trial court denied these motions.
      On
      June 1, 2007, upon the petitions of certain defendants, including the Company,
      the Supreme Court of Alabama granted a writ of mandamus and ordered the trial
      court to sever the claims against all defendants.




With
      respect to the Illinois action, the United States District Court for the
      District of Massachusetts granted the State of Illinois' motion to remand on
      September 17, 2007. The case was remanded to the Circuit Court of Cook County,
      Illinois. On November 19, 2007, certain defendants, including the Company,
      filed
      a new joint motion to dismiss the First Amended Complaint. This motion is
      currently pending.




The
      court
      denied the defendants’ motions to dismiss in the action brought by the
      Commonwealth of Kentucky on June 23, 2006. The Company answered the First
      Amended Complaint on July 19, 2006. The Commonwealth of Kentucky filed a Second
      Amended Complaint on September 28, 2007. The Company answered the Second Amended
      Complaint on October 15, 2007.




With
      respect to the Mississippi action, the Special Masters assigned to the case
      recommended the denial of the defendants' motion to dismiss on September 22,
      2006. On October 2, 2006, the defendants objected to the Special Masters'
      recommendation. The Court had not ruled on this objection at the time the case
      was removed to federal district court. Also, after removal, the matter was
      transferred to the United States District Court for the District of
      Massachusetts for coordinated and consolidated pre-trial proceedings, where
      the
      State's motion to remand is pending. The case was remanded to the Chancery
      Court
      of Hinds County, Mississippi. On December 13, 2007, the Court denied the
      defendants’ pending motion to dismiss. The defendants appealed the trial court's
      decision to the Supreme Court of Mississippi on January 3, 2008. This appeal
      is
      currently pending.




With
      respect to the Hawaii matter, the State's motion to remand the action was
      granted on November 30, 2006. On January 12, 2007, the defendants filed a joint
      motion to dismiss the State's First Amended Complaint. This motion was denied
      on
      April 11, 2007, and the Company answered the First Amended Complaint on April
      23, 2007.




The
      State
      of Alaska filed an Amended Complaint on October 17, 2006, naming the Company
      and
      other pharmaceutical companies as defendants. The Alaska complaint pleads causes
      of action for (i) violation of the Alaska Unfair Trade Practices and Consumer
      Protection Act and (ii) unjust enrichment. The complaint seeks monetary damages;
      declarative relief; injunctive relief; compensatory, restitution, and/or
      disgorgement damages; civil penalties; punitive damages; costs, attorneys'
      fees,
      and prejudgment interest; and other relief deemed just and equitable by the
      Court. The defendants filed a joint motion to dismiss the State's Amended
      Complaint on January 5, 2007. This motion was denied on May 7, 2007. The Company
      intends to defend this action vigorously.




The
      State
      of South Carolina filed two related actions against the Company and other
      pharmaceutical companies on December 1, 2006. One of these Complaints seeks
      relief on behalf of the South Carolina Medicaid Agency and the other seeks
      relief on behalf of the South Carolina State Health Plan. Both South Carolina
      Complaints plead causes of action for (i) violation of the South Carolina Unfair
      Trade Practices Act; (ii) unjust enrichment; and (iii) injunctive relief. Both
      Complaints seek monetary damages and prejudgment interest; treble damages,
      attorneys' fees, and costs; civil penalties; disgorgement; injunctive relief;
      and other relief deemed just and equitable by the Court. On January 26, 2007,
      the Company moved to dismiss each Complaint or, in the alternative, for a more
      definite statement with respect to each Complaint. These motions are currently
      pending.




44




The
      State
      of Idaho filed a Complaint against the Company and various other pharmaceutical
      companies on January 26, 2007. The Idaho Complaint pleads causes of action
      for
      (i) violation of the Idaho Consumer Protection Act; and (ii) unjust enrichment.
      The State seeks declaratory and injunctive relief; monetary damages; civil
      penalties; disgorgement; attorneys' fees and costs; and other relief deemed
      just
      and equitable by the Court. On March 30, 2007, the defendants filed a joint
      motion to dismiss the State's Complaint. On August 31, 2007, the Court granted
      in part the defendants' joint motion to dismiss and denied it in part. On
      October 1, 2007, the Company answered the State's Complaint.




On
      April
      5, 2007, the County of Orange, New York, filed a Complaint against the Company
      and various other pharmaceutical companies. The Orange County Complaint pleads
      causes of action for (i) violations of the Racketeer Influenced and Corrupt
      Practices Act; (ii) violation of various federal and state Medicaid laws; (iii)
      unfair trade practices; and (iv) common law claims for breach of contract,
      unjust enrichment, fraud, and fraudulent concealment. The County seeks actual,
      statutory, and treble damages, including interest; declaratory relief;
      disgorgement; restitution; attorneys' fees, experts' fees, and costs; and other
      relief deemed just and equitable by the Court. The Orange County action was
      transferred to the United States District Court for the District of
      Massachusetts for coordinated and consolidated pretrial proceedings. On
      September 6, 2007, that Court entered an order adding Orange County to the
      First
      Amended Consolidated Complaint filed by the City of New York and various other
      New York counties.




On
      September 21, 2007, the State of Utah filed a Complaint against the Company
      and
      various other pharmaceutical companies. The Utah Complaint pleads causes of
      action for (i) violations of the Utah False Claims Act and (ii) common law
      fraudulent misrepresentation. The State seeks actual, statutory, and treble
      damages, including prejudgment interest; restitution; attorneys' fees, experts'
      fees, and costs; and other relief deemed just and equitable by the Court. On
      November 20, 2007, the Judicial Panel on Multidistrict Litigation issued an
      order conditionally transferring the case to the United States District Court
      for the District of Massachusetts for coordinated and consolidated pretrial
      proceedings. The State then filed a motion to remand the case to state court,
      on
      December 7, 2007, and a motion to vacate the conditional transfer order, on
      December 12, 2007. These motions are currently pending.




On
      October 9, 2007, the State of Iowa filed a Complaint against the Company and
      various other pharmaceutical companies. The Iowa Complaint pleads causes of
      action for (i) violations of the Iowa Consumer Fraud Act, (ii) common law
      fraudulent misrepresentation, (iii) common law unjust enrichment and (iv)
      reporting of false best price information in violation of 42 USC Sec 1396R-8.
      The State seeks (i) a declaration that the Company committed the alleged
      violations, (ii) injunctive relief against the continuation of the alleged
      violations, (iii) actual, statutory damages, including prejudgment interest
      for
      the claim of unjust enrichment, (iv) actual, statutory damages, including
      prejudgment interest for the claim of fraudulent misrepresentation, (v) actual
      and punitive damages for alleged fraud, and (vi) an accounting of alleged
      illegal profits and a disgorgement of same, restitution, attorneys' fees,
      experts' fees, and costs and other relief deemed just and equitable by the
      Court. The Iowa action has been transferred to the United States District Court
      for the District of Massachusetts for coordinated and consolidated pretrial
      proceedings.


In
        March
        2008, the Company received a letter request from the Attorney General of
        the
        State of Michigan. The request seeks documents and information relating to
        nominal price transactions. The Company is responding to the request and
        will
        cooperate with the inquiry.




****


**Other**





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





**ITEM
      1A****.****RISK
      FACTORS**




There
      are
      no material changes from the risk factors set forth in Part I, Item 1A, “Risk
      Factors,” of the Company’s 2007 Annual Report on Form 10-K. Please refer to that
      section for disclosures regarding certain risks and uncertainties related to
      the
      Company’s business and operations.





45





**ITEM
      2. –****UNREGISTERED
      SALES OF EQUITY****SECURITIES
      AND USE OF PROCEEDS**




**Issuer
      Purchases of Equity Securities** **(1)**




**Quarter
                Ending March 29, 2008**
              
              
              
              **Period**
            
            **Total Number**
              **of Shares of**
              **Common**
              **Stock**
              **Purchased****(2)**
            
            **Average**
              **Price Paid**
              **per Share of**
              **Common**
              **Stock**
            
            **Total Number of Shares**
              **of Common Stock**
              **Purchased as Part of**
              **Publicly Announced**
              **Plans or Programs**
            
            **Maximum Number of**
              **Shares of Common**
              **Stock that May Yet Be**
              **Purchased Under the**
              **Plans or Programs****(3)**January
                1, 2008 through January 26, 2008
            
            
            23,546
            
            
            N/A
            
            
            -
            
            
            -January
                27, 2008 through February 23, 2008
            
            
            401
            
            
            N/A
            
            
            -
            
            
            -February
                24, 2008 through March 29, 2008
            
            
            29,411
            
            
            N/A
            
            
            -
            
            
            2,517,860Total
            
            
            53,358
            
            
            N/A
            
            
            -




(1)
                In
                    April 2004, the Board authorized the repurchase of up to $50.0
                    million of
                    the Company’s common stock. Repurchases are made, subject to compliance
                    with applicable securities laws, from time to time in the open
                    market or
                    in privately negotiated transactions,whenever
                    it appears prudent to do so.
                    Shares of common stock acquired through the repurchase program
                    are
                    available for reissuance for general corporate purposes. On September
                    28,
                    2007, the Company announced that its Board approved an expansion
                    of its
                    share repurchase program allowing for the repurchase of up to
                    $75 million
                    of the Company’s common stock, inclusive of the $17.8 million remaining
                    from the April 2004 authorization.The
                    authorized amount remaining for stock repurchases under the repurchase
                    program was $43.6 million, as of March 29, 2008. The repurchase
                    program
                    has no expiration date.




(2)
            The
                total number of shares purchased represents 53,358 shares surrendered
                to
                the registrant to satisfy tax withholding obligations in connection
                with
                the vesting of restricted stock issued to employees and issuance
                of stock
                in connection with restricted stock units issued to employees.




(3)
            Based
                on the closing price of the Company’s common stock on the New York Stock
                Exchange of $17.30 at March 28,
                2008.





**ITEM
      6****.
      EXHIBITS**





10.1
            Employment
                Agreement, dated as of March 4, 2008, by and between the Company,
                Par
                Pharmaceutical, Inc. and Patrick G. LePore (filed
                herewith).10.2
            Employment
                Agreement, dated as of March 4, 2008, by and between the Company,
                Par
                Pharmaceutical, Inc. and Gerard A. Martino (filed
                herewith).10.3
            Employment
                Agreement, dated as of March 4, 2008, by and between the Company,
                Par
                Pharmaceutical, Inc. and Thomas J. Haughey (filed
                herewith).10.4
            Employment
                Agreement, dated as of March 3, 2008, by and between the Company,
                Par
                Pharmaceutical, Inc. and Veronica Lubatkin (filed
                herewith).10.5
            Employment
                Agreement, dated as of March 5, 2008, by and between the Company,
                Par
                Pharmaceutical, Inc. and Paul V. Campanelli (filed
                herewith).10.6
            Employment
                Agreement, dated as of March 6, 2008, by and between the Company,
                Par
                Pharmaceutical, Inc. and John MacPhee (filed herewith).31.1
            Certification
                of the Principal Executive Officer (filed herewith).31.2
            Certification
                of the Principal Financial Officer (filed herewith).32.1
            Certification
                by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                (attached hereto).32.2
            Certification
                by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                (attached hereto).





46





**SIGNATURES**





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





PAR
                PHARMACEUTICAL COMPANIES, INC.(Registrant)Date:
                May 8, 2008
            /s/
                Patrick G. LePorePatrick
                G. LePore*Chairman,
                President and Chief Executive Officer*Date:
                May 8, 2008
            /s/
                Veronica A. LubatkinVeronica
                A. Lubatkin*Executive
                Vice President and Chief Financial Officer*





47


**EXHIBIT
      INDEX**





Exhibit Number
            
            Description10.1
            
            Employment
                Agreement, dated as of March 4, 2008, by and between the Company,
                Par
                Pharmaceutical, Inc. and Patrick G. LePore (filed
                herewith).10.2
            
            Employment
                Agreement, dated as of March 4, 2008, by and between the Company,
                Par
                Pharmaceutical, Inc. and Gerard A. Martino (filed
                herewith).10.3
            
            Employment
                Agreement, dated as of March 4, 2008, by and between the Company,
                Par
                Pharmaceutical, Inc. and Thomas J. Haughey (filed
                herewith).10.4
            
            Employment
                Agreement, dated as of March 3, 2008, by and between the Company,
                Par
                Pharmaceutical, Inc. and Veronica Lubatkin (filed
                herewith).10.5
            
            Employment
                Agreement, dated as of March 5, 2008, by and between the Company,
                Par
                Pharmaceutical, Inc. and Paul V. Campanelli (filed
                herewith).10.6
            
            Employment
                Agreement, dated as of March 6, 2008, by and between the Company,
                Par
                Pharmaceutical, Inc. and John MacPhee (filed herewith).31.1
            
            Certification
                of the Principal Executive Officer (filed herewith).31.2
            
            Certification
                of the Principal Financial Officer (filed herewith).32.1
            
            Certification
                by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                (attached hereto).32.2
            
            Certification
                by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                (attached hereto).




48