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

                                    FORM 10-Q


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

                For the quarterly period ended September 26, 1998



                         Commission file number 1-14019


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


                Delaware                                     11-2726505
------------------------------------------------   -----------------------------
(State or other jurisdiction of incorporation or           (I.R.S. Employer
             organization)                                 Identification No.)

   100 Campus Drive, Florham Park, NJ                          07932
------------------------------------------------   -----------------------------
(Address of principal executive offices)                     (Zip Code)


                                  973-593-5500
                    ----------------------------------------
                         (Registrant's telephone number)


      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.......


      The number of shares  outstanding of the  registrant's  common stock as of
October 30, 1998 was 32,429,888.


<PAGE>

                           SCHEIN PHARMACEUTICAL, INC.
                                      INDEX

Part I.  FINANCIAL INFORMATION                                              PAGE


       Item 1.  Condensed Consolidated Financial Statements

                     Condensed   Consolidated   Balance  Sheets  as  of
                     September 26, 1998 and December 27, 1997                3

                     Condensed  Consolidated  Statements  of Operations
                     for the three and nine months ended  September 26,
                     1998 and September 27, 1997                             4

                     Condensed  Consolidated  Statements  of Cash Flows
                     for the nine months ended  September  26, 1998 and
                     September 27, 1997                                      5

                     Notes   to   Condensed    Consolidated   Financial
                     Statements                                              6

       Item 2.  Management's Discussion and Analysis of Financial 
                Condition and Results of Operations                          12



Part II.  OTHER INFORMATION

       Item 1.        Legal Proceedings                                      18

       Item 6.        Exhibits and Reports on Form 8-K                       18




SIGNATURES                                                                   19


 
                                      2
<PAGE>

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

                  SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)




<TABLE>
<CAPTION>


                                                                                           September 26,         December 27,
                                                                                                1998                 1997

                                                                                         -------------------  -------------------
                                           Assets                                           (unaudited)
                                           ------
<S>                                                                                  <C>                   <C> 

      Current assets:
           Cash and cash equivalents..................................................   $       10,512      $           804
           Accounts receivable, less allowance for possible losses of
              $2,491 and $2,260.......................................................           79,796                88,781
           Inventories................................................................          115,543               119,142
           Income taxes receivable, net...............................................           12,329                  --      
           Other current assets.......................................................           13,125                14,035
                                                                                         ------------------   -----------------
                Total current assets..................................................          231,305               222,762
      Property, plant and equipment, net..............................................          111,711               110,432
      Product rights, licenses and regulatory approvals, net..........................          104,284                86,564
      Goodwill, net...................................................................              388                98,366
      Other assets....................................................................           16,922                16,002
                                                                                         ------------------   -----------------
                                                                                         $      464,610       $       534,126
                                                                                         ==================    ================



                            Liabilities and Stockholders' Equity
                            ------------------------------------

      Current liabilities:
           Accounts payable and accrued expenses......................................   $      100,141       $        81,478
           Income taxes payable.......................................................              --                 11,595
           Revolving credit and current maturities of long-term debt..................          106,095                56,440
                                                                                         ------------------   -----------------
                Total current liabilities.............................................          206,236               149,513
      Long-term debt, less current maturities.........................................          134,160               198,705
      Other non-current liabilities...................................................           45,077                46,193
      Commitments and contingencies
      Stockholders' equity:
           Common stock, $.01 par value;  100,000 authorized shares;  issued and
              outstanding 32,430 shares at September 26, 1998
              and 28,693 shares at December 27, 1997..................................              324                   287
           Additional paid-in capital.................................................           96,662                38,494
           Retained earnings (accumulated deficit)....................................          (17,432)               99,483
           Accumulated other comprehensive income (loss)..............................             (417)                1,502
             Other                                                                                   --                   (51)
                                                                                         ------------------   ----------------- 
                Total stockholders' equity............................................           79,137               139,715
                                                                                         ------------------    ----------------
                                                                                         $      464,610       $       534,126
                                                                                         ==================   =================

</TABLE>


See accompanying notes to condensed consolidated financial statements.


                                       3
<PAGE>

                  SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except earnings per share)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                       Three Months Ended                    Nine Months Ended
                                                                  -------------------------------     ------------------------------
                                                                    Sept. 26,      Sept. 27,            Sept. 26,      Sept. 27,
                                                                       1998          1997                  1998          1997
                                                                  --------------- ---------------     --------------- --------------
<S>                                                         <C>                  <C>               <C>              <C>

   Net revenues..................................................  $   116,922       $107,549         $   401,574     $   353,829
   Cost of sales.................................................       78,069         75,572             264,683         240,562
                                                                  --------------- --------------      --------------- --------------


            Gross profit.........................................       38,853         31,977              136,891        113,267
   Costs and expenses:
            Selling, general and administrative..................       22,575         20,885               66,394         59,956
            Research and development.............................        7,571          8,676               21,772         22,854
            Amortization of goodwill and other intangibles.......        2,139          2,574                7,287          7,722
            Restructuring charge.................................      156,600             --              156,600             --
                                                                  --------------- --------------      --------------- --------------


   Operating income (loss).......................................     (150,032)          (158)            (115,162)        22,735
            Interest expense, net................................        4,777          6,722               15,824         20,456
            Other income, net....................................         (351)        (6,559)              (2,493)        (6,542)
                                                                  --------------- --------------      --------------- --------------

   Income (loss) before provision for income taxes and
             extraordinary item..................................     (154,458)          (321)            (128,493)         8,821
   Provision (benefit) for income taxes..........................      (23,638)           155              (13,238)         5,095
                                                                  --------------- --------------      --------------- --------------


   Income (loss) before extraordinary item.......................     (130,820)          (476)            (115,255)         3,726
   Extraordinary item: loss on early extinguishment of
            debt, net of income tax..............................           --             --               (1,660)            --
                                                                  --------------- --------------      --------------- --------------

   Net income (loss)............................................. $   (130,820)   $      (476)        $   (116,915)   $     3,726
                                                                  =============== ==============      =============== ==============


   Earnings (loss) per share, basic and diluted:
            Income (loss) before extraordinary item.............. $      (4.04)   $     (0.02)        $      (3.72)   $       0.13
                                                                                                                      
            Extraordinary item...................................           --             --                (0.06)             --
                                                                  --------------- --------------      --------------- --------------
            Net income (loss).................................... $      (4.04)   $     (0.02)        $      (3.78)   $       0.13
                                                                                                                      
                                                                  =============== ==============      =============== ==============



   Weighted average common shares and equivalents:                      32,401         28,693               30,954         28,755
                                                                  =============== ==============      =============== ==============

</TABLE>

See accompanying notes to condensed consolidated financial statements.



                                       4
<PAGE>

                  SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (unaudited)

<TABLE>
<CAPTION>

                                                                                                  Nine Months Ended
                                                                                    ------------------------------------------
                                                                                      September 26,          September 27,
                                                                                          1998                    1997
                                                                                    ------------------     -------------------
<S>                                                                                                    <C>    

   Cash flows from operating activities:
      Net income (loss)............................................................ $      (116,915)       $          3,726
     Adjustments to reconcile net income (loss) to net
       cash flows from operating activities:
         Depreciation and amortization.............................................          19,105                  19,749
         Impairment of long lived assets, due to restructuring.....................         102,280                      --
         Inventory write-off, due to restructuring.................................          30,500                      --
         Deferred income taxes.....................................................           1,349                  (1,237)
         Gain on sale of marketable securities.....................................          (4,551)                 (9,883)
         Extraordinary item: loss on early extinguishment of debt, non-cash........           1,160                      --
         Other.....................................................................           3,743                   3,530
     Changes in operating assets and liabilities:
         Accounts receivable.......................................................           8,754                   4,167
         Inventories...............................................................         (26,901)                  7,254
         Prepaid expenses and other assets.........................................            (415)                    278
         Income taxes..............................................................         (22,780)                 (1,410)
         Accounts payable, accrued expenses and other liabilities..................           8,690                     897
                                                                                    ------------------     -------------------
   Net cash provided by operating activities.......................................           4,019                  27,071
                                                                                    ------------------     -------------------

   Cash flows from investing activities:
     Capital expenditures..........................................................         (19,612)                  (8,992)
     Product rights and licenses...................................................         (15,811)                      --
     International investments.....................................................          (6,838)                    (150)
     Proceeds from the sale of marketable securities...............................           6,607                   11,575
     Other, net....................................................................            (950)                  (1,188)
                                                                                    -------------------    -------------------

   Net cash provided by (used in) investing activities.............................         (36,604)                   1,245
                                                                                    ------------------     -------------------

   Cash flows from financing activities:
     Principal payments on, or repayments of, debt.................................        (169,890)                (143,067)
     Proceeds from issuance of debt................................................         155,000                  113,000
     Net proceeds from initial public offering.....................................          52,450                       --
     Proceeds from stock purchase plan and exercise of stock options...............           4,850                       --
     Increase in other non-current assets..........................................            (117)                      --
                                                                                    -------------------    -------------------
   Net cash provided by (used in) financing activities.............................          42,293                  (30,067)
                                                                                    ------------------     -------------------

   Net increase (decrease) in cash and cash equivalents............................           9,708                   (1,751)
   Cash and cash equivalents, beginning of period..................................             804                    2,139
                                                                                    -------------------    -------------------

   Cash and cash equivalents, end of period........................................ $        10,512        $             388
                                                                                    ==================     ===================

</TABLE>


See accompanying notes to condensed consolidated financial statements.



                                       5
<PAGE>
NOTE 1--SUMMARY OF ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Rule 10-01 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of only normal recurring accruals and the restructuring charge described in Note
7) considered  necessary for a fair presentation  have been included.  Operating
results and cash flows for the interim  periods ended September 26, 1998 are not
necessarily  indicative  of the results that may be expected for the year ending
December 26, 1998. For further  information refer to the consolidated  financial
statements  and  footnotes  thereto  for the 1997  fiscal  year  included in the
Company's Registration Statement on Form S-1 dated April 8, 1998.

Basic earnings per share has been computed using the weighted  average number of
shares of common stock  outstanding.  Diluted  earnings  per share  includes the
assumed  exercise of stock  options  using the treasury  stock method that could
potentially dilute earnings per share. In the three month and nine month periods
ended  September 26, 1998,  and in the quarter ended  September 27, 1997,  there
were no differences  between basic and diluted loss per common share because the
assumed exercise of stock options was anti-dilutive.


NOTE 2--INVENTORIES

Inventories are summarized as follows:


<TABLE>
<CAPTION>

                                                                          September 26,            December 27,
                                                                              1998                      1997
                                                                        ------------------       -----------------
                                                                                      (In thousands)
<S>                                                              <C>                       <C>

     Finished products.............................................     $                        $        45,568
                                                                                   42,299
     Work-in-process...............................................                29,562                 33,160
     Raw materials and supplies....................................                43,682                 40,414
                                                                        ------------------       ------------------
                                                                        $         115,543        $       119,142
                                                                        ==================       ==================

</TABLE>


NOTE 3--STRATEGIC ALLIANCES

On March 31, 1998, the Company  entered into an agreement with Elan  Corporation
plc covering  several  products in various stages of development in the areas of
oral  sustained-release  and  transdermal  products.  Under the  agreement,  the
Company is obligated to pay $14 million in license fees through  March 1999,  of
which $7  million  was paid in the third  quarter of 1998,  and $7  million  was
included  in  accounts   payable  and  accrued   expenses  at  September   1998.
Additionally,  the Company may be obligated to pay approximately $3.5 million in
additional  fees as and when certain  milestones are achieved.  Certain of these
fees may be  increased  by up to $2 million or  decreased  by up to $0.5 million
depending on whether certain other milestones are achieved.



                                       6
<PAGE>

                  SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)


NOTE 4-- BORROWINGS

The  Company's  senior  floating  rate  notes  are  fully  and   unconditionally
guaranteed jointly and severally by each of the Company's domestic subsidiaries,
each of which is wholly-owned  by the Company.  These  subsidiaries  sell all of
their products to Schein  Pharmaceutical,  Inc., the parent company.  Summarized
financial  information for these wholly-owned  subsidiary  guarantors (using the
push-down method of accounting) is as follows:

<TABLE>
<CAPTION>

                                                                                   September 26,            December 27,
                                                                                       1998                     1997
                                                                                 ------------------       ------------------
                                                                                              (In thousands)
<S>                                                                        <C>                      <C>   

Current assets:
         Inventory..........................................................     $         68,323         $        74,924
                                                                                                                   
         Intercompany receivables...........................................               85,383                 119,191
         Other current assets...............................................               16,663                   4,197

Property, plant and equipment, net..........................................              106,668                 104,807
Product rights, licenses and regulatory approvals, goodwill,
          net and other assets..............................................               70,822                 178,548

Current liabilities.........................................................              163,166                 109,800
Deferred income taxes and other liabilities.................................               44,331                  44,921
Long-term debt (pushed down)................................................              125,000                 186,000



                                                                                            Nine Months Ended
                                                                                 ------------------------------------------
                                                                                   September 26,          September 27,
                                                                                       1998                    1997
                                                                                 ------------------     -------------------
                                                                                              (In thousands)
Net revenues................................................................     $        339,452       $         269,764
Gross profit................................................................              102,121                  70,718
Operating income (loss).....................................................             (131,605)                 15,845
Net income (loss)...........................................................             (123,314)                  2,478


</TABLE>

The Company has amended its revolving  credit and term loan  agreements with its
bank group. This amendment  provides for an increase in permissible  investments
and  certain  indebtedness.  Additionally,  it  modified  the  minimum net worth
requirement and adjusted certain required ratios (as defined therein)  including
leverage,  fixed charge coverage and interest  expense  coverage.  The amendment
increased  the  future  interest  rate  spread  the  Company  will pay under the
revolving  credit  and  term  loan  agreements   depending  upon  the  Company's
performance against leverage and interest expense ratios.



                                       7
<PAGE>

NOTE 5--INITIAL PUBLIC OFFERING

On April 9, 1998, the Company  consummated  an initial  public  offering of 3.45
million  shares of common stock which  generated net proceeds of $52.5  million.
The majority of the proceeds of the offering  were used to retire $50 million of
the  Company's  senior  floating rate notes.  This resulted in an  extraordinary
charge of $1.7 million,  net of taxes,  related to the early  extinguishment  of
debt in the second quarter of 1998.  This  extraordinary  item is comprised of a
write-off of non-cash  deferred  financing fees as well as costs associated with
the reacquisition of the notes.


NOTE 6-- COMPREHENSIVE INCOME

Effective in fiscal 1998, the Company adopted Statement of Financial  Accounting
Standards  No.  130,  "Reporting  Comprehensive  Income."  The  Company's  total
comprehensive income (loss) for the periods indicated were as follows:

<TABLE>
<CAPTION>

                                                                Three Months Ended                Nine Months Ended
                                                           -----------------------------    -----------------------------
                                                            Sept. 26,        Sept. 27,        Sept. 26,       Sept. 27,
                                                               1998             1997            1998             1997
                                                           ------------     ------------    -------------    ------------
                                                                  (In thousands)                    (In thousands)
<S>                                                                   <C>               <C>              <C>    

Net income (loss)....................................      $ (130,820)      $      (476)    $ (116,915)      $    3,726
                                                           -------------    -------------   --------------   -------------

Other comprehensive income (loss), net of tax:
     Foreign currency translation adjustment.........             534                --            127               27
     Unrealized holding gains arising during                      114             4,126            662            7,323
              period.................................
     Less: reclassification adjustment for gains
              included in net income.................            (806)           (5,880)        (2,708)          (5,880)
                                                           -------------    -------------   --------------   -------------
Other comprehensive income (loss)....................            (158)           (1,754)        (1,919)           1,470
                                                           -------------    -------------   --------------   -------------


Comprehensive income (loss)..........................      $ (130,978)      $    (2,230)    $ (118,834)      $    5,196
                                                           =============    =============   ==============   =============

</TABLE>

Components of accumulated  other  comprehensive  income (loss),  included in the
Company's balance sheets, are as follows:

<TABLE>
<CAPTION>

                                                                           September 26,         December 27, 1997
                                                                               1998
                                                                         ------------------      ------------------
                                                                                      (In thousands)
<S>                                                                   <C>                     <C>

     Unrealized gains on marketable securities.....................      $          240          $          2,286
     Cumulative foreign currency translation adjustment............                (657)                     (784)
                                                                         -----------------       ------------------

                                                                         $         (417)         $          1,502
                                                                         =================       ==================

</TABLE>



                                       8
<PAGE>

                  SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)


NOTE 7-- CONSENT DECREE AND RESTRUCTURING CHARGE

Food and Drug Administration Consent Decree

On  September  10,  1998,  the  United  States,  on  behalf of the Food and Drug
Administration  ("FDA"),  based on  actions  it filed  in  federal  court in the
Southern  District of New York on  September 9 and in the District of Arizona on
September 10, initiated seizures of drugs and drug related products manufactured
by the Company's Steris Laboratories,  Inc. ("Steris")  subsidiary.  The actions
alleged  certain  instances in which the Steris  facility  was not  operating in
conformity  with  current  Good   Manufacturing   Practices  (known  as  "cGMP")
regulations.  The actions  resulted in the seizure of all drugs and drug related
products in the Company's  possession  manufactured  at the Steris  facility and
halted the manufacture and distribution of Steris products.

On or about  October  16,  1998,  Steris and  certain of its  officers,  without
admitting any  allegations of the complaints  and  disclaiming  any liability in
connection  therewith,  entered  into a consent  decree filed in the District of
Arizona (to which the New York action had been transferred).  Under the terms of
the consent  decree,  Steris is required,  among other  things,  to  demonstrate
through independent certification that Steris' processes, programs, and controls
comply with cGMP  regulations.  The consent decree also provides for independent
certification  of Steris'  management  controls,  quality  assurance and quality
control  programs,  and employee cGMP training.  It further requires that Steris
develop a timeline and Corrective Action Plan for implementing these actions and
for  expert  certification  with  respect to matters  covered  in  previous  FDA
inspections  of the facility.  In addition,  Steris will be  destroying  certain
inventory  valued at $30.5  million.  Steris  posted a bond in the  amount of $6
million to secure certain obligations under the consent order.

As a result of the consent  decree,  Steris has  divided  its product  line into
three  categories:  products that it will seek to  manufacture  under  expedited
certification procedures under the consent decree, products that it will seek to
manufacture  once it satisfies  all  conditions  under the consent  decree,  and
products it currently has decided not to  manufacture.  Expedited  certification
procedures  apply for certain  products that are  particularly  important to the
medical community  because they are primarily or exclusively  available from the
Company or that are particularly significant to the Company.

The Steris facility  accounted for  approximately 40% of the Company's net sales
and 50% of gross profits for the first six months of 1998.  The Company  resumed
shipments  of INFeD(R),  its branded  injectable  iron  product,  from  existing
inventory on October 30, 1998.  Steris intends to resume  production of INFeD(R)
in the coming weeks and other  products  starting in the first  quarter of 1999.
The Steris  products the Company has decided not to manufacture in the near term
contributed  approximately  $65 million in revenue in the 12-month  period ended
June 1998.

During the 30 days following the signing of the consent  agreement,  Steris will
continue and expand the records review and product-testing  program it initiated
earlier in 1998,  which includes  oversight by independent  expert  consultants.
Based on the  findings of this program to date and other  commitments  under the
consent  agreement,  Steris has initiated a number of recalls and will institute
other recalls, if warranted.

The consent decree has been filed as an exhibit to the Company's  report on Form
8-K, dated October 27, 1998, and the foregoing description of the consent decree
is qualified in its entirety by reference to the full and complete  terms of the
consent decree.




                                       9
<PAGE>

Restructuring Charge

As a result of the actions taken by the FDA and the consent  agreement  reached,
the  Company  recorded  a  restructuring  charge of $132.4  million,  net of tax
benefit,  in the third quarter.  The detail of this  restructuring  charge is as
follows (in millions):


<TABLE>
<CAPTION>
<S>                                                              <C>  

Asset impairments:
    Goodwill write-off............................................     $         95.5
    Inventory write-off...........................................               30.5
    Fixed asset impairment........................................                6.8
                                                                       ---------------
                                                                                132.8
                                                                       ---------------
Restructuring costs:
    Regulatory and compliance related costs.......................               10.1
    Temporary manufacturing shutdown costs........................                5.3
    Severance and consolidation of distribution operations........                4.4
    Recalls and related expenses..................................                2.0
    Other costs and expenses......................................                2.0
                                                                        ---------------
                                                                                 23.8
                                                                        ---------------

               Total write-offs and charges.......................              156.6

               Income tax benefit.................................              (24.2)
                                                                       ---------------

                                                                       $        132.4
                                                                       ===============
</TABLE>


The long-term  asset  write-offs  were recorded in accordance  with Statement of
Financial  Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for Long-Lived  Assets to Be Disposed Of". As a result of
the FDA consent agreement and the Company's decision not to manufacture  certain
Steris products,  the Company's approach to manufacturing and marketing products
for the institutional market required reevaluation. As a part of its evaluation,
management  reviewed the carrying value of the goodwill  associated with Marsam,
which like Steris,  manufactures  and markets  generic  injectable  prescription
drugs for the institutional market. Based on an analysis of projected discounted
cash  flows  from  operating  income,  management  determined  the amount of the
write-off of goodwill.

Regulatory  and compliance  related costs consist  primarily of costs related to
products  the  Company  will no longer  manufacture  and  validation  testing of
products in the market.  Severance  costs relate  primarily to the  reduction in
work force of approximately  350 employees at the Company's Steris facility.  As
of September 26, 1998, $7.3 million has been charged  against the  restructuring
reserve of $23.8 million  established  in the third quarter of 1998. The Company
expects  to record  an  additional  restructuring  charge  of  approximately  $3
million, net of tax benefit, in the fourth quarter.




                                       10
<PAGE>

NOTE 8--LEGAL PROCEEDINGS

In September and October 1998,  following the commencement of the seizure action
by the FDA, six substantially  similar complaints were filed in federal court in
the District of New Jersey against the Company, its Chairman and Chief Executive
Officer, its Chief Financial Officer and, in certain actions, one or more of the
following: the Company's Senior Vice President of Technical Operations,  General
Counsel and three  underwriters  of the Company's  April 9, 1998 initial  public
offering  (the  "Offering").  Plaintiffs  purport to sue on behalf of a class of
persons who purchased shares of the Company's common stock pursuant or traceable
to the Offering and allege that  defendants  violated the Securities Act of 1933
by making  misrepresentations and omissions of material facts in connection with
the Offering and in the registration statement and prospectus issued pursuant to
the Offering.  Plaintiffs allege,  among other things, that defendants failed to
disclose or misrepresented facts concerning the status of the Company's internal
controls  and  ability to comply  with  government  regulations  relating to its
manufacturing  activities,  including  the  status of the  Company's  corrective
actions at the Steris facility. Plaintiffs on behalf of the purported class seek
damages,  recission  and/or  recissionary  damages  under the  provisions of the
Securities Act of 1933. The Company's time to move or answer with respect to the
complaints  has in general been  extended  until after the  appointment  of lead
plaintiff and lead counsel and the filing by plaintiffs of any amended pleading.
The Company intends to defend itself vigorously against these actions.

As reflected in the Company's Registration Statement dated April 8, 1998, in one
of the Company's patent challenge  litigations  filed in the U.S. District Court
for the Southern District of New York, the trial judge ruled against the Company
and upheld the  validity of the patent at issue.  On October 1, 1998,  the Court
awarded  attorneys  fees to the patent holder and its licensee.  The Company has
been informed that the fees sought will be approximately $3 million,  subject to
final determination by the Court. The Company intends to appeal this decision.



                                       11
<PAGE>

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


Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

Certain  statements in this Form 10-Q 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
events or results.  Such forward  looking  statements  may be identified by such
forward looking terms as expect, believe, may, anticipate, will or similar terms
or  variations  thereof.   These  forward  looking  statements  involve  certain
significant  risks and  uncertainties,  and actual results may differ materially
from the forward  looking  statements.  Some  important  factors which may cause
results  to  differ  include:   the  difficulty  of  predicting  Food  and  Drug
Administration ("FDA") approvals,  uncertainties  associated with implementation
of the terms and conditions of the consent decree affecting the Company's Steris
Laboratories, Inc. ("Steris") facility, the uncertainty of acceptance and demand
for the Company's new products,  the impact of competitive products and pricing,
the  availability  of raw materials,  uncertainties  associated  with litigation
(including  without limitation patent  challenges) and regulatory  matters,  and
fluctuations in operating results. Other important factors that may cause actual
results to differ  materially from the forward looking  statements are discussed
in the "Risk  Factors"  and  "Management's  Discussion  & Analysis of  Financial
Condition and Results of Operations"  sections of the Company's prospectus dated
April 8, 1998,  which is on file with the Securities and Exchange  Commission as
part of the Company's Registration Statement on Form S-1. The Company assumes no
duty to update any such forward looking statements, even if experience or future
changes indicate that any such events or results may not be realized.


Food and Drug Administration Consent Decree

On September 10, 1998, the United States, on behalf of the FDA, based on actions
it filed in federal  court in the  Southern  District of New York on September 9
and in the District of Arizona on September 10, initiated  seizures of drugs and
drug  related  products  manufactured  by Steris.  The actions  alleged  certain
instances in which the Steris  facility was not  operating  in  conformity  with
current Good Manufacturing Practices (known as "cGMP") regulations.  The actions
resulted in the seizure of all drugs and drug related  products in the Company's
possession  manufactured  at the Steris  facility and halted the manufacture and
distribution of Steris products.

On or about  October  16,  1998,  Steris and  certain of its  officers,  without
admitting any  allegations of the complaints  and  disclaiming  any liability in
connection  therewith,  entered  into a consent  decree filed in the District of
Arizona (to which the New York action had been transferred).  Under the terms of
the consent  decree,  Steris is required,  among other  things,  to  demonstrate
through independent certification that Steris' processes, programs, and controls
comply with cGMP  regulations.  The consent decree also provides for independent
certification  of Steris'  management  controls,  quality  assurance and quality
control  programs,  and employee cGMP training.  It further requires that Steris
develop a timeline and Corrective Action Plan for implementing these actions and
for  expert  certification  with  respect to matters  covered  in  previous  FDA
inspections  of the facility.  In addition,  Steris will be  destroying  certain
inventory  valued at $30.5  million.  Steris  posted a bond in the  amount of $6
million to secure certain obligations under the consent order.

As a result of the consent  decree,  Steris has  divided  its product  line into
three  categories:  products that it will seek to  manufacture  under  expedited
certification procedures under the consent decree, products that it will seek to
manufacture  once it satisfies  all  conditions  under the consent  decree,  and
products it currently has decided not to  manufacture.  Expedited  certification
procedures  apply for certain  products that are  particularly  important to the
medical community  because they are primarily or exclusively  available from the
Company or that are particularly significant to the Company.


The Steris facility  accounted for  approximately 40% of the Company's net sales
and 50% of gross profits for the first six months of 1998.  The Company  resumed
shipments  of INFeD(R),  its branded  injectable  iron  product,  from  existing



                                       12
<PAGE>

inventory on October 30, 1998.  Steris intends to resume  production of INFeD(R)
in the coming weeks and other  products  starting in the first  quarter of 1999.
The Steris  products the Company has decided not to manufacture in the near term
contributed  approximately  $65 million in revenue in the 12-month  period ended
June 1998.

During the 30 days following the signing of the consent  agreement,  Steris will
continue and expand the records review and product-testing  program it initiated
earlier in 1998,  which includes  oversight by independent  expert  consultants.
Based on the  findings of this program to date and other  commitments  under the
consent  agreement,  Steris has initiated a number of recalls and will institute
other recalls, if warranted.

The consent decree has been filed as an exhibit to the Company's  report on Form
8-K, dated October 27, 1998, and the foregoing description of the consent decree
is qualified in its entirety by reference to the full and complete  terms of the
consent decree.

Restructuring Charge

As a result of the actions taken by the FDA and the consent  agreement  reached,
the  Company  recorded  a  restructuring  charge of $132.4  million,  net of tax
benefit,  in the third quarter.  The detail of this  restructuring  charge is as
follows (in millions):

<TABLE>
<CAPTION>
<S>                                                              <C>    

Asset impairments:
    Goodwill write-off............................................     $         95.5
    Inventory write-off...........................................               30.5
    Fixed asset impairment........................................                6.8
                                                                       ---------------
                                                                                132.8
                                                                       ---------------
Restructuring costs:
    Regulatory and compliance related costs.......................               10.1
    Temporary manufacturing shutdown costs........................                5.3
    Severance and consolidation of distribution operations........                4.4
    Recalls and related expenses..................................                2.0
    Other costs and expenses......................................                2.0
                                                                        ---------------
                                                                                 23.8
                                                                        ---------------

               Total write-offs and charges.......................              156.6

               Income tax benefit.................................              (24.2)
                                                                       ---------------

                                                                       $        132.4
                                                                       ===============

</TABLE>

The long-term  asset  write-offs  were recorded in accordance  with Statement of
Financial  Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for Long-Lived  Assets to Be Disposed Of". As a result of
the FDA consent agreement and the Company's decision not to manufacture  certain
Steris products,  the Company's approach to manufacturing and marketing products
for the institutional market required reevaluation. As a part of the evaluation,
management  reviewed the carrying value of the goodwill  associated with Marsam,
which like Steris,  manufactures  and markets  generic  injectable  prescription
drugs for the institutional market. Based on an analysis of projected discounted
cash  flows  from  operating  income,  management  determined  the amount of the
write-off of goodwill.



                                       13
<PAGE>

Regulatory  and compliance  related costs consist  primarily of costs related to
products  the  Company  will no longer  manufacture  and  validation  testing of
products in the market.  Severance  costs relate  primarily to the  reduction in
work force of approximately  350 employees at the Company's Steris facility.  As
of September 26, 1998, $7.3 million has been charged  against the  restructuring
reserve of $23.8 million  established  in the third quarter of 1998. The Company
expects  to record  an  additional  restructuring  charge  of  approximately  $3
million, net of tax benefit, in the fourth quarter.

Steris  expects  to  experience  incremental  operating  costs  due  to  ongoing
compliance  requirements and quality assurance  programs  initiated in part as a
result of the FDA action.  The Company will seek to mitigate the impact of these
costs through savings achieved by significantly streamlining operations.


Results of Operations

Results for the third  quarter and nine months  ended 1998 were  impacted by the
FDA seizure and related restructuring charge described above.

The following  table sets forth  comparisons of product  revenues and settlement
revenues for each of the periods shown:


<TABLE>
<CAPTION>

                                                              Three Months Ended                    Nine Months Ended
                                                        -------------------------------       ------------------------------
                                                          Sept. 26,        Sept. 27,            Sept. 26,       Sept. 27,
                                                             1998            1997                 1998            1997
                                                        ---------------  --------------       --------------  --------------
                                                                (In millions)                         (In millions)
<S>                                                  <C>              <C>              <C>                 <C>    

     Product revenues................................   $         116.9  $        107.5       $       371.6   $       328.8
     Patent reviews:  settlement revenues............                --              --                30.0            25.0
                                                        ---------------  --------------       --------------  --------------
          Total net revenues.........................   $         116.9  $        107.5       $       401.6   $       353.8
                                                        ===============  ==============       ==============  ==============

</TABLE>

Net revenues for the third quarter of 1998 increased $9.4 million, or 8.7%, from
$107.5  million in 1997 to $116.9  million in 1998.  Net  revenues  for the nine
months ended 1998 increased $47.8 million, or 13.5%, from $353.8 million in 1997
to $401.6 million in 1998.

Product  revenues for the third quarter  increased $9.4 million and for the nine
month period  increased $42.8 million.  The increase in product  revenues in the
third quarter is  attributable  to volume  increases of $16.7 million  partially
offset  by price  erosion  of $7.6  million.  In the nine  month  period  volume
increases were $62.4 million and were partially offset by price erosion of $19.8
million.  New  generic  products  launched  in the  past 12  months  contributed
revenues of $31.2  million in the third  quarter  and $76.1  million in the nine
month period.  Methylphenidate  and  ketoprofen ER (both  launched in the fourth
quarter of 1997) represent the majority of these new product revenues.

Settlement  revenues in 1997 and 1998  reflected in the nine month  periods were
funds received from a pharmaceutical  company  pursuant to an agreement  reached
with the  company in 1994.  Under the  agreement  the  Company  received a final
payment of $30 million in the first  quarter of 1998,  half of which was paid to
the Company's consultant. In addition to the amounts paid to the consultant, the
Company incurs  substantial  other costs related to its patent review activities
as part of its overall product development activities.

Gross profit for the third quarter increased $6.9 million,  or 21.5%, from $32.0
million in 1997 to $38.9 million in 1998. Gross profit for the nine month period
increased $23.6 million, or 20.9%, from $113.3 million in 1997 to $136.9 million
in 1998. The gross margin  improved 3.5% from 29.7% in the third quarter 1997 to
33.2% in 1998 and in the nine month  period  gross  margin  increased  2.1% from
32.0% in 1997 to 34.1% in 1998. The increase in gross profit was principally the
result of  volume  increases,  improvement  in the mix of  products  sold and an
increase in settlement revenues, partially offset by price erosion.


                                       14
<PAGE>

Selling,  general and  administrative  expenses for the third quarter  increased
$1.7  million,  or 8.1%,  from $20.9  million in 1997 to $22.6  million in 1998.
Selling, general and administrative expenses for the nine month period increased
$6.4 million, or 10.7%, from $60.0 million in 1997 to $66.4 million in 1998. The
increase in selling,  general and  administrative  expenses was primarily due to
higher brand selling and marketing expenses to support pre-launch activities for
Ferrlecit(R) and certain generic marketing programs  associated with new product
launches.

Research and development  expenses in the third quarter  decreased $1.1 million,
or 12.7%,  from $8.7  million  in 1997 to $7.6  million  in 1998.  Research  and
development  expenses in the nine month period of $21.8 million are $1.1 million
lower than last year's $22.9  million.  However,  it is currently  expected that
research and development expenses for the full year may exceed 1997 levels.

Amortization  of goodwill and other  intangibles was $0.4 million lower than the
comparable periods in 1997.

A  restructuring  charge  totaling  $156.6  million  ($132.4  million net of tax
benefit)  was  recorded in the third  quarter of 1998.  This  charge  relates to
specific  decisions  by the  Company  to  reduce  its  work  force,  consolidate
distribution  operations  and  includes  the  non-cash  write-off  of  goodwill,
inventory, and impaired fixed assets, (see Restructuring Charge).  Additionally,
in connection with the restructuring,  the Company expects to record a charge of
approximately  $5.0  million  ($3.0  million  net of tax  benefit) in the fourth
quarter of 1998.  The work  force  reduction  in  non-manufacturing  areas,  the
consolidation  of  distribution  operations  and the  write-off  of  goodwill is
expected to result in a reduction in operating  expenses of approximately  $10.0
million per year. However,  this is expected to be partially offset by increased
levels of spending in connection with the anticipated  launch of Ferrlecit(R) in
1999.

Operating loss for the third quarter increased $149.9 million, from an operating
loss of $0.1  million in 1997 to an  operating  loss of $150.0  million in 1998.
Operating  loss for the nine  month  period  increased  $137.9  million  from an
operating income of $22.7 million in 1997 to an operating loss of $115.2 million
in 1998.  Excluding the impact of the  restructuring  charge,  operating  income
increased  $6.7  million for the third  quarter to $6.6 million and for the nine
months increased $18.7 million to $41.4 million.

Interest expense,  net, in the third quarter  decreased $1.9 million,  or 28.9%,
from $6.7 million in 1997 to $4.8 million in 1998. Interest expense, net, in the
nine month period decreased $4.6 million,  or 22.6%,  from $20.5 million in 1997
to $15.9 million in 1998. In the second quarter the Company  retired $50 million
of senior  floating rate notes with proceeds from its April 1998 initial  public
offering which resulted in interest expense savings of $1.2 million in the third
quarter.  Additional factors contributing to lower interest expense in the third
quarter and nine month period were lower  overall debt levels,  lower  borrowing
rates due to higher cost subordinated debt being exchanged for lower cost senior
floating rate notes in December  1997 and lower  interest rate spreads under the
bank agreement.

Other income,  net, in the third quarter  changed by $6.2 million from an income
of $6.6 million in 1997 to income of $0.4 million in 1998. Other income, net, in
the nine month  period was $2.5  million in 1998 and $6.5  million in 1997.  The
change in other  income,  net, in the nine month period is due to lower gains on
the sales of marketable  securities in the 1998 period,  offset by a gain on the
divestiture of an international joint venture.

An  extraordinary  item of $1.7 million in the nine month period of 1998 related
to the write-off of deferred financing fees in connection with the retirement of
$50  million of the  Company's  senior  floating  rate notes with  proceeds  the
Company received from its April 1998 initial public offering.

The  Company's  effective  tax rate is  impacted  by the  effect of  significant
non-deductible expenses, which are largely comprised of amortization of goodwill
and in 1998 the write-off of the goodwill included in the restructuring  charge.
The  effective  tax rate was a 10%  benefit  for the nine month  period of 1998,
while the  effective tax rate was 58% in 1997.  The 1997 and 1998  effective tax
rates reflect the  amortization  of goodwill and in 1998 the $95 million  charge
for the goodwill  write-off  with no  corresponding  tax benefit.  Excluding the
impact of the  restructuring  charge,  the Company's 1998 effective tax rate was
26% for the third quarter and 39% for the nine month period.



                                       15
<PAGE>

Liquidity and Capital Resources

As a result of the actions taken by the FDA and the consent  agreement  reached,
the  Company  recorded  a  restructuring  charge  of  $156.6  million,  which is
described  above.  Of this amount,  approximately  $132.8  million  consisted of
non-cash write-offs. The remaining $23.8 million consisted of charges which have
resulted or will result in cash outlays by the Company.  It is expected that the
cash outlays related to the restructuring charge will be disbursed by the end of
1999.  The Company  expects to realize tax benefits of $24.2 million as a result
of the  restructuring  charge primarily through the utilization of net operating
loss ("NOL") carrybacks. The benefits of the NOL carrybacks are largely expected
to be collected in 1999.  Accordingly,  the net cash impact of the charge is not
expected to be significant.

Net cash provided by operating  activities  was $4.0 million for the nine months
ended September 1998. The net cash provided by operating  activities during 1998
was  attributable  net income as adjusted  for the effects of non-cash  items of
$36.7 million and changes in assets and liabilities  totaling $32.7 million. The
decrease in accounts  receivable of $8.7 million was primarily the result of the
absence of revenues  from Steris  manufactured  products  subsequent  to the FDA
action.  Inventories increased from a seasonally low December inventory level by
$26.9  million,  as well as increases  in work in process,  offset by a non-cash
write-off of $30.5 million related to the restructuring.  The decrease in income
taxes of $22.8 million reflects the effects of the income tax benefit related to
the  restructuring,  partially offset by higher accrued expenses of $8.7 million
also related to the restructuring.

Net cash used in  investing  activities  was $36.6  million  for the nine months
ended  September  1998.  The net cash  used in  investing  activities  consisted
primarily of capital  expenditures of $19.6 million,  the acquisition of product
rights and  licenses of $15.8  million  and  international  investments  of $6.8
million.  Product rights and licenses and  international  investments  consisted
principally of $7.0 million paid in connection  with a product  development  and
supply agreement with Elan Corporation plc, $5.0 million under the trademark and
distribution  agreement related to Ferrlecit(R),  and $10.0 million related to a
strategic  alliance  agreement with Cheminor Drugs Limited and its  subsidiaries
and Dr.  Reddy's  Laboratories  and its  subsidiaries.  These cash  outlays were
partially  offset by proceeds  from the sale of  marketable  securities  of $6.6
million.  The Company expects its 1999 capital  expenditures to decline from its
anticipated 1998 level.

Net cash of $42.3 million  provided by financing  activities for the nine months
ended September 1998 was derived  primarily from net proceeds from the Company's
initial  public  offering of $52.5 million and proceeds from the stock  purchase
plan and the exercise of stock options of $4.9 million, offset by net repayments
of debt of $14.9  million.  At September 26, 1998, the Company had $10.5 million
of cash,  of which $9.1 million was used to make  principal  payments  under its
term loan agreement after the quarter end.

The Company has amended its revolving  credit and term loan  agreements with its
bank group. This amendment  provides for an increase in permissible  investments
and  certain  indebtedness.  Additionally,  it  modified  the  minimum net worth
requirement and adjusted certain required ratios (as defined therein)  including
leverage,  fixed charge coverage and interest  expense  coverage.  The amendment
increased  the  future  interest  rate  spread  the  Company  will pay under the
revolving  credit  and  term  loan  agreements   depending  upon  the  Company's
performance against leverage and interest expense ratios.



                                       16
<PAGE>

The  Company   believes  that  cash   generated  from  its  operations  and  the
availability of $22 million under its revolving credit agreement as of September
1998 are  sufficient to finance its current  level of  operations  and currently
contemplated  capital  expenditures through the next 12 months. In the event the
Company  makes  any  significant  acquisitions,  it may  be  required  to  raise
additional funds,  through the issuance of additional debt or equity securities.
There can be no assurance that such funds,  if required,  would be available or,
if available, would be on terms acceptable to the Company.

Year 2000 Compliance

Various  organizations  are  anticipating  that they may experience  operational
difficulties  as a result of automated  systems  that utilize two digits  rather
than four digits to represent  the  applicable  year.  The  Company's  Year 2000
("Y2K")  compliance  plan includes  compliance  verification  of vendor supplied
software used by the Company,  modification and testing of internally  supported
applications,  and remediation of non-compliant  embedded technology utilized in
computer, network,  telecommunications,  office and manufacturing equipment. The
Company's plan also includes  communication with its trading partners (customers
and  suppliers) to determine  their  readiness for Y2K  compliance.  The Company
currently  plans to complete its Y2K compliance  for computer  transaction-based
applications  in late 1998 or early 1999, and for equipment  utilizing  embedded
technology in 1999. A contingency  plan to address Y2K related issues has not as
yet been prepared;  however,  requisite  contingency  plans will be developed in
1999 to address  reasonably  likely worst case scenarios.  All costs  associated
with Y2K  compliance are being expensed as incurred and are not expected to have
a material  adverse effect on the Company's  business,  financial  condition and
results  of  operations.  Nevertheless,  there  is  uncertainty  concerning  the
potential costs and effects associated with Y2K compliance. Thus, if the Company
is  unsuccessful  in  identifying  or fixing all Y2K  problems  in its  critical
operations,  or if it is  affected  by  the  inability  of  suppliers  or  major
customers  to  continue  operations  due  to  such a  problem,  its  results  of
operations or financial condition could be materially impacted.




                                       17
<PAGE>

PART II.  OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

(a)      Securities Litigation

In September and October 1998,  following the commencement of the seizure action
by the FDA, six substantially  similar complaints were filed in federal court in
the District of New Jersey against the Company, its Chairman and Chief Executive
Officer, its Chief Financial Officer and, in certain actions, one or more of the
following: the Company's Senior Vice President of Technical Operations,  General
Counsel and three  underwriters  of the Company's  April 9, 1998 initial  public
offering  (the  "Offering").  Plaintiffs  purport to sue on behalf of a class of
persons who purchased shares of the Company's common stock pursuant or traceable
to the Offering and allege that  defendants  violated the Securities Act of 1933
by making  misrepresentations and omissions of material facts in connection with
the Offering and in the registration statement and prospectus issued pursuant to
the Offering.  Plaintiffs allege,  among other things, that defendants failed to
disclose or misrepresented facts concerning the status of the Company's internal
controls  and  ability to comply  with  government  regulations  relating to its
manufacturing  activities,  including  the  status of the  Company's  corrective
actions at its Steris Laboratories,  Inc. facility.  Plaintiffs on behalf of the
purported class seek damages,  recission and/or  recissionary  damages under the
provisions of the  Securities  Act of 1933. The Company's time to move or answer
with  respect to the  complaints  has in general been  extended  until after the
appointment  of lead  plaintiff and lead counsel and the filing by plaintiffs of
any amended pleading.  The Company intends to defend itself  vigorously  against
these actions.


(b)      Food and Drug Administration Consent Decree

Reference is made to Note 7 of the notes to be condensed  consolidated financial
statements of the Company and Management's  Discussion and Analysis of Financial
Condition and Results of  Operations  included in this report on Form 10-Q for a
discussion  of the consent  decree  entered into on or about October 16, 1998 by
and between Steris Laboratories, Inc. and certain of its officers and the United
States Food and Drug  Administration.  The  consent  decree has been filed as an
exhibit to the Company's report on Form 8-K, dated October 27, 1998.

(c)      Patent Litigation

As reflected in the Company's Registration Statement dated April 8, 1998, in one
of the Company's patent challenge  litigations  filed in the U.S. District Court
for the Southern District of New York, the trial judge ruled against the Company
and upheld the  validity of the patent at issue.  On October 1, 1998,  the Court
awarded  attorneys  fees to the patent holder and its licensee.  The Company has
been informed that the fees sought will be approximately $3 million,  subject to
final determination by the Court. The Company intends to appeal this decision.


Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         27 - Financial Data Schedule

(b)      Reports on Form 8-K

         i)   Form 8-K        Steris  Laboratories,  Inc.  Seizure Action by the
                              FDA; Dated September 10, 1998

         ii)  Form 8-K        Work Force  Reduction at Steris  Laboratories  and
                              Class Action Securities Lawsuits;  Dated September
                              25, 1998

         iii) Form 8-K        Steris  Laboratories  Consent  Agreement with  the
                              FDA  and  Approximately   $135  Million
                              One-time After Tax Charge Expected in 1998;  Dated
                              October 27, 1998



                                       18
<PAGE>

                                   SIGNATURES

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

                           Schein Pharmaceutical, Inc.
                            (Registrant)


                           By:   /s/ Martin Sperber
                                ------------------------------------
                                Martin Sperber
                                Chairman of the Board,
                                Chief Executive Officer and
                                President
                               (Principal Executive Officer)



                           By:  /s/ Dariush Ashrafi
                               -------------------------------------
                               Dariush Ashrafi
                               Executive Vice President and
                               Chief Financial Officer
                               (Principal Financial and Accounting Officer)


Dated:       November  10, 1998



                                       19