Par Pharmaceutical

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: September 30, 2011

Commission file number: 1-10827

PAR PHARMACEUTICAL COMPANIES, INC.

(Exact name of registrant as specified in its charter)


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

300 Tice Boulevard, Woodcliff Lake, New Jersey 07677

(Address of principal executive offices)

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X No___

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 [ ] Non-accelerated filer [ ]

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

Yes No X_

Number of shares of the Registrant’s common stock outstanding as of October 25, 2011: 36,497,366

TABLE OF CONTENTS

PAR PHARMACEUTICAL COMPANIES, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2011

PAGE

PART I

FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of September 30, 2011 and

December 31, 2010

Condensed Consolidated Statements of Operations for the three and nine months

ended September 30, 2011 and September 30, 2010

Condensed Consolidated Statements of Cash Flows for the nine months

ended September 30, 2011 and September 30, 2010

Notes to Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 6.

Exhibits

SIGNATURES

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PAR PHARMACEUTICAL COMPANIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Data)

(Unaudite d)


	September 30,	December 31,
	2011	2010
ASSETS
Current assets:
Cash and cash equivalents	$225,969	$218,674
Available for sale marketable debt securities	30,861	27,866
Accounts receivable, net	98,103	95,705
Inventories	80,986	72,580
Prepaid expenses and other current assets	22,537	17,660
Deferred income tax assets	31,005	26,037
Income taxes receivable	37,864	18,605
Total current assets	527,325	477,127

Property, plant and equipment, net	69,665	71,980
Intangible assets, net	63,424	95,467
Goodwill	63,729	63,729
Other assets	6,495	5,441
Non-current deferred income tax assets, net	55,451	69,488
Total assets	$786,089	$783,232

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$21,551	$23,956
Payables due to distribution agreement partners	53,473	25,310
Accrued salaries and employee benefits	11,660	16,397
Accrued government pricing liabilities	39,824	32,169
Accrued legal fees	7,296	7,084
Accrued legal settlements	37,800	-
Accrued expenses and other current liabilities	6,056	6,674
Total current liabilities	177,660	111,590

Long-term liabilities	44,791	43,198
Commitments and contingencies	-	-

Stockholders' equity:
Common stock, par value $0.01 per share, authorized 90,000,000 shares; issued
39,662,618 and 38,872,663 shares	394	389
Additional paid-in capital	394,468	373,764
Retained earnings	251,140	329,129
Accumulated other comprehensive (loss) income	(21)	137
Treasury stock, at cost 3,180,643 and 2,970,573 shares	(82,343)	(74,975)
Total stockholders' equity	563,638	628,444
Total liabilities and stockholders’ equity	$786,089	$783,232

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

PAR PHARMACEUTICAL COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)

(Unaudited)


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
	2011	2010	2011	2010

Revenues:
Net product sales	$208,865	$226,131	$644,672	$763,148
Other product related revenues	6,492	8,309	27,825	18,698
Total revenues	215,357	234,440	672,497	781,846
Cost of goods sold	130,253	131,146	378,714	503,583
Gross margin	85,104	103,294	293,783	278,263
Operating expenses:
Research and development	9,610	10,145	28,397	37,457
Selling, general and administrative	35,762	50,302	128,863	140,402
Settlements and loss contingencies, net	-	2,312	190,560	(1,694)
Restructuring costs	-	-	26,986	-
Total operating expenses	45,372	62,759	374,806	176,165
Gain on sale of product rights and other	-	79	-	6,000
Operating income (loss)	39,732	40,614	(81,023)	108,098
Gain on marketable securities and other investments, net	-	3,567	-	3,567
Interest income	160	341	965	942
Interest expense	(150)	(928)	(451)	(2,754)
Income (loss) from continuing operations before provision for income taxes	39,742	43,594	(80,509)	109,853
Provision (benefit) for income taxes	17,687	12,933	(2,900)	34,731
Income (loss) from continuing operations	22,055	30,661	(77,609)	75,122
Discontinued operations:
Provision (benefit) for income taxes	127	127	380	(105)
(Loss) income from discontinued operations	(127)	(127)	(380)	105
Net income (loss)	$21,928	$30,534	($77,989)	$75,227

Basic earnings (loss) per share of common stock:
Income (loss) from continuing operations	$0.61	$0.89	($2.16)	$2.20
(Loss) income from discontinued operations	(0.00)	(0.00)	(0.01)	0.00
Net income (loss)	$0.61	$0.89	($2.17)	$2.20

Diluted earnings (loss) per share of common stock:
Income (loss) from continuing operations	$0.60	$0.86	($2.16)	$2.12
(Loss) income from discontinued operations	(0.00)	(0.00)	(0.01)	0.00
Net income (loss)	$0.60	$0.86	($2.17)	$2.12

Weighted average number of common shares outstanding:
Basic	36,143	34,310	35,875	34,117
Diluted	36,774	35,684	35,875	35,410

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

PAR PHARMACEUTICAL COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)


	Nine months ended
	September 30,	September 30,
	2011	2010
Cash flows from operating activities:
Net (loss) income	($77,989)	$75,227
Deduct: (Loss) gain from discontinued operations, net of tax	(380)	105
(Loss) income from continuing operations	(77,609)	75,122
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Deferred income taxes	9,160	(3,884)
Resolution of tax contingencies	-	(3,750)
Non-cash interest expense	-	1,571
Depreciation and amortization	17,994	21,080
Intangible asset impairments	24,226	-
Allowances against accounts receivable	8,092	(3,869)
Share-based compensation expense	7,813	11,824
Tax deficiency on exercises of stock options	(392)	-
Loss on disposal of fixed assets	111	60
Other, net	782	-
Changes in assets and liabilities:
(Increase) decrease in accounts receivable	(10,490)	58,715
(Increase) decrease in inventories	(8,406)	4,066
Increase in prepaid expenses and other assets	(5,931)	(4,637)
Increase in accounts payable, accrued expenses and other liabilities	38,818	21,437
Increase (decrease) in payables due to distribution agreement partners	28,163	(33,181)
(Increase) decrease in income taxes receivable/payable	(18,458)	3,736
Net cash provided by operating activities	13,873	148,290
Cash flows from investing activities:
Capital expenditures	(7,621)	(8,736)
Purchases of intangibles	(850)	(41,500)
Purchases of available for sale debt securities	(26,026)	(33,202)
Proceeds from maturity and sale of available for sale marketable debt securities	22,000	29,865
Net cash used in investing activities	(12,497)	(53,573)
Cash flows from financing activities:
Proceeds from issuances of common stock upon exercise of stock options	10,029	10,325
Proceeds from the issuance of common stock under the Employee Stock Purchase Program	253	254
Excess tax benefits on share-based compensation	7,138	203
Purchase of treasury stock	(7,368)	(2,202)
Reductions in principal due to maturity and repurchases of senior subordinated convertible notes	-	(47,746)
Cash settlement of share-based compensation	(4,133)	(139)
Net cash provided by (used in) financing activities	5,919	(39,305)
Net increase in cash and cash equivalents	7,295	55,412
Cash and cash equivalents at beginning of period	218,674	121,668
Cash and cash equivalents at end of period	$225,969	$177,080
Supplemental disclosure of cash flow information:
Cash (received) paid during the period for:
Income taxes, net	($347)	$38,428
Interest paid	$265	$1,372
Non-cash transactions:
Capital expenditures incurred but not yet paid	$277	$593

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

PAR PHARMACEUTICAL COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011

(Unaudited)

Par Pharmaceutical Companies, Inc. operates primarily through its wholly owned subsidiary, Par Pharmaceutical, Inc. (collectively referred to herein as “the Company,” “we,” “our,” or “us”), in two business segments. Our generic products division, Par Pharmaceutical (“Par”), develops (including through third party development arrangements and product acquisitions), manufactures and distributes generic pharmaceuticals in the United States. Our branded products division, Strativa Pharmaceuticals (“Strativa”), acquires (generally through third party development arrangements), manufactures and distributes branded pharmaceuticals in the United States. The products we market are principally in the solid oral dosage form (tablet, caplet and two-piece hard-shell capsule), although we also distribute several oral suspension products, nasal spray products, and products delivered by injection.

Note 1 - Basis of Presentation:

The accompanying condensed consolidated financial statements at September 30, 2011 and for the three-month and nine-month periods ended September 30, 2011 and September 30, 2010 are unaudited. In the opinion of management, however, such statements include all normal recurring adjustments necessary to present fairly the information presented therein. The condensed consolidated balance sheet at December 31, 2010 was derived from the Company’s audited consolidated financial statements included in the 2010 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 to condensed consolidated financial statements do not include all disclosures required by the accounting principles generally accepted in the United States of America for audited financial statements. Accordingly, these statements should be read in conjunction with our 2010 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 – Pending Acquisitions:

During the three months ended June 30, 2011, we entered into a definitive agreement to purchase privately-held Edict Pharmaceuticals Private Limited (referred to as “Edict” or “Edict Pharmaceuticals”), a Chennai, India-based developer and manufacturer of generic pharmaceuticals, for up to $37.6 million in cash and our repayment of certain additional pre-close indebtedness. The pending acquisition will be accounted for as a business combination under the guidance of FASB ASC 805 Business Combinations. The operating results of Edict will be included in our consolidated financial results from the date of acquisition. The operating results will be reflected as part of the Par Pharmaceutical segment. We intend to fund the purchase from cash on hand.

Our purchase of Edict is subject to the Reserve Bank of India’s (“RBI”) approval of certain terms in the acquisition agreement and the satisfaction or waiver of other conditions to closing. On August 11, 2011, we received RBI approval, which is subject to certain stipulations with respect to certain terns of our acquisition agreement. On October 25, 2011, we entered into an amendment of our acquisition agreement, which we submitted to the RBI on October 28, 2011, seeking final RBI approval. Our purchase of Edict also is subject to resolution of related litigation. On October 20, 2011, we entered into a settlement agreement with the parties to the litigation enabling us to move forward with the closing of the Edict acquisition. Refer to Note 14 – “Commitments, Contingencies and Other Matters” for further details. We expect to complete this transaction by the end of the year.

During the three months ended September 30, 2011, we entered into a definitive agreement to purchase Anchen Incorporated and its subsidiary, Anchen Pharmaceuticals (collectively referred to as “Anchen” or “Anchen Pharmaceuticals”), a privately-held specialty pharmaceutical company focused on developing and commercializing extended release and niche generic products, for $410 million in cash. The pending acquisition will be accounted for as a business combination under the guidance of FASB ASC 805 Business Combinations. The operating results of Anchen will be included in our consolidated financial results from the date of acquisition. The operating results will be reflected as part of the Par Pharmaceutical segment. We intend to finance the transaction with cash on hand and a $350 million five-year term loan. Refer to Note 10, “Senior Credit Facility” for further details. Our purchase of Anchen is subject to customary conditions and approvals, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. We expect to complete this transaction by the end of the year.

Note 3 - Available for Sale Marketable Debt Securities:

At September 30, 2011 and December 31, 2010, all of our investments in marketable debt 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 4 - “Fair Value Measurements.” The following is a summary of amortized cost and estimated fair value of our marketable debt securities available for sale at September 30, 2011 ($ amounts in thousands):


				Estimated
		Unrealized		Fair
	Cost	Gain	(Loss)	Value
Corporate bonds	$30,895	$43	($77)	$30,861

All available for sale marketable debt securities are classified as current on our condensed consolidated balance sheet as of September 30, 2011.

The following is a summary of amortized cost and estimated fair value of our investments in marketable debt securities available for sale at December 31, 2010 ($ amounts in thousands):


				Estimated
		Unrealized		Fair
	Cost	Gain	(Loss)	Value
Corporate bonds	$27,654	$213	($1)	$27,866

The following is a summary of the contractual maturities of our available for sale debt securities at September 30, 2011 ($ amounts in thousands ):


	September 30, 2011
		Estimated Fair
	Cost	Value
Less than one year	$17,798	$17,751
Due between 1-2 years	11,025	11,012
Due between 2-5 years	2,072	2,098
Total	$30,895	$30,861

Note 4 – Fair Value Measurements:

FASB Accounting Standards Codification (“ASC”) 820-10 Fair Value Measurements and Disclosures 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. FASB ASC 820 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.

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. Our Level 2 assets primarily include debt securities, including corporate bonds with quoted prices that are traded less frequently than exchange-traded instruments. All of our Level 2 asset values are 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. The pricing model information is provided by third party entities (e.g., banks or brokers). In some instances, these third party entities engage external pricing services to estimate the fair value of these securities. We have a general understanding of the methodologies employed by the pricing services in their pricing models. We corroborate the estimates of non-binding quotes from the third party entities’ pricing services to an independent source that provides quoted market prices from broker or dealer quotations. We investigate large differences, if any. Based on historical differences, we have not been required to adjust quotes provided by the third party entities’ pricing services used in estimating the fair value of these securities.

Level 3: Unobservable inputs that are not corroborated by market data.

The fair value of our financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 were as follows ($ amounts in thousands):


	Estimated Fair Value at
	September 30, 2011	Level 1	Level 2	Level 3
Corporate bonds (Note 3)	$30,861	$ -	$30,861	$ -

The fair value of our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 were as follows ($ amounts in thousands):


	Estimated Fair Value at
	December 31, 2010	Level 1	Level 2	Level 3
Corporate bonds (Note 3)	$27,866	$ -	$27,866	$ -

Note 5 - Accounts Receivable:

We account for revenue in accordance with FASB ASC 605 Revenue Recognition. In accordance with that standard, we recognize revenue for product sales when title and risk of loss have transferred to our customers, when reliable estimates of rebates, chargebacks, returns and other adjustments can be made, and when collectability is reasonably assured. This is generally at the time that products are received by our direct customers. We also review available trade inventory levels at certain large wholesalers to evaluate any potential excess supply levels in relation to expected demand. We determine whether we will recognize revenue at the time that our products are received by our direct customers or defer revenue recognition until a later date on a product by product basis at the time of launch. Upon recognizing revenue from a sale, we record estimates for chargebacks, rebates and incentive programs, product returns, cash discounts and other sales reserves that reduce accounts receivable.

The following tables summarize the impact of accounts receivable reserves and allowance for doubtful accounts on the gross trade accounts receivable balances at each balance sheet date ($ amounts in thousands):


	September 30,	December 31,
	2011	2010

Gross trade accounts receivable	$214,485	$203,995
Chargebacks	(17,847)	(19,482)
Rebates and incentive programs	(28,629)	(23,273)
Returns	(54,828)	(48,928)
Cash discounts and other	(15,078)	(16,606)
Allowance for doubtful accounts	-	(1)
Accounts receivable, net	$98,103	$95,705


Allowance for doubtful accounts	Nine months ended
	September 30,	September 30,
	2011	2010
Balance at beginning of period	($1)	($3)
Additions – charge to expense	-	(4)
Adjustments and/or deductions	1	-
Balance at end of period	$ -	($7)

The following tables summarize the activity for the nine months ended September 30, 2011 and the nine months ended September 30, 2010, in the accounts affected by the estimated provisions described below ($ amounts in thousands):


	Nine Months Ended September 30, 2011
Accounts receivable reserves	Beginning balance	Provision recorded for current period sales	(Provision) reversal recorded for prior period sales		Credits processed	Ending balance
Chargebacks	($19,482)	($185,832)	$ -	(1)	$187,467	($17,847)
Rebates and incentive programs	(23,273)	(83,824)	660		77,808	(28,629)
Returns	(48,928)	(22,946)	265		16,781	(54,828)
Cash discounts and other	(16,606)	(74,612)	(357)		76,497	(15,078)
Total	($108,289)	($367,214)	$568		$358,553	($116,382)

Accrued liabilities (2)	($32,169)	($43,223)	$346		$35,222	($39,824)


	Nine Months Ended September 30, 2010
Accounts receivable reserves	Beginning balance	Provision recorded for current period sales	(Provision) reversal recorded for prior period sales		Credits processed	Ending balance
Chargebacks	($16,111)	($160,146)	($77)	(1)	$158,090	($18,244)
Rebates and incentive programs	(39,938)	(96,901)	(1,196)	(3)	106,802	(31,233)
Returns	(39,063)	(17,358)	437		10,941	(45,043)
Cash discounts and other	(19,160)	(64,236)	(1,974)	(4)	69,491	(15,879)
Total	($114,272)	($338,641)	($2,810)		$345,324	($110,399)

Accrued liabilities (2)	($24,713)	($30,048)	($614)		$20,249	($35,126)

(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, we have determined that our chargeback estimates remain reasonable.

(2)

Includes amounts due to indirect customers for which no underlying accounts receivable exists and is principally comprised of Medicaid rebates and rebates due under other U.S. Government pricing programs, such as TriCare, and the Department of Veterans Affairs.

(3)

During the first quarter of 2010, the Company settled a dispute with a major customer and as a result recorded an additional reserve of $1,300 thousand.

(4)

During the third quarter of 2010, the Company settled a customer dispute related to the January 2009 metoprolol price increase. As a result, the Company recorded an additional reserve of $1,100 thousand.

The Company sells its products directly to wholesalers, retail drug store chains, drug distributors, mail order pharmacies and other direct purchasers as well as 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 often negotiates product pricing directly with health care providers that purchase products through the Company’s wholesale customers. In those instances, chargeback credits are issued to the wholesaler for the difference between the invoice price paid to the Company by our wholesale customer for a particular product and the negotiated contract price that the wholesaler’s customer pays for that product. Approximately 56% of our net product sales were derived from the wholesale distribution channel for the three months ended September 30, 2011 and approximately 71% for the three months ended September 30, 2010. Approximately 59% of our net product sales were derived from the wholesale distribution channel for the nine months ended September 30, 2011 and approximately 60% for the nine months ended September 30, 2010. 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 carrying the Company’s products or replace competing products in their distribution channels with our products. 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 us. 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. We 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. We do not provide incentives designed to increase shipments to our customers that we believe 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 a rebate on drugs dispensed under such government programs. The Company determines its estimate of the 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 we consider historical payment rates; processing lag for outstanding claims and payments; levels of inventory in the distribution channel; and the impact of the healthcare reform acts. The Company reviews the accrual and assumptions on a quarterly basis against actual claims data to help ensure that the estimates made are reliable. On January 28, 2008, the Fiscal Year 2008 National Defense Authorization Act was enacted, which expands TriCare to include prescription drugs dispensed by TriCare retail network pharmacies. TriCare rebate accruals reflect this program expansion and are based on actual and estimated rebates on Department of Defense eligible sales.

The Company accepts returns of product according to the following criteria: (i) the product returns must be approved by authorized personnel with the lot number and expiration date accompanying any request and (ii) we 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 between six months prior to, and 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 in-transit returns, average remaining shelf-lives of products sold, which generally range from 12 to 48 months, and estimated return dates. Additionally, we consider other factors when estimating the 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 we believe 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 we expect our customers to take.

In addition to the significant gross-to-net sales adjustments described above, we periodically make 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 we may not provide price adjustments to certain customers as a matter of business strategy, and consequently may lose future sales volume to competitors and risk a greater level of sales returns on products that remain in the customer’s existing inventory.

As detailed above, we have the experience and access to relevant information that we believe are necessary to reasonably estimate the amounts of such deductions from gross revenues, except as described below. Some of the assumptions we use for certain of our estimates are based on information received from third parties, such as wholesale customer inventories and market data, or other market factors beyond our 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

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 our allowances and accruals to fluctuate, particularly with newly launched or acquired products. We review the rates and amounts in our allowance and accrual estimates on a quarterly basis. If future estimated rates and amounts are significantly greater than those reflected in our recorded reserves, the resulting adjustments to those reserves would decrease our reported net revenues; conversely, if actual product returns, rebates and chargebacks are significantly less than those reflected in our recorded reserves, the resulting adjustments to those reserves would increase our reported net revenues. We regularly review the information related to these estimates and adjust our reserves accordingly, if and when actual experience differs from previous estimates.

In 2011, Par launched propafenone, amlodipine and benazepril HCl, and budesonide. As is customary and in the ordinary course of business, our revenue that has been recognized for these product launches included initial trade inventory stocking that we believed was commensurate with new product introductions. At the time of each product launch, we were able to make reasonable estimates of product returns, rebates, chargebacks and other sales reserves by using historical experience of similar product launches and significant existing demand for the products.

Strativa launched Oravig^®(miconazole) buccal tablets in the third quarter of 2010 and launched Zuplenz^® (ondansetron) oral soluble film in the fourth quarter of 2010. Oravig^® was supplied to us by BioAlliance and Zuplenz^® was supplied to us by MonoSol. In connection with the launches, our direct customers ordered, and we shipped, Oravig^®and Zuplenz^®units at a level commensurate with initial forecasted demand for the product. Due to our relatively limited history in the branded pharmaceutical marketplace, it is impractical to predict with reasonable certainty the rate of Oravig^®’s and Zuplenz^®’sprescription demand uptake and ultimate acceptance in the marketplace. Therefore, during the initial launch phase of Oravig^®and Zuplenz^®, we recognize revenue and all associated cost of sales as the product is prescribed to patients based on an analysis of third party market prescription data, third party wholesaler inventory data, order refill rates, and all substantive quantitative and qualitative data available to us at the time. Accordingly, for the nine month period ended September 30, 2011, we have recognized $2,253 thousand of revenues for Oravig® and $721 thousand of revenues for Zuplenz^® and deferred revenues of $264 thousand for Oravig^® and deferred revenues of $482 thousand for Zuplenz^®, related to product that has been shipped to customers but not yet prescribed to patients. Deferred revenue is included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheet as of September 30, 2011. In June 2011, we resized our Strativa business. As part of this strategic assessment, we reduced our Strativa workforce by approximately 90 people. Refer to Note 18 – “Restructuring Costs.” We will continue to recognize revenue and all associated cost of sales as Oravig^® and Zuplenz^® are prescribed to patients based on an analysis of third party market prescription data, third party wholesaler inventory data, order refill rates, and all substantive quantitative and qualitative data available to us. In July 2011, Strativa returned the U.S. commercialization rights of Zuplenz^®to its development partner, MonoSol Rx, as part of the resizing of our branded products division. In September 2011, Strativa executed a termination agreement with BioAlliance returning all Oravig^® rights and obligations to BioAlliance.

Major Customers – Gross Accounts Receivable


	September 30,	December 31,
	2011	2010
McKesson Corporation	26%	25%
Cardinal Health, Inc.	17%	21%
CVS Caremark	17%	14%
AmerisourceBergen Corporation	13%	12%
Other customers	27%	28%
Total gross accounts receivable	100%	100%

Note 6 - Inventories:

($ amounts in thousands)


	September 30,	December 31,
	2011	2010
Raw materials and supplies	$33,492	$20,445
Work-in-process	6,538	4,498
Finished goods	40,956	47,637
	$80,986	$72,580

Inventory write-offs (inclusive of pre-launch inventories detailed below)


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
	2011	2010	2011	2010
Inventory write-offs	$1,742	$103	$2,752	$4,327

Par 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, when it is reasonably certain that the pre-launch inventories will be saleable. The determination to capitalize is made once Par (or its third party development partners) has filed an Abbreviated New Drug Application (“ANDA”) that has been acknowledged by the FDA as containing sufficient information to allow the FDA to conduct their review in an efficient and timely manner and management is reasonably certain that all regulatory and legal hurdles will be cleared. This determination is based on the particular facts and circumstances relating to the expected FDA approval of the generic drug product being considered, and accordingly, the time frame within which the determination is made varies from product to product. Par could be required to 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. Pre-launch inventories at September 30, 2011 were comprised of generic products in development.

The amounts in the table below represent inventories related to products that were not yet available to be sold and are also included in the total inventory balances presented above.

Pre-Launch Inventories

($ amounts in thousands)


	September 30,	December 31,
	2011	2010
Raw materials and supplies	$5,905	$3,578
Work-in-process	440	673
Finished goods	877	3,207
	$7,222	$7,458

Write-offs of pre-launch inventories


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
	2011	2010	2011	2010
Pre-launch inventory write-offs, net of partner allocation	$887	$121	$887	$184

Note 7 – Property, Plant and Equipment, net:

($ amounts in thousands)


	September 30,	December 31,
	2011	2010
Land	$1,882	$1,882
Buildings	28,113	27,930
Machinery and equipment	54,288	52,032
Office equipment, furniture and fixtures	5,904	5,752
Computer software and hardware	46,530	46,065
Leasehold improvements	12,315	12,137
Construction in progress	5,829	2,905
	154,861	148,703
Accumulated depreciation and amortization	(85,196)	(76,723)
	$69,665	$71,980

Depreciation and amortization expense related to property, plant and equipment


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
	2011	2010	2011	2010
Depreciation and amortization expense	$3,064	$3,081	$9,328	$9,848

Note 8 - Intangible Assets, net:

($ amounts in thousands)


	September 30,	December 31,
	2011	2010
QOL Medical, LLC Asset Purchase Agreement, net of accumulated amortization of $11,400 and $7,980	$43,321	$46,741
BioAlliance Licensing Agreement, net of accumulated amortization of $1,399 and $559	-	19,441
Glenmark Generics Limited and Glenmark Generics, Inc. USA Licensing Agreement, net of accumulated amortization of $0	15,000	15,000
MonoSol Rx Licensing Agreement, net of accumulated amortization of $350 and $125	-	5,875
Trademark licensed from Bristol-Myers Squibb Company, net of accumulated amortization of $8,659 and $7,433	1,341	2,567
Genpharm, Inc. Distribution Agreement, net of accumulated amortization of $9,568 and $9,026	1,265	1,807
SVC Pharma LP License and Distribution Agreement, net of accumulated amortization of $2,850 and $2,525	834	1,159
MDRNA, Inc. Asset Purchase Agreement, net of accumulated amortization of $1,391 and $770	709	1,330
Spectrum Development and Marketing Agreement, net of accumulated amortization of $24,913 and $24,254	87	746
Other intangible assets, net of accumulated amortization of $6,756 and $5,947	867	801
	$63,424	$95,467

We recorded amortization expense related to intangible assets of $8,666 thousand for the nine months ended September 30, 2011 and $11,233 thousand for the nine months ended September 30, 2010. The majority of this amortization expense was included in cost of goods sold. We also recorded $24,226 thousand of intangible asset impairment charges in the nine months ended September 30, 2011. The impairment charges were included in “Restructuring costs” on the condensed consolidated statements of operations for the nine months ended September 30, 2011. Refer to Note 18 – “Restructuring Costs” for further details.

In July 2010, the FDA approved Zuplenz^®, an oral soluble film for the prevention of postoperative, highly and moderately emetogenic cancer chemotherapy-induced, and radiotherapy-induced nausea and vomiting. In June 2008, Strativa and MonoSol Rx entered into an exclusive licensing agreement under which Strativa acquired the U.S. commercialization rights to Zuplenz^®. Under the terms of an amended agreement, the FDA approval triggered Strativa's payments to MonoSol Rx of a $4,000 thousand approval milestone and a $2,000 thousand pre-launch milestone. Strativa began to commercialize Zuplenz^®, which was supplied by MonoSol, during the fourth quarter of 2010. Amortization expense of the related intangible asset commenced when the product was launched in the fourth quarter of 2010. In June 2011, we stopped marketing Zuplenz^® as part of plans to resize Strativa. We also reduced our Strativa workforce by a total of approximately 90 people and we recorded intangible asset impairment charges as part of this strategic assessment. In July 2011, Strativa returned the U.S. commercialization rights of Zuplenz^®to MonoSol, as part of the resizing of our branded products division. Refer to Note 18 – “Restructuring Costs” for further details.

In May 2010, Par entered into a licensing agreement with Glenmark Generics to market ezetimibe 10 mg tablets, the generic version of Merck & Co. Inc.’s Zetia^®, in the U.S. Glenmark believes it is the first to file an ANDA containing a paragraph IV certification for the product, which would potentially provide 180 days of marketing exclusivity. On April 24, 2009, Glenmark was granted tentative approval for its product by the FDA. Under the terms of the licensing and supply agreement, we made a $15,000 thousand payment to Glenmark for exclusive rights to market, sell and distribute the product in the U.S. The companies will participate in a profit sharing arrangement based on any future sales of the product. Glenmark will supply the product subject to FDA approval. The product has a contractual launch date of no later than December 2016. Under defined conditions, the product could be launched earlier than December 2016. Amortization expense of the related intangible asset will commence when the product is launched.

In April 2010, the FDA approved Oravig^®, an antifungal therapy for the treatment of oropharyngeal candidiasis, an opportunistic infection commonly found in immunocompromised patients, including those with HIV and cancer. Under the terms of Strativa’s exclusive U.S. license agreement with BioAlliance, we paid BioAlliance $20,000 thousand in the second quarter of 2010 as a result of the FDA approval. Strativa began to commercialize Oravig^®, which was supplied by BioAlliance, during the third quarter of 2010. In June 2011, we decided to reduce our marketing efforts for this productas part of plans to resize Strativa. We also reduced our Strativa workforce by a total of approximately 90 people and we recorded intangible asset impairment charges as part of this strategic assessment. Refer to Note 18 – “Restructuring Costs” for further details.

In March 2009, we acquired the rights to Nascobal^® Nasal Spray from QOL Medical, LLC for $54,500 thousand in cash and the assumption of certain liabilities. The purchase price of the acquisition has been allocated to the net tangible and intangible assets acquired on the basis of estimated fair values. The fair value of the product rights received is being amortized on a straight-line basis over 12 years based on its estimated useful life.

Estimated Amortization Expense for Existing Intangible Assets at September 30, 2011

The following table does not include estimated amortization expense for future milestone payments that may be paid and result in the creation of intangible assets after September 30, 2011.

($ amounts in thousands)


		Estimated
		Amortization
		Expense
2011 (remainder)		$2,297
2012		7,233
2013		5,446
2014		4,667
2015		4,605
2016 and thereafter		39,176
		$63,424

As of September 30, 2011, we did not note any business circumstances or events that would indicate any of our remaining net intangible assets were impaired.

Note 9 - Income Taxes:


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
($ in thousands)	2011	2010	2011	2010
Provision (benefit) for income taxes	$17,687	$12,933	($2,900)	$34,731
Effective tax rate	45%	30%	4%	32%

The effective tax rate for the three months ended September 30, 2011 is higher than the statutory rate principally due to our estimate of the portion of corporate acquisition transaction costs which may not be tax deductible and by the non-deductibility of our portion of the annual pharmaceutical manufacturer’s fee. In addition to these factors, the effective tax rate for the nine months ended September 30, 2011 is impacted by a change in valuation of our net deferred tax asset resulting from favorable state law changes enacted during the second quarter and our estimate of the portion of legal settlements in the year which may not be tax deductible. For purpose of determining our tax benefit for the nine months ended September 30, 2011, certain Average Wholesale Prices litigation matters had been treated as a discreet event in the three months ended March 31, 2011 under the provisions of ASC 740, Income Taxes. Current deferred income tax assets at September 30, 2011 and December 31, 2010 consisted of temporary differences primarily related to accounts receivable reserves. Non-current deferred income tax assets at September 30, 2011 and December 31, 2010 consisted of timing differences primarily related to intangible assets, stock options, severance, and depreciation.

Tax periods prior to 2004 are no longer subject to IRS audit. We are currently under audit in two state jurisdictions for the years 2003-2008. In most other state jurisdictions, we are no longer subject to examination by tax authorities for years prior to 2006.

We reflect interest and penalties attributable to income taxes, to the extent they arise, as a component of income tax provision or benefit.

The difference between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to FASB ASC 740-10 Income Taxes represents an unrecognized tax benefit. An unrecognized tax benefit is a liability that represents a potential future obligation to the taxing authorities. As of September 30, 2011, we had $44.0 million included in “Long-term liabilities” on the condensed consolidated balance sheet that represented unrecognized tax benefits, interest and penalties based

on evaluation of tax positions. We believe that it is reasonably possible that approximately $22.3 million of our current unrecognized tax positions may be recognized within the next twelve months as a result of settlements or a lapse of the statute of limitations.

Note 10 - Senior Credit Facility:

In connection with our pending acquisition of Anchen, a privately-held specialty pharmaceutical company, we intend to enter into a new credit agreement (the "New Agreement") with a syndicate of banks, led by JPMorgan Chase Bank, N.A., as Administrative Agent, U.S. Bank National Association and PNC Bank National Association as Co-Syndication Agents, DnB NOR Bank ASA and SunTrust Bank as Co-Documentation Agents and J.P. Morgan Securities LLC as Sole Bookrunner and Lead Arranger, to provide senior credit facilities to be comprised of a five-year Term Loan Facility in an initial aggregate principal amount of $350,000 thousand and a five-year Revolving Credit Facility in an initial amount of $100,000 thousand. We intend to use the proceeds of the Term Loan Facility, together with cash on hand, to finance the pending acquisition of Anchen, and the proceeds of the Revolving Credit Facility would be available for general corporate purposes. Refer to Note 2 “Pending Acquisitions” for further details related to our pending acquisition of Anchen.

We expect that the New Agreement will contain customary representations and warranties, as well as customary events of default, in certain cases subject to reasonable and customary periods to cure, including but not limited to: failure to make payments when due, breach of covenants, breach of representations and warranties, insolvency proceedings, certain judgments and attachments and any change of control. We anticipate that the New Agreement will also contain various customary covenants that, in certain instances, would restrict our ability to: (i) incur additional indebtedness; (ii) create liens on assets; (iii) engage in acquisitions of other companies, products or product lines or mergers or consolidations; (iv) engage in dispositions of assets; (v) make investments, loans, guarantees or advances in or to other companies; (vi) pay dividends and distributions or repurchase capital stock; (vii) enter into sale and leaseback transactions; (viii) engage in transactions with affiliates; and (ix) change the nature of our business. In addition, we expect that the New Agreement will require us to maintain the following financial covenants: (a) a maximum leverage ratio, and (b) a minimum fixed charge coverage ratio. While initially unsecured, we could be obligated to secure our obligations under the New Agreement should our leverage ratio exceed a predetermined threshold for two consecutive quarters. All obligations under the New Agreement will be guaranteed by our material domestic subsidiaries, including Par Pharmaceutical, Inc.

We anticipate that the interest rates payable under the New Agreement will be based on defined published rates plus an applicable margin. We will be obligated to pay a commitment fee based on the unused portion of the Revolving Credit Facility. We expect that the New Agreement to include an accordion feature pursuant to which we would be able to increase the amount available to be borrowed by up to an additional $150,000 thousand under certain circumstances. We expect repayment of the proceeds of the Term Loan Facility to be due in quarterly installments over the term of the New Agreement. Amounts borrowed under the Revolving Credit Facility would be payable in full upon expiration of the Agreement. The New Agreement would expire in five years.

We expect that the New Agreement will replace our existing $75,000 thousand unsecured credit facility. We had no borrowings under the existing unsecured credit facility as of September 30, 2011 or December 31, 2010. We incurred approximately $450 thousand in expenses associated with our existing unsecured credit facility during the nine-month period ended September 30, 2011.

Note 11 - Changes in Stockholders’ Equity:

Changes in our Common Stock, Additional Paid-In Capital and Accumulated Other Comprehensive Gain/(Loss) accounts during the nine-month period ended September 30, 2011 were as follows (share amounts and $ amounts in thousands):


				Accumulated
			Additional	Other
	Common Stock		Paid-In	Comprehensive
	Shares	Amount	Capital	Income/(Loss)
Balance, December 31, 2010	38,873	$389	$373,764	$137
Unrealized loss on available for sale securities, net of tax	-	-	-	(158)
Exercise of stock options	653	7	10,022	-
Net excess tax benefit from share-based compensation	-	-	6,748	-
Issuance of common stock under the Employee Stock Purchase Program	-	-	253	-
Forfeitures of restricted stock	(33)	-	-	-
Issuances of restricted stock	170	(2)	1	-
Cash settlement of share-based compensation	-	-	(4,133)
Compensatory arrangements (a)	-	-	7,813	-
Balance, September 30, 2011	39,663	$394	$394,468	($21)

(a) Share-based compensation expense includes equity-settled awards only.


Comprehensive Income (Loss)	Three months ended		Nine months ended
($ amounts in thousands)	Sept. 30,	Sept. 30,	Sept. 30,	Sept. 30,
	2011	2010	2011	2010

Net income (loss)	$21,928	$30,534	($77,989)	$75,227
Other comprehensive income (loss) :
Unrealized (loss) gain on marketable securities, net of tax	(89)	39	(158)	(199)
Add: reclassification adjustment for net losses included in net income, net of tax	-	-	-	-
Comprehensive income (loss)	$21,839	$30,573	($78,147)	$75,028

In September 2007, our Board of Directors approved an expansion of our share repurchase program allowing for the repurchase of up to $75 million of our common stock. The repurchases may be made, subject to compliance with applicable securities laws, from time to time in the open market or in privately negotiated transactions. Shares of common stock acquired through the repurchase program are and will be available for general corporate purposes. We repurchased 1,643 thousand shares of our common stock for approximately $31.4 million pursuant to the expanded program in 2007. We did not repurchase any shares of common stock under this authorization in 2008, 2009, 2010 or the year-to-date period of 2011. The authorized amount remaining for stock repurchases under the repurchase program was $43.6 million, as of September 30, 2011. The repurchase program has no expiration date.

Note 12 - Earnings Per Share:

The following is a reconciliation of the amounts used to calculate basic and diluted earnings per share (share amounts and $ amounts in thousands, except per share amounts):


	Three months ended		Nine months ended
	Sept. 30,	Sept. 30,	Sept. 30,	Sept. 30,
	2011	2010	2011	2010

Income (loss) from continuing operations	$22,055	$30,661	($77,609)	$75,122

Provision (benefit) for income taxes from discontinued operations	127	127	380	(105)
(Loss) income from discontinued operations	(127)	(127)	(380)	105
Net income (loss)	$21,928	$30,534	($77,989)	$75,227

Basic:
Weighted average number of common shares outstanding	36,143	34,310	35,875	34,117

Income (loss) from continuing operations	$0.61	$0.89	($2.16)	$2.20
(Loss) income from discontinued operations	(0.00)	(0.00)	(0.01)	0.00
Net income (loss) per share of common stock	$0.61	$0.89	($2.17)	$2.20

Assuming dilution:
Weighted average number of common shares outstanding	36,143	34,310	35,875	34,117
Effect of dilutive securities	631	1,374	-	1,293
Weighted average number of common and common equivalent shares outstanding	36,774	35,684	35,875	35,410

Income (loss) from continuing operations	$0.60	$0.86	($2.16)	$2.12
(Loss) income from discontinued operations	(0.00)	(0.00)	(0.01)	0.00
Net income (loss) per share of common stock	$0.60	$0.86	($2.17)	$2.12

Outstanding options of 954 thousand as of September 30, 2011 and 1,636 thousand as of September 30, 2010 were not included in the computation of diluted earnings per share because their exercise prices were greater than the average market price of our common stock during the respective periods and their inclusion would, therefore, have been anti-dilutive. Since we had a net loss for the nine months ended September 30, 2011, basic and diluted net loss per share of common stock is the same, because the effect of including potential common stock equivalents (such as stock options, restricted shares, and restricted stock units) would be anti-

dilutive. The effect of dilutive securities would have been 650 thousand on weighted average number of common shares outstanding for the nine months ended September 30, 2011.

Note 13 - Share-Based Compensation:

We account for share-based compensation as required by FASB ASC 718-10 Compensation – Stock Compensation, which requires companies to recognize compensation expense in the amount equal to the fair value of all share-based payments granted to employees. Under FASB ASC 718-10, we recognize share-based compensation ratably over the service period applicable to the award. FASB ASC 718-10 also requires that excess tax benefits be reflected as financing cash flows.

We grant share-based awards under our various plans, which provide for the granting of non-qualified stock options, restricted stock and restricted stock units to members of our Board of Directors and to our employees. Stock options, restricted stock and restricted stock units generally vest ratably over four years or sooner and stock options have a maximum term of ten years.

As of September 30, 2011, there were approximately 4.7 million shares of common stock available for future stock option grants. We issue new shares of common stock when stock option awards are exercised. Stock option awards outstanding under our current plans were granted at exercise prices that were equal to the market value of our common stock on the date of grant. At September 30, 2011, approximately 0.3 million shares remain available under such plans for restricted stock and restricted stock unit grants.

Stock Options

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


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
	2011	2010	2011	2010
Risk-free interest rate	-	2.1%	2.2%	3.0%
Expected life (in years)	-	6.3	5.2	6.3
Expected volatility	-	44.4%	44.6%	45.1%
Dividend	-	0%	0%	0%

No stock options were granted during the three months ended September 30, 2011.

The Black-Scholes stock option pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. We have 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 (that is, the period of time from the service inception date to the date of expected exercise or other expected settlement) and is based generally on historical trends. Through 2010, we had used the “simplified method” for “plain vanilla” options described in FASB ASC 718-10-S99 Compensation – Stock Compensation – SEC Materials. The “simplified method” calculation is the average of the vesting term plus the original contractual term divided by two. In 2011, we modified our expected life weighted average assumption based on an actuarial study derived from historical exercise data. 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 our common stock over a term equal to the expected term of the option granted. FASB ASC 718-10 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 our 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 following is a summary of the weighted average per share fair value of options granted in the three-month and nine-month periods ended September 30, 2011 and September 30, 2010.


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
	2011	2010	2011	2010
Weighted average per share fair value of options granted	$ -	$12.45	$15.42	$13.30

Set forth below is the impact on our results of operations of recording share-based compensation from stock options for the three-month and nine-month periods ended September 30, 2011 and September 30, 2010 ($ amounts in thousands):


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
	2011	2010	2011	2010
Cost of goods sold	$97	$133	$347	$403
Selling, general and administrative	863	1,200	3,116	4,252
Total, pre-tax	$960	$1,333	$3,463	$4,655
Tax effect of share-based compensation	(355)	(507)	(1,281)	(1,769)
Total, net of tax	$605	$826	$2,182	$2,886

The following is a summary of our stock option activity (shares and aggregate intrinsic value in thousands):


	Shares	Weighted Average Exercise Price	Weighted Average Remaining Life	Aggregate Intrinsic Value
Balance at December 31, 2010	3,132	$26.23
Granted	222	36.45
Exercised	(653)	15.35
Forfeited	(379)	27.34
Balance at September 30, 2011	2,322	$30.11	5.7	$10,531
Exercisable at September 30, 2011	1,335	$36.46	4.0	$3,110
Vested and expected to vest at September 30, 2011	2,283	$30.26	5.2	$10,239

Total fair value of shares vested ($ amounts in thousands):


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
	2011	2010	2011	2010
Total fair value of shares vested	$345	$1,138	$4,273	$3,972

As of September 30, 2011, the total compensation cost related to all non-vested stock options granted to employees but not yet recognized was approximately $7.0 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over the remaining weighted average vesting period of 1.8 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 our common stock on the date of grant.

The impact on our results of operations of recording share-based compensation from restricted stock for the three-month and nine-month periods ended September 30, 2011 and September 30, 2010 was as follows ($ amounts in thousands):


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
	2011	2010	2011	2010
Cost of goods sold	$127	$168	$435	$513
Selling, general and administrative	1,144	1,513	3,916	4,999
Total, pre-tax	$1,271	$1,681	$4,351	$5,512
Tax effect of stock-based compensation	(470)	(639)	(1,610)	(2,095)
Total, net of tax	$801	$1,042	$2,741	$3,417

The following is a summary of our restricted stock activity (shares and aggregate intrinsic value in thousands):


	Shares	Weighted Average Grant Price	Aggregate Intrinsic Value
Non-vested balance at December 31, 2010	496	$19.52
Granted	73	36.27
Vested	(208)	21.08
Forfeited	(33)	18.43
Non-vested balance at September 30, 2011	328	$22.37	$8,743

The following is a summary of our restricted stock unit activity (shares and aggregate intrinsic value in thousands):


	Shares	Weighted Average Grant Price	Aggregate Intrinsic Value
Non-vested restricted stock unit balance at December 31, 2010	23	$27.68
Granted	74	36.36
Vested	(28)	28.62
Forfeited	-	-
Non-vested restricted stock unit balance at September 30, 2011	69	$36.47	$1,843
Vested awards not issued	166	$22.26	$4,423
Total restricted stock unit balance at September 30, 2011	235	$26.44	$6,266

As of September 30, 2011, the total compensation cost related to all non-vested restricted stock and restricted stock units granted to employees but not yet recognized was approximately $6.3 million, net of estimated forfeitures; this cost will be amortized on a straight-line basis over the remaining weighted average vesting period of approximately 2.3 years.

Restricted Stock Grants With Market Vesting Conditions

In 2008, we issued restricted stock grants with market vesting conditions. The vesting of restricted stock grants issued to certain of our employees was contingent upon multiple market conditions that were factored into the fair value of the restricted stock at grant date with cliff vesting after three years if the market conditions had been met. Vesting was contingent upon applicable continued employment condition and the Total Stockholder Return (“TSR”) on our common stock relative to the Company’s stock price at the beginning of the three-year vesting period as compared to the TSR of a defined peer group of approximately 12 companies, and the TSR of the Standard and Poor’s 400 Mid Cap Index (“S&P 400”) over the three-year measurement period. The measurement period ended on December 31, 2010. The Company achieved the maximum level of performance under the program because the Company’s TSR was greater than the 75^th percentile TSR of the peer group and the Company’s TSR was greater than the median of the S&P 400 during the three-year measurement period. Approximately 454 thousand shares of common stock were earned as of the vesting date, January 11, 2011. Approximately 65 thousand shares were issued in 2008 by operation of the provisions of employment contracts for three senior executives whose employment with us was terminated. Approximately 339 thousand shares of common stock were distributed in January 2011. Approximately 115 thousand shares were cash settled upon the discretion of the Compensation Committee of the Board of Directors for approximately $4.1 million (pre-tax) in January 2011. In all circumstances, restricted stock granted did not entitle the holder the right, or obligate the Company, to settle the restricted stock in cash.

At the grant date, the effect of the market conditions on the restricted stock issued to certain employees was reflected in their fair value. The restricted stock grants with market conditions were valued using a Monte Carlo simulation. The Monte Carlo simulation estimated the fair value based on the expected term of the award, risk-free interest rate, expected dividends, and the expected volatility for the Company, our 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 rate 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. Volatility was based on historical volatility over the expected term (40%). Restricted stock that included multiple market conditions had a grant date fair value per restricted share of $24.78.

The following table summarizes the components of our stock-based compensation related to our restricted stock grants with market conditions recognized in our financial statements for the three-month and nine-month periods ended September 30, 2011 and September 30, 2010 ($ amounts in thousands):


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
	2011	2010	2011	2010
Cost of goods sold	$ -	$40	$ -	$133
Selling, general and administrative	-	352	-	1,193
Total, pre-tax	$ -	$392	$ -	$1,326
Tax effect of stock-based compensation	-	(149)	-	(504)
Total, net of tax	$ -	$243	$ -	$822

The following is a summary of our restricted stock grants with market condition vesting (shares and aggregate intrinsic value in thousands):


	Shares	Weighted Average Grant Date Fair Value Per Share	Aggregate Intrinsic Value
Non-vested balance at December 31, 2010	242	$24.78
Granted	97	36.54
Vested	(339)	25.95
Forfeited	-	-
Non-vested balance at September 30, 2011	$ -	$ -	$ -

Cash-settled Restricted Stock Unit Awards

We grant cash-settled restricted stock unit awards that vest ratably over four years to certain employees. The cash-settled restricted stock unit awards are classified as liability awards and are reported within accrued expenses and other current liabilities and other long-term liabilities on the condensed consolidated balance sheet. Cash settled restricted stock units entitle such employees to receive a cash amount determined by the fair value of our common stock on the vesting date. The fair values of these awards are remeasured at each reporting period (marked to market) until the awards vest and are paid. Fair value fluctuations are recognized as cumulative adjustments to share-based compensation expense and the related liabilities. Cash-settled restricted stock unit awards are subject to forfeiture if employment terminates prior to vesting. Share-based compensation expense for cash-settled restricted stock unit awards are recognized ratably over the service period. Cash-settled restricted stock unit awards do not decrease shares available for future share-based compensation grants.

The impact on our results of operations of recording share-based compensation from cash-settled restricted stock units for the three-month and nine-month periods ended September 30, 2011 and September 30, 2010 was as follows ($ amounts in thousands):


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
	2011	2010	2011	2010
Cost of goods sold	$1	$12	$107	$33
Selling, general and administrative	3	108	935	297
Total, pre-tax	$4	$120	$1,042	$330
Tax effect of stock-based compensation	(1)	(46)	(386)	(125)
Total, net of tax	$3	$74	$656	$205

Information regarding activity for cash-settled restricted stock units outstanding is as follows (number of awards in thousands):


	Number of Awards	Weighted Average Grant Date Fair Value	Aggregate Intrinsic Value
Awards outstanding at December 31, 2010	72	$28.13
Granted	108	35.43
Vested	(17)	27.71
Forfeited	(17)	32.19
Awards outstanding at September 30, 2011	146	$33.09	$3,909

As of September 30, 2011, unrecognized compensation costs related to non-vested cash-settled restricted stock units was approximately $2.6 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over the remaining vesting period of approximately 3.0 years.

Employee Stock Purchase Program:

We maintain 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 our common stock at a 5% discount to the fair market value. An aggregate of 1.0 million shares of common stock has been reserved for sale to employees under the Program. At September 30, 2011, approximately 0.7 million shares remain available under the Program.

(Shares in thousands):


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
	2011	2010	2011	2010
Shares purchased by employees	3	4	9	10

Chief Executive Officer Specific Share-based Compensation

On November 2, 2010, we entered into a new employment agreement with Patrick LePore, in his capacity as President and Chief Executive Officer, effective as of January 1, 2011. His new employment agreement is for a three-year term, ending December 31, 2013, subject to certain early termination events. Pursuant to the employment agreement, Mr. LePore is eligible to receive an incentive compensation award based on the compound annual growth rate (“CAGR”) of our common stock over the course of Mr. LePore’s three-year employment term (January 1, 2011 to December 31, 2013). Mr. LePore will be eligible to receive an incentive compensation award ranging from $2 million (for a three-year CAGR of 4%) to $9 million (for a three-year CAGR of 20% or more). He will not be eligible to receive an incentive compensation award if the Company’s three-year CAGR is below 4%, and no incentive compensation award will be payable if the employment agreement is terminated prior to its expiration unless a change of control (as defined in the agreement) has occurred. These CAGR based awards will be classified as liability awards and are reported within accrued expenses and other current liabilities and other long-term liabilities on the condensed consolidated balance sheet. The fair values of these awards are remeasured at each reporting period (mark-to-market) using a Monte Carlo valuation model until the awards vest and are paid. Fair value fluctuations are recognized as cumulative adjustments to share-based compensation expense and the related liabilities. Share-based compensation expense for these CAGR awards will be recognized ratably over the three-year service period. Our CAGR was below 4% from January 1, 2011. Through September 30, 2011, we recognized $145 thousand of expense associated with this plan.

Mr. LePore will not be eligible to participate in our annual long-term incentive programs during the three-year term of his new employment agreement. Instead, in January 2011, Mr. LePore was granted an equity award consisting of restricted stock units with a total grant date economic value of approximately $1.85 million. The units will vest on the earlier of (a) the expiration of Mr. LePore’s employment term on December 31, 2013, (b) the date that a change of control (as defined in the agreement) occurs, or (c) the date of an eligible earlier termination of Mr. LePore’s employment term in accordance with the provisions of the agreement. The related share-based compensation expense is being recorded over the three-year term of the new employment agreement, which is the vesting period. The fair value of restricted stock units was based on the market value of our common stock on the date of grant.

Note 14 - Commitments, Contingencies and Other Matters:

Legal Proceedings

Unless otherwise indicated in the details provided below, we cannot predict with certainty the outcome or the effects 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 below, at this time we are not able to estimate the possible loss or range of loss, if any, associated with these legal proceedings. From time to time, we may settle or otherwise resolve these matters on terms and conditions that we believe are in the best interests of the Company. Resolution of any or all claims, investigations, and legal proceedings, individually or in the aggregate, could have a material effect on our results of operations, cash flows or financial condition.

Corporate Litigation

We and certain of our former executive officers have been named as defendants in consolidated class action lawsuits filed on behalf of purchasers of our common stock between July 23, 2001 and July 5, 2006. The lawsuits followed our July 5, 2006 announcement regarding the restatement of certain of our financial statements and allege that we and certain members of our then management engaged in violations of the Exchange Act, by issuing false and misleading statements concerning our financial condition and results of operations. The class actions are pending in the U.S. District Court for the District of New Jersey. On July 23, 2008, co-lead plaintiffs filed a Second Consolidated Amended complaint. On September 30, 2009, the Court granted a motion to dismiss all claims as against Kenneth Sawyer but denied the motion as to the Company, Dennis O’Connor, and Scott Tarriff. We and Messrs. O’Connor and Tarriff have answered the Amended complaint and intend to vigorously defend the consolidated class action. Plaintiffs have filed a motion for class certification which we and the other defendants intend to oppose.

Following the announcement of our agreement to acquire Edict Pharmaceuticals Private Limited (referred to as “Edict” or “Edict Pharmaceuticals”), a Chennai, India-based developer and manufacturer of generic pharmaceuticals, Gavis Pharma LLC (“Gavis”), an affiliate of Novel Laboratories, Inc. and a former shareholder of Edict, filed a lawsuit on June 29, 2011, in the Superior Court for the State of New Jersey, Somerset County, against us, Edict, and the shareholders of Edict, seeking to enjoin the closing of our acquisition of Edict and money damages (the “Gavis Litigation”). Gavis asserts claims against certain Edict shareholders for fraudulent inducement in connection with Gavis’s 2009 decision to sell its equity interest in Edict; against Edict and certain Edict shareholders for breach of contract; and against us for tortious interference with contract for entering into our agreement to acquire Edict. The defendants filed motions to dismiss the Gavis Litigation and agreed by stipulation to delay closing our acquisition of Edict until the Court renders a ruling on the plaintiff’s preliminary injunction motion, which was heard on August 3, 2011. Since August 15, 2011, the Gavis Litigation has been voluntarily stayed by stipulation of the parties pending the outcome of settlement discussions. On October 20, 2011, the parties entered into a Settlement Agreement & Mutual Release and Covenant Not to Sue enabling us to move forward with the closing of the acquisition. Under the terms of the Settlement Agreement, on the date that we close our acquisition of Edict: (a) an Edict shareholder will pay a portion of the closing proceeds to Gavis, (b) the parties will file with the Court a Stipulation of Dismissal with Prejudice dismissing all claims under the Gavis Litigation and (c) the parties will execute and deliver a Mutual Release and Covenant Not to Sue. The Settlement Agreement will become null and void in the event (i) our Share Purchase Agreement with Edict is terminated or (ii) our closing of the Edict acquisition does not occur within 60 days of execution of the Settlement Agreement (i.e., December 19, 2011).

Patent Related Matters

On April 28, 2006, CIMA Labs, Inc. (“CIMA”) and Schwarz Pharma, Inc. (“Schwarz Pharma”) filed separate lawsuits against us in the U.S. District Court for the District of New Jersey. CIMA and Schwarz Pharma each have alleged that we 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, we have 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. All 40 claims in the ’981 patent were rejected in two non-final office actions in a reexamination proceeding at the United States Patent and Trademark Office (“USPTO”) on February 24, 2006 and on February 24, 2007. The ‘392 patent is also the subject of a reexamination proceeding. On July 10, 2008, the USPTO rejected with finality all claims pending in both the ‘392 and ‘981 patents. On September 28, 2009, the USPTO Board of Appeals affirmed the Examiner’s rejection of all claims in the ‘981 patent. On November 25, 2009, plaintiffs requested a rehearing before the USPTO Board of Appeals regarding the ’981 patent. On March 24, 2011, the USPTO Board of Appeals affirmed the rejections pending for both patents and added new grounds for rejection of the ’981 patent. On June 24, 2011, the plaintiffs re-opened prosecution on both patents at the USPTO. We intend to vigorously defend this lawsuit and pursue our counterclaims.

earlier than August 31, 2015, and no later than February 28, 2016, assuring our ability to market a generic version of Androgel^®well before the expiration of the patents at issue. On March 7, 2007, we were issued a Civil Investigative Demand seeking information and documents in connection with the court-approved settlement in 2006 of the patent dispute. On January 30, 2009, the Bureau of Competition for the Federal Trade Commission (“FTC”) filed a lawsuit against us in the U.S. District Court for the Central District of California alleging violations of antitrust laws stemming from our court-approved settlement in the Paddock litigation, and several distributors and retailers followed suit with a number of private plaintiffs’ complaints beginning in February 2009. On April 9, 2009, the U.S. District Court for the Central District of California granted Par’s motion to transfer the FTC lawsuit and the private plaintiffs’ complaints to the U.S. District Court for the Northern District of Georgia. On July 20, 2009, we filed a motion to dismiss the FTC’s case and on September 1, 2009, we filed a motion to dismiss the private plaintiffs’ cases in the U.S. District Court for the Northern District of Georgia, and on February 23, 2010, the Court granted our motion to dismiss the FTC’s claims and granted in part and denied in part our motion to dismiss the claims of the private plaintiffs. On June 10, 2010, the FTC appealed the District Court’s dismissal of the FTC’s claims to the U.S. Court of Appeals for the 11th Circuit. On May 13, 2011, oral argument was held before the Court of Appeal and we currently await the Court’s decision. We believe we have complied with all applicable laws in connection with the court-approved settlement and intend to continue to vigorously defend these actions.

On July 6, 2007, Sanofi-Aventis and Debiopharm, S.A. filed a lawsuit against us and our development partner, MN Pharmaceuticals ("MN"), in the U.S. District Court for the District of New Jersey. The complaint alleges infringement of U.S. Patent Nos. 5,338,874 (the “’874 patent”) and 5,716,988 (the “’988 patent”) after we 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. 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 '988 patents. MN and we filed our Answer and Counterclaim on February 20, 2008. On June 18, 2009, the District Court granted summary judgment of non-infringement to several defendants, including us, on the ’874 patent, but to date has not rendered a summary judgment decision regarding the ’988 patent. On September 10, 2009, the U.S. Court of Appeals for the Federal Circuit reversed the District Court and remanded the case for further proceedings. On September 24, 2009, Sanofi-Aventis filed a motion for preliminary injunction against defendants who entered the market following the District Court’s summary judgment ruling. On November 19, 2009, the District Court dismissed all pending motions for summary judgment with possibility of the motions being renewed upon letter request to the Court. On April 14, 2010, the District Court entered a consent judgment and order agreed to by us, MN, and the plaintiffs, which agreement settled the pending litigation. In view of this agreement, MN and we will enter the market with generic Eloxatin on August 9, 2012, or earlier in certain circumstances.

On October 1, 2007, Elan Corporation, PLC (“Elan”) filed a lawsuit against us and our development partners, IntelliPharmaCeutics Corp. and IntelliPharmaCeutics Ltd. (collectively "IPC"), in the U.S. District Court for the District of Delaware. On October 5, 2007, Celgene Corporation (“Celgene”) and Novartis Pharmaceuticals Corporation and Novartis Pharma AG (“Novartis”) filed a lawsuit against IPC in the U.S. 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 we submitted a Paragraph IV certification to the FDA for approval of 5 mg, 10 mg, 15 mg, and 20 mg dexmethylphenidate hydrochloride extended release capsules. The 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 IPC and we submitted a Paragraph IV certification to the FDA for approval of 5 mg, 10 mg, 15 mg, and 20 mg dexmethylphenidate extended release capsules. On March 5, 2010 and March 15, 2010, the U.S. District Courts for the Districts of New Jersey and Delaware, respectively, entered stays of the litigations in view of settlement agreements reached by the parties and the cases were terminated pursuant to a stipulation of dismissal on May 10, 2010. The settlement agreement terms are confidential.

On March 25, 2011, Elan Corporation, PLC (“Elan”) filed a lawsuit against us and our development partners, IntelliPharmaceutics Corp. and IntelliPharmaCeutics Ltd. (collectively “IPC”) in the U.S. District Court for the District of Delaware, and Celgene Corporation (“Celgene”) and Novartis filed a lawsuit against IPC in the U.S. 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 we submitted a Paragraph IV certification to the FDA for approval of 30 mg dexmethylphenidate hydrochloride extended release capsules. The 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 IPC and we submitted a Paragraph IV certification to the FDA for approval of 30 mg dexmethylphenidate extended release capsules. We intend to vigorously defend and expeditiously resolve these lawsuits.

On May 27, 2011, Elan Corporation, PLC (“Elan”) filed a lawsuit against us in the U.S. District Court for the District of Delaware, and Celgene Corporation (“Celgene”) and Novartis filed a lawsuit against IPC (in error, subsequently amended to Par) in the U.S. 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 we submitted a Paragraph IV certification to the FDA for approval of 40 mg dexmethylphenidate hydrochloride extended release capsules. The 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 IPC and we submitted a Paragraph IV certification to the FDA for approval of 40 mg dexmethylphenidate extended release capsules. We intend to vigorously defend and expeditiously resolve these lawsuits.

District Court for the District of Delaware alleging infringement of the patents because we submitted a Paragraph IV certification to the FDA for approval of 20 mg and 40 mg omeprazole/sodium bicarbonate powders for oral suspension. On March 4, 2008, the cases pertaining to our ANDAs for omeprazole capsules and omeprazole oral suspension were consolidated for all purposes. The District Court conducted a bench trial from July 13-17, 2009, and found for Santarus only on the issue of infringement, while not rendering an opinion on the issues of invalidity and unenforceability. On April 14, 2010, the District Court ruled in our favor, finding that plaintiffs’ patents were invalid as being obvious and without adequate written description. On May 17, 2010, Santarus filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit, appealing the District Court’s decision of invalidity of the plaintiffs’ patents. On May 27, 2010, we filed our notice of cross-appeal to the Court of Appeals, appealing the District Court’s decision of enforceability of plaintiffs’ patents. On July 1, 2010, we launched our generic Omeprazole/Sodium Bicarbonate product. Oral argument for the appeal was held on May 2, 2011. We will continue to vigorously defend the appeal.

On December 11, 2007, AstraZeneca Pharmaceuticals, LP, AstraZeneca UK Ltd., IPR Pharmaceuticals, Inc. and Shionogi Seiyaku Kabushiki Kaisha filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges patent infringement because we submitted a Paragraph IV certification to the FDA for approval of 5 mg, 10 mg, 20 mg and 40 mg rosuvastatin calcium tablets. On June 29, 2010, after an eight day bench trial, the District Court ruled in favor of the plaintiffs and against us, stating that the plaintiffs’ patents were infringed, and not invalid or unenforceable. On August 11, 2010, we filed our notice of appeal to the U.S. Court of Appeals for the Federal Circuit, appealing the District Court’s decision. On December 15, 2010, the District Court granted our motion to dismiss a case brought by AstraZeneca asserting we infringed its rosuvastatin process patents, which decision AstraZeneca appealed January 14, 2011. On May 23, 2011, we filed our opening appeal brief in the second action and an oral hearing has been scheduled for November 7, 2011. On April 25, 2011, we filed our final appeal brief in the first action and an oral hearing was conducted October 5, 2011. We intend to defend all of these actions vigorously.

On November 14, 2008, Pozen, Inc. (“Pozen”) filed a lawsuit against us in the U.S. District Court for the Eastern District of Texas. The complaint alleges infringement of U.S. Patent Nos. 6,060,499; 6,586,458; and 7,332,183, because we submitted a Paragraph IV certification to the FDA for approval of 500 mg/85 mg naproxen sodium/sumatriptan succinate oral tablets. We joined GlaxoSmithKline (“GSK”) as a counterclaim defendant in this litigation. On April 28, 2009, GSK was dismissed from the case by the Court, but will be bound by the Court’s decision and will be required to produce witnesses and materials during discovery. A four day bench trial was held from October 12 through October 15, 2010. On April 14, 2011, the Court granted a preliminary injunction to Pozen that prohibits us from launching our generic naproxen/sumatriptan product before the issuance of a final decision in the case. On August 5, 2011, the Court ruled in favor of Pozen and against us on infringement, validity, and enforceability. We filed our appeal brief to the U.S. Court of Appeals for the Federal Circuit on August 31, 2011. We intend to vigorously pursue our appeal.

On April 29, 2009, Pronova BioPharma ASA (“Pronova”) filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent Nos. 5,502,077 and 5,656,667 because we submitted a Paragraph IV certification to the FDA for approval of omega-3-acid ethyl esters oral capsules. On June 8, 2010, a new patent, U.S. 7,732,488, which was later listed in the Orange Book, was issued to Pronova. A second case, involving the claims of the ’488 patent and two other patents not listed in the Orange Book and asserted by the plaintiffs, has a trial date set for January 3, 2012. A bench trial in the first case took place from March 29, 2011 to April 7, 2011. On July 25, 2011, a stipulation was submitted to the court dismissing the second case without prejudice. On September 29, 2011, we filed our final reply brief with the Court in the first action. We intend to continue to defend this action vigorously and pursue our defenses and counterclaims against Pronova.

On July 1, 2009, Alcon Research Ltd. (“Alcon”) filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent Nos. 5,510,383; 5,631,287; 5,849,792; 5,889,052; 6,011,062; 6,503,497; and 6,849,253 because we submitted a Paragraph IV certification to the FDA for approval of 0.004% travoprost ophthalmic solutions and 0.004% travoprost ophthalmic solutions (preserved). We filed an answer on August 21, 2009. The Court rescheduled the end of fact discovery for December 31, 2010 and the end of expert discovery for May 27, 2011. On July 1, 2011, the parties submitted the joint pre-trial order. Trial in this action is scheduled for November 2, 2011. We intend to defend this action vigorously and pursue our defenses and counterclaims against Alcon.

On August 5, 2010, Warner Chilcott and Medeva Pharma filed a lawsuit against us and our partner EMET Pharmaceuticals in the U.S. District Court for the District of New Jersey. The complaint alleges infringement of U.S. Patent No. 5,541,170 because we submitted an ANDA with a Paragraph IV certification to the FDA for approval of a 400 mg delayed-release oral tablet of mesalamine. We filed an answer and counterclaims on August 25, 2010, and an initial Rule 16 conference was held on November 10, 2010. On March 29, 2011, the Court granted plaintiffs’ motion to dismiss our counterclaim for declaratory judgment of non-infringement of U.S. Patent No. 5,541,171. Our appeal of this decision was docketed with the Federal Circuit May 20, 2011. Expert discovery closed July 5, 2011, and fact discovery closed on August 5, 2011. The court rescheduled the Markman hearing calendared for this case and it was held on October 18, 2011. We intend to defend this action vigorously and pursue all of our defenses and counterclaims against Warner Chilcott and Medeva Pharma.

November 9, 2010, we entered into a stipulation with the plaintiffs to stay litigation on the OTC product pending the decision by the U.S. Court of Appeals for the Federal Circuit on the prescription product appeal, and the parties have agreed to be bound by such decision for purposes of the OTC product litigation. We intend to pursue our appeal and defend this action vigorously.

On September 22, 2010, Biovail Laboratories filed a lawsuit against us in the U.S. District Court for the Southern District of New York. The complaint alleges infringement of U.S. Patent Nos. 7,569,610; 7,572,935; 7,649,019; 7,553,992; 7,671,094; 7,241,805; 7,645,802; 7,662,407; and 7,645,901 because we submitted an ANDA with a Paragraph IV certification to the FDA for approval of extended-release tablets of 174 mg and 348 mg bupropion hydrobromide. On November 10, 2010, we filed our answer to the complaint. On November 22, 2010, the Court set a June 30, 2011 deadline for all discovery. On March 7, 2011, the Court reset the deadline for all discovery to May 18, 2011. Mediation took place under the supervision of the Court on September 20, 2011. We intend to defend this action vigorously.

On October 4, 2010, UCB Manufacturing, Inc. (“UCB”) filed a verified complaint in the Superior Court of New Jersey, Chancery Division, Middlesex, naming us, our development partner Tris Pharma, and Tris Pharma’s head of research and development, Yu-Hsing Tu. The complaint alleges that Tris and Tu misappropriated UCB’s trade secrets and, by their actions, breached contracts and agreements to which UCB, Tris, and Tu were bound. The complaint further alleges unfair competition against Tris, Tu, and us relating to the parties’ manufacture and marketing of generic Tussionex^®. On October 6, 2010, the Court denied UCB’s petition for a temporary restraining order against us and Tris and set a schedule for discovery during which UCB must substantiate its claims. On December 23, 2010, the Court denied UCB’s motion for a preliminary injunction, ruling that UCB’s alleged trade secrets were known to the public and not misappropriated. On June 2, 2011, the Court granted Tris’ motion for summary judgment dismissing UCB’s claims and UCB appealed the Court’s order on June 22, 2011. We intend to vigorously defend the lawsuit and any appeal by plaintiffs.

On August 10, 2011, Avanir Pharmaceuticals, Inc. et al. filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent Nos. 7,659,282 and RE38,155 because we submitted an ANDA with a Paragraph IV certification to the FDA for approval of oral capsules of 20 mg dextromethorphan hydrobromide and 10 mg quinidine sulfate. We filed our answer on September 6, 2011 and our case was consolidated with those for the other defendants Actavis, Impax, and Wockhardt on September 26, 2011.

On February 2, 2011, Somaxon Pharmaceuticals filed a lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent No. 6,211,229 because we submitted an ANDA with a Paragraph IV certification to the FDA for approval of oral tablets of 3 mg equivalent and 6 mg equivalent doxepin hydrochloride. We filed our answer on February 23, 2011. On June 6, 2011, our case was consolidated in the same Court with that of the other defendants who filed ANDAs on this product. The Court has scheduled fact discovery to end on April 6, 2012; expert discovery to end on September 7, 2012; and set a “trial-ready” date of February 19, 2013. On September 23, 2011 our case was formally consolidated with those of the other defendants and our new trial date is December 10, 2012. We intend to defend this action vigorously.

On March 23, 2011, we filed a declaratory judgment action against UCB, Inc. and UCB Pharma SA (“UCB”) in the U.S. District Court for the Eastern District of Pennsylvania requesting that the Court render a judgment of invalidity and/or non-infringement of U.S. Patent Nos. 7,858,122 and 7,863,316 in view of our eventual marketing of levetiracetam extended release oral tablets, 500 mg and 750 mg pursuant to our filed ANDA that was accompanied by a Paragraph IV certification. On June 8, 2011, we filed our answer to UCB’s counterclaims and submitted our joint Rule 26(f) report with the court on July 18, 2011. On August 22, 2011, the parties entered into a stipulated dismissal of the case pursuant to a settlement agreement that allowed Par to launch its generic levetiracetam extended release product on September 13, 2011 subject to certain confidential conditions.

On September 1, 2011, we, along with EDT Pharma Holdings Ltd. (now known as Alkermes Pharma Ireland Limited) (Elan) filed a complaint against TWi Pharmaceuticals, Inc. of Taiwan in the U.S. District Court for the District of Maryland and another against the same company in the U.S. District Court for the Northern District of Illinois on September 2, 2011. In both complaints, we and Elan allege infringement of U.S. Patent No. 7,101,576 (expiration 4/22/2024) in view of the notice letter we received from TWi stating that TWi had filed an ANDA, accompanied by a Paragraph IV certification, seeking approval for a generic version of Megace ES®. We are at present aware of no other generic filers. We intend to prosecute this infringement case vigorously.

Industry Related Matters

were filed. In the Utah suit, the time for responding to the complaint has not yet elapsed. The Hawaii suit was settled on August 25, 2010 for $2,250 thousand. The Massachusetts suit was settled on December 17, 2010 for $500 thousand. The Alabama suit was settled on January 5, 2011 for $2,500 thousand. The Idaho suit was settled on March 25, 2011 for $1,700 thousand. On August 24, 2011, we settled claims brought by Ven-A-Care, Texas, and Florida, under federal and state law, as well as Alaska, South Carolina, and Kentucky under state law, for $154,000 thousand. The settlement resolved the lawsuit relating to federal contributions to state Medicaid programs in 49 states (excluding Illinois), and claims of Texas, Florida, Alaska, South Carolina and Kentucky relating to their Medicaid programs. The settlement eliminated the majority of the alleged damages asserted against us in the various drug pricing litigations and, with the exception of South Carolina, removed all trials that had been scheduled. An order of dismissal in the South Carolina action is expected in the near future. We paid the $154,000 thousand settlement amount during the third quarter of 2011. On June 2, 2011, we reached a settlement in principle to resolve claims brought by the city of New York, New York Counties and the state of Iowa under respective state law for $23,000 thousand. The Mississippi suit was settled on September 1, 2011 for $3,600 thousand. On October 18, 2011, we reached an agreement in principle to settle the Oklahoma suit for $884 thousand. The remaining matters have yet to be scheduled for trial. We have accrued a $37,800 thousand reserve under the caption “Accrued legal settlements” on our condensed consolidated balance sheet as of September 30, 2011, in connection with the June 2, 2011 settlement in principle and the remaining AWP actions. In each of the remaining matters, we have either moved to dismiss the complaints or answered the complaints denying liability. We will continue to defend or explore settlement opportunities in other jurisdictions as we feel are in our best interest under the circumstances presented in those jurisdictions. However, we can give no assurance that we will be able to settle the remaining actions on terms that we deem reasonable, or that such settlements or adverse judgments, if entered, will not exceed the amount of the reserve.

In addition, the Attorneys General of Florida, Indiana and Virginia and the United States Office of Personnel Management (the “USOPM”) have issued subpoenas, and the Attorneys General of Michigan, Tennessee, Texas, and Utah have issued civil investigative demands, to us. The demands generally request documents and information pertaining to allegations that certain of our sales and marketing practices caused pharmacies to substitute ranitidine capsules for ranitidine tablets, fluoxetine tablets for fluoxetine capsules, and two 7.5 mg buspirone tablets for one 15 mg buspirone tablet, under circumstances in which some state Medicaid programs at various times reimbursed the new dosage form at a higher rate than the dosage form being substituted. We have provided documents in response to these subpoenas to the respective Attorneys General and the USOPM. The aforementioned subpoenas and civil investigative demands culminated in the federal and state law qui tam action brought on behalf of the United States and several states by Bernard Lisitza. The complaint was unsealed on August 30, 2011. The United States intervened in this action on July 8, 2011 and filed a separate complaint on September 9, 2011 alleging claims for violations of the Federal False Claims Act and common law fraud. We intend to vigorously defend this lawsuit.

Department of Justice Matter

On March 19, 2009, we were served with a subpoena by the Department of Justice requesting documents related to Strativa’s marketing of Megace^® ES. The subpoena indicated that the Department of Justice is currently investigating promotional practices in the sales and marketing of Megace^® ES. We believe that our marketing of Megace^® ES has complied with all applicable laws and we have provided, or are in the process of providing, documents in response to this subpoena to the Department of Justice and will continue to cooperate with the Department of Justice in this inquiry if called upon to do so. Investigations of this type often result in settlements, including monetary amounts based on an agreed upon percentage of sales of the product at issue in the investigation.

Declaratory Judgment

On October 14, 2011, we filed a declaratory complaint and a motion for preliminary injunction in the U.S. District Court for the District of Columbia seeking to preserve our First Amendment right to provide truthful information to physicians and other healthcare providers about the FDA-approved, on-label use of Megace^® ES.

Other

We are, from time to time, a party to certain other litigations, including product liability litigations. We believe that these litigations are part of the ordinary course of our business and that their ultimate resolution will not have a material effect on our condensed consolidated financial statements. We intend to defend or, in cases where we are the plaintiff, to prosecute these litigations vigorously.

Note 15 – Discontinued Operations – Related Party Transaction:

In January 2006, we divested FineTech Laboratories, Ltd (“FineTech”), effective December 31, 2005. We transferred the business for no proceeds to Dr. Arie Gutman, president and chief executive officer of FineTech. Dr. Gutman also resigned from our Board of Directors. In 2011 and 2010, we recorded tax amounts to discontinued operations for interest related to contingent tax liabilities. The results of FineTech operations are classified as discontinued for all periods presented because we have no continuing involvement in FineTech.

Note 16 - Segment Information:

We operate in two reportable business segments: generic pharmaceuticals (referred to as “Par Pharmaceutical” or “Par”) and branded pharmaceuticals (referred to as “Strativa Pharmaceuticals” or “Strativa”). Branded products are marketed under brand names through marketing programs that are designed to generate physician and consumer loyalty. Branded products generally are patent protected, which provides a period of market exclusivity during which they are sold with little or no direct competition. Generic pharmaceutical products are the chemical and therapeutic equivalents of corresponding 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. Our chief operating decision maker is our President and Chief Executive Officer.

Our business segments were determined based on management’s reporting and decision-making requirements in accordance with FASB ASC 280-10 Segment Reporting. We believe that our 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. Par’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). Par’s generic products are produced using similar processes and standards mandated by the FDA, and Par’s generic products are sold to similar customers. Based on the economic characteristics, production processes and customers of Par’s generic products, management has determined that Par’s generic pharmaceuticals are a single reportable business segment. Our chief operating decision maker does not review the Par (generic) or Strativa (brand) segments in any more granularity, such as at the therapeutic or other classes or categories. Certain of our 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 management.

The financial data for the two business segments are as follows ($ amounts in thousands):


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
	2011	2010	2011	2010
Revenues:
Par Pharmaceutical	$195,452	$209,747	$607,646	$713,724
Strativa	19,905	24,693	64,851	68,122
Total revenues	$215,357	$234,440	$672,497	$781,846

Gross margin:
Par Pharmaceutical	$71,641	$84,734	$248,195	$226,798
Strativa	13,463	18,560	45,588	51,465
Total gross margin	$85,104	$103,294	$293,783	$278,263

Operating income (loss):
Par Pharmaceutical	$42,141	$51,409	($38,760)	$132,327
Strativa	(2,409)	(10,795)	(42,263)	(24,229)
Total operating income (loss)	$39,732	$40,614	($81,023)	$108,098
Gain on marketable securities and other investments, net	-	3,567	-	3,567
Interest income	160	341	965	942
Interest expense	(150)	(928)	(451)	(2,754)
Provision (benefit) for income taxes	17,687	12,933	(2,900)	34,731
Income (loss) from continuing operations	$22,055	$30,661	($77,609)	$75,122

Our chief operating decision maker does not review our assets, depreciation or amortization by business segment at this time as they are not material to Strativa. Therefore, such allocations by segment are not provided.

Total revenues of our top selling products were as follows ($ amounts in thousands):


	Three months ended		Nine months ended
Product	September 30,	September 30,	September 30,	September 30,
	2011	2010	2011	2010
Par Pharmaceutical
Metoprolol succinate ER (Toprol-XL®)	$67,509	$97,360	$194,634	$400,247
Budesonide (Entocort® EC)	20,551	-	36,908	-
Propafenone (Rythmol SR®)	18,083	-	53,432	-
Sumatriptan succinate injection (Imitrex®)	16,795	18,315	48,777	53,062
Dronabinol (Marinol®)	7,208	9,073	22,197	20,347
Tramadol ER (Ultracet ER®)	6,280	5,546	18,233	16,508
Chlorpheniramine/Hydrocodone (Tussionex®)	4,854	-	24,555	-
Amlodipine and Benazepril HCl (Lotrel®)	4,467	-	35,143	-
Meclizine Hydrochloride (Antivert®)	3,859	6,219	13,295	25,771
Omeprazole (Zegerid®)	3,853	13,508	11,037	14,085
Cholestyramine Powder (Questran®)	3,789	4,850	11,549	11,761
Nateglinide (Starlix®)	3,213	5,960	11,333	10,948
Cabergoline (Dostinex®)	2,998	3,221	8,871	9,735
Clonidine TDS (Catapres TTS®)	-	7,848	5,225	52,599
Other (1)	25,801	32,402	89,331	88,963
Other product related revenues (2)	6,192	5,445	23,126	9,698
Total Par Pharmaceutical Revenues	$195,452	$209,747	$607,646	$713,724

Strativa
Megace® ES	$14,228	$16,806	$42,362	$46,097
Nascobal® Nasal Spray	4,665	4,922	14,816	12,924
Oravig®	477	101	2,253	101
Zuplenz®	235	-	721	-
Other product related revenues (2)	300	2,864	4,699	9,000
Total Strativa Revenues	$19,905	$24,693	$64,851	$68,122

(1) The further detailing of revenues of the other approximately 60 generic drugs 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 nine-month periods ended September 30, 2011 or September 30, 2010.

(2) Other product related revenues represents licensing and royalty related revenues from profit sharing agreements related to products such as diazepam rectal gel, the generic version of Diastat^®, and fenofibrate, the generic version of Tricor^®. Other product related revenues included in the Strativa segment related to a co-promotion arrangement with Solvay for Androgel^®in 2010. This co-promotion arrangement with Solvay was terminated in December 2010 for an associated $2 million payment. During the nine-month period ended September 30, 2011, Strativa earned $4.3 million of royalty income from its share of the proceeds from Optimer Pharmaceuticals’ sale of certain rights in fidaxomicin to a third party. Under the terms of the 2007 termination agreement, we are also entitled to royalty payments on future sales of fidaxomicin.

During the nine-month period ended September 30, 2010, we recognized a gain on the sale of product rights of $6,000 thousand, related to the sale of multiple ANDAs.

Note 17 - Research and Development Agreements:

In June 2008, through an exclusive licensing agreement with MonoSol Rx (“MonoSol”), Strativa acquired the U.S. commercialization rights to MonoSol’s oral soluble film formulation of ondansetron (Zuplenz^®). In December 2009, the parties amended the agreement to modify the terms of future milestone and royalty payments and concurrently entered into another agreement noted below. The amendment provided for a reduction in future payments. On July 2, 2010, the FDA approved Zuplenz^®. We paid MonoSol a total of $6,000 thousand as a result of the FDA approval. In July 2011, Strativa returned the U.S. commercialization rights of Zuplenz^®to MonoSol, as part of the resizing of Strativa. Refer to Note 18 – “Restructuring Costs” for details of intangible asset impairment charges in the nine months ended September 30, 2011.

In December 2009, concurrently with the amendment of the Zuplenz^® agreement noted above, Strativa entered into another exclusive licensing agreement with MonoSol to acquire the U.S. commercialization rights to MonoSol’s oral soluble film formulation of up to three potential new products. Under this agreement, we made a one-time payment of $6,500 thousand, which was charged to

research and development expense. On May 24, 2010, Strativa and MonoSol reached a mutual decision to discontinue the development of the first product under the agreement. On June 22, 2010, MonoSol delivered certain development results for the second product, triggering a 90-day option period during which Strativa could have elected to have MonoSol continue development of the second product. Strativa did not elect to continue development of the second product. During the two-year period ending December 9, 2011, Strativa had the right to elect to have Monosol develop a third product, however Strativa has declined to exercise such right.

In the second quarter of 2010, Par acquired the rights and obligations of a collaboration arrangement for a product currently in development for an up-front payment of $5,500 thousand that was expensed as research and development. The arrangement provides for additional milestone payments of up to $5,500 thousand based upon certain development activities, FDA approval, certain conditions and sales. The first two $500 thousand milestones were achieved during the second and fourth quarter of 2010, and the resultant payments were expensed as research and development. Par will participate in a profit sharing arrangement with its third party collaboration partner based on any future sales.

Note 18 – Restructuring Costs:

In June 2011, we announced our plans to resize our branded products division Strativa Pharmaceuticals, as part of a strategic assessment. We reduced our Strativa workforce by approximately 90 people. The remaining Strativa sales force focus their marketing efforts on Megace^®ES and Nascobal^®Nasal Spray. In connection with these actions, we incurred expenses for severance and other employee-related costs. The intangible assets related to products no longer a priority for our remaining Strativa sales force were fully impaired by these actions. We also had non-cash inventory write downs for product and samples associated with the products no longer a priority for our remaining Strativa sales force. Inventory write downs were classified as cost of goods sold on the condensed consolidated statements of operations for the nine months ended September 30, 2011. In July 2011, Strativa returned the U.S. commercialization rights of Zuplenz^®to MonoSol, as part of the resizing of Strativa. In September 2011, Strativa executed a termination agreement with BioAlliance returning all Oravig^® rights and obligations to BioAlliance.

The following table summarizes the restructuring costs incurred by us in the second quarter of 2011 and the remaining related restructuring liabilities balance (included in accrued expenses and other current liabilities on the condensed consolidated balance sheet) as of September 30, 2011 ($ amounts in thousands);


Restructuring Activities	Initial Charge	Cash Payments	Non-Cash Charge Related to Inventory and/or Intangible Assets	Reversals, Reclass or Transfers	Liabilities at September 30, 2011
Intangible asset impairments	$24,226	$ -	($24,226)	$ -	$ -
Severance and employee benefits to be paid in cash	1,556	1,291	-	-	(265)
Sample inventory write-down and other	1,204	-	(1,204)	-	-
Total restructuring costs line item	$26,986	$1,291	($25,430)	$ -	($265)
Commercial inventory write-down classified as cost of goods sold	674	-	(674)	-	-
Total	$27,660	$1,291	($26,104)	$ -	($265)

The total charge is related to the Strativa segment. We expect that the liability amount at September 30, 2011 will result in cash expenditures during 2011. The charges related to this plan to reduce the size of the Strativa business are reflected on the condensed consolidated statements of operations for the nine months ended September 30, 2011.

Note 19 – Recent Accounting Pronouncements:

The Financial Accounting Standards Board (“FASB”) has issued Accounting Standard Update (“ASU”) No. 2010-27, Other Expenses (Topic 720): Fees Paid to the Federal Government by Pharmaceutical Manufacturers. This ASU provides guidance on how pharmaceutical manufacturers should recognize and classify in their income statements fees mandated by the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act, both enacted in March 2010, referred to as the “Acts.” The Acts imposed an annual fee on the pharmaceutical manufacturing industry for each calendar year beginning on or after January 1, 2011. An entity’s portion of the annual fee is payable no later than September 30 of the applicable calendar year and is not tax deductible. A portion of the annual fee will be allocated to individual entities on the basis of the amount of their brand prescription drug sales (including authorized generic product sales) for the preceding year as a percentage of the industry’s brand prescription drug sales (including authorized generic product sales) for the same period. An entity’s portion of the annual fee becomes payable to the U.S. Treasury once a pharmaceutical manufacturing entity has a gross receipt from branded prescription drug sales to any specified government program or in accordance with coverage under any government program for each calendar year on or after January 1, 2011. The amendments in this ASU specify that the liability for the fee should be estimated and recorded in full upon the first qualifying sale with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable. The annual fee is classified as an operating expense in

the income statement. The amendments in this ASU were effective for calendar years beginning after December 31, 2010, when the fee initially became effective.

The FASB has issued ASU 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this ASU affect any public entity, as defined by Topic 805, Business Combinations, that enters into business combinations that are material on an individual or aggregate basis. The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for 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, 2010. The requirements of this ASU will be applicable to any future business acquisitions we complete.

The FASB has issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This amendment of the Codification allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the Codification in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This ASU must be applied retrospectively. The amendments to the Codification in this ASU are effective for us for fiscal years and interim periods within those years, beginning after December 15, 2011.

The FASB has issued ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This amendment of Codification will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this amendment, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendment includes a number of examples of events and circumstances for an entity to consider in conducting the qualitative assessment. This amendment to the Codification is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued.

Note 20 – Subsequent Event:

On October 18, 2011, we announced that we acquired rights to three products from Teva Pharmaceuticals in connection with Teva’s acquisition of Cephalon. Under terms of the agreement, Par will own the ANDAs of fentanyl citrate lozenges, a generic version of Actiq^®, and cyclobenzaprine ER capsules, the generic version of Amrix^®, as well as the U.S. rights to market modafinil tablets, the generic version of Provigil^®. Par is currently shipping to the trade all strengths of fentanyl citrate lozenges that were previously available from Teva. Cyclobenzaprine ER capsules and modafinil tablets were not previously marketed by Teva and are not yet available. We paid $24 million to acquire fentanyl citrate lozenges and modafinil tablets. We would also be obligated to pay up to an additional $1 million milestone upon the launch of cyclobenzaprine ER capsules depending on timing of our launch relative to other market competitors. We will complete the allocation of cost among the products acquired and the recording of any related intangible assets and any amounts to be expensed during the fourth quarter of 2011.

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

Forward-Looking Statements

Certain statements in this Quarterly 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 development, approval and introduction of new products. To the extent that any statements made in this Quarterly Report contain information that is not historical, such statements are essentially forward-looking. 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. Such forward-looking statements are subject to known and unknown risks, uncertainties and contingencies, many of which are beyond our control, which could cause actual results and outcomes to differ materially from those expressed in this Quarterly Report. Risk factors that might affect such forward-looking statements include those set forth in Item 1A (“Risk Factors”) of our Annual Report on Form 10-K for the year ended December 31, 2010, in Item 1A of Part II of this Quarterly Report on Form 10-Q, and from time to time in our other filings with the SEC, including Current Reports on Form 8-K, and on general industry and economic conditions. Any forward-looking statements included in this Quarterly Report are made as of the date of this Quarterly Report only, and, subject to any applicable law to the contrary, we assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and related Notes to Condensed Consolidated Financial Statements contained elsewhere in this Quarterly Report on Form 10-Q.

OVERVIEW

Par Pharmaceutical Companies, Inc. operates primarily in the United States as two business segments, our generic products division (“Par Pharmaceutical” or “Par”) for the development, manufacture and distribution of generic pharmaceuticals, and Strativa Pharmaceuticals (“Strativa Pharmaceuticals” or “Strativa”), our branded products division.

The introduction of new products that generate adequate gross margins is critical to our ability to generate economic value and ultimately the creation of adequate returns for our stockholders. Par Pharmaceutical, our generic products division, creates economic value by optimizing our current generic product portfolio and our pipeline of potential high-value first-to-file and first-to-market generic products. Par Pharmaceutical is an attractive business partner because of its strong commercialization track record and presence in the generic trade. Par’s 2010 and year-to-date 2011 achievements included several product launches (generic versions of Zegerid^®, Tussionex^®, Accolate^®, Rythmol SR^®,Lotrel^®, Entocort^® EC), the filing of 10 ANDAs in conjunction with its development partners, and execution of several collaboration agreements to sustain the future generic pipeline. As a result, we believe we are well positioned to compete in the generic marketplace over the long term. Our internal research and development targets high-value, first-to-file Paragraph IVs or first-to-market product opportunities. Externally, we intend to concentrate on acquiring assets and/or partnering with technology based companies that can deliver similar product opportunities. As of September 30, 2011, we had 13 confirmed first-to-file product opportunities, exclusive of any first-to-file product opportunities that would be obtained from the pending acquisitions of Anchen and Edict. Generally, products that we have developed internally contribute higher gross margin percentages than products that we sell under supply and distribution agreements, because under such agreements, we typically pay a percentage of the gross or net profits (or a percentage of net sales) to our strategic partners.

Strativa Pharmaceuticals acquired the worldwide rights to Nascobal^® Nasal Spray in 2009. Nascobal^® Nasal Spray is an FDA-approved prescription vitamin B12 treatment indicated for maintenance of remission in certain pernicious anemia patients, as well as a supplement for a variety of B12 deficiencies. It is the first and currently only once-weekly, self-administered alternative to B12 injections. In June 2011, we announced our plans to resize Strativa as part of a strategic assessment. We reduced our Strativa workforce by approximately 90 people. The remaining Strativa sales force will focus their marketing efforts on Megace^®ES and Nascobal^®Nasal Spray. In July 2011, we received a notice letter from a generic pharmaceutical manufacturer, advising that it has filed an Abbreviated New Drug Application (ANDA) with the U.S. FDA containing a Paragraph IV certification referencing Megace^® ES. Megace^® ES is protected by Alkermes Pharma Ireland Limited (Elan)’s U.S. Patents 6,592,903 and 7,101,576. We intend, with Elan, to investigate the Paragraph IV certification and ANDA, and to enforce Elan’s patents, which expire in 2020 and 2024, respectively, as appropriate.

Sales and gross margins of our products depend principally on (i) the introduction of other generic and brand products in direct competition with our products; (ii) the ability of generic competitors to quickly enter the market after our relevant patent or exclusivity periods expire, or during our exclusivity periods with authorized generic products, diminishing the amount and duration of significant profits we generate from any one product; (iii) the pricing practices of competitors and the removal of competing products from the market; (iv) the continuation of our existing license, supply and distribution agreements and our ability to enter into new agreements; (v) the consolidation among distribution outlets through mergers, acquisitions and the formation of buying groups; (vi) the willingness of generic drug customers, including wholesale and retail customers, to switch among drugs of different generic pharmaceutical manufacturers; (vii) our ability to procure approval of ANDAs and NDAs and the timing and success of our future new product launches; (viii) our ability to obtain marketing exclusivity periods for our generic products; (ix) our ability to maintain patent protection of our brand products; (x) the extent of market penetration for our existing product line; (xi) customer satisfaction

with the level, quality and amount of our customer service; and (xii) the market acceptance of our recently introduced branded product (Nascobal^®Nasal Spray) and the successful development and commercialization of our future 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 we believe 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 the right to distribute 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 those products 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.

Net sales and gross margins derived from brand pharmaceutical products typically follow a different pattern. Sellers of brand pharmaceutical products benefit from years of being the exclusive supplier to the market due to patent protections for the brand products. The benefits include significantly higher gross margins relative to sellers of generic pharmaceutical products. However, commercializing brand pharmaceutical products is more costly than generic pharmaceutical products. Sellers of brand pharmaceutical products often have increased infrastructure costs relative to sellers of generic pharmaceutical products and make significant investments in the development and/or licensing of these products without a guarantee that these expenditures will result in the successful development or launch of brand products that will prove to be commercially successful. Selling brand products also tends to require greater sales and marketing expenses to create a market for the products than is necessary with respect to the sale of generic products. Just as we compete against companies selling branded products when we sell generic products, we confront the same competitive pressures when we sell our branded products. Specifically, after patent protections expire, generic products can be sold in the market at a significantly lower price than the branded version, and, where available, may be required or encouraged in preference to the branded version under third party reimbursement programs, or substituted by pharmacies for branded versions by law.

Healthcare Reform Impacts

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA) and on March 30, 2010, President Obama signed into law the Health Care and Education Reconciliation Act, which includes a number of changes to the PPACA. These laws are hereafter referred to as “healthcare reform” or the “Acts.”

A number of provisions of healthcare reform have had and will continue to have a negative impact on the price of our products sold to U.S. government entities. The significant provisions that impacted net revenues, gross margin and net income for the nine months ended September 30, 2011 and 2010 include, but are not limited to the following (all items were effective January 1, 2010 unless otherwise noted):

Increase in the Medicaid rebate rate. The base rebate rate on sales of branded drugs (Strativa) and authorized generics (Par) into the Medicaid channel was increased from 15.1% of AMP (average manufacturer price) to 23.1% of AMP. The base rebate on sales of multisource generic products (Par) into the Medicaid channel was increased from 11% of AMP to 13% of AMP. The base rebate is one component of the calculation for branded drugs and authorized generics, and may or may not result in an increase in rebates for a particular product.

Effective March 23, 2010, there was an extension of Medicaid rebates to drugs consumed by patients enrolled in Medicaid Managed Care Organizations (MMCOs). Prior to healthcare reform, MMCOs were not entitled to Medicaid rebates, as the drug benefit was independently managed by the commercial managed care entity. Given our current product portfolio, which is weighted more toward generic products, our exposure to commercial rebates for patients enrolled in MMCOs was low prior to March 23, 2010.

Increased Medicaid rebates for products defined as a line extension through application of an inflation penalty back to the original formulation price.

Expansion of the number of entities qualifying for Public Health System (PHS) status and therefore eligible to receive PHS pricing, which is typically equal to the net Medicaid price after rebates.

Revisions to the AMP calculation, effective October 1, 2010. This provision had a negligible impact on net revenues and gross margins for the nine months ended September 30, 2011.

Change in the Federal Upper Limit as it relates to the pharmacy reimbursement of multisource drugs. This provision is expected to reduce the Medicaid funding from the federal government. While it is impractical to quantify the impact of the provision, it is expected to result in increased pressure at the state level to drive Medicaid utilization to low cost alternatives such as generic products.

In 2011, the following provisions went into effect:

An annual, non tax deductible, pharmaceutical fee to be assessed by the Secretary of the Treasury on any manufacturer or importer with gross receipts from the sale of branded prescription and authorized generic drugs to the following government programs and entities: Medicare Part D, Medicare Part B, Medicaid, Department of Veterans Affairs, Department of Defense, and Tricare. The total pharmaceutical fee, which is set at $2.5 billion for 2011, will be allocated across the

pharmaceutical industry based upon relative market share into these programs. The total fee increases each year thereafter, reaching $4.1 billion in 2018.

The market share calculation utilized to allocate the fee is to be calculated utilizing prior year’s sales statistics. We currently estimate the impact of the pharmaceutical fee on our 2011 net income to be approximately $2.3 million. In addition, the year to year impact of this provision of healthcare reform will be highly variable depending on:

the volume of Par’s sales of authorized generics, which can vary dramatically based upon our ability to continue to secure authorized generic business development opportunities,

the volume of Strativa’s sales of branded products, and

our ability to share portions of this fee with partners under pre-existing and future distribution agreements.

A new 50% discount on cost for certain Medicare Part D beneficiaries for certain drugs, including branded and authorized generic pharmaceuticals, purchased during the Part D Medicare coverage gap (commonly referred to as the “donut hole”). The 2011 impact of this provision on the gross margin of Par is estimated to be approximately $3 million to $4 million and Strativa is estimated to be less than $0.8 million.

Additionally, monthly weighted average AMP by therapeutic class and retail price surveys were published September 2011. It is not practical to forecast the impact of this provision on 2011 net revenues or gross margin.

For the nine months ended September 30, 2011, the impact of healthcare reform resulted in a decrease of approximately $14.9 million to our net revenue, approximately $6.4 million to our gross margin, and approximately $7.1 million to our net income. The gross margin impact of these provisions is highly dependent upon product sales mix between products that are partnered with third parties and non-partnered products.

Any potential impact of healthcare reform on the future demand for our products is not determinable at this time. Any potential future impact on demand could differ between our Par and Strativa divisions, as well as between individual products within each division.

Par Pharmaceutical - Generic Products Division

Our strategy for our generic division is to continue to differentiate ourselves by carefully choosing opportunities with minimal competition (e.g., first-to-file and first-to-market products). By leveraging our expertise in research and development, manufacturing and distribution, we are able to effectively and efficiently pursue these opportunities and support our partners.

In the nine month period ended September 30, 2011, our generic business net revenues and gross margin were concentrated in a few products. The top generic revenue products (metoprolol succinate ER (metoprolol), propafenone, amlodipine and benazepril HCl, sumatriptan, chlorpheniramine/hydrocodone, dronabinol, tramadol ER, budesonide, and meclizine) accounted for approximately 66% of our total consolidated revenues in the nine month period ended September 30, 2011 and for approximately 52% of total consolidated gross margins in the nine month period ended September 30, 2011.

We began selling metoprolol in the fourth quarter of 2006 as the authorized generic distributor pursuant to a supply and distribution agreement with AstraZeneca. There had been two competitors marketing generic metoprolol until the fourth quarter of 2008, when those two companies stopped selling metoprolol due to violations of the FDA’s current Good Manufacturing Practices. Throughout the first two quarters of 2009, we did not have competition for sales of the four SKUs (packaging sizes) of metoprolol that we sell, which resulted in increased volume of units sold coupled with a price increase commensurate with being the sole generic distributor. Beginning in August 2009, however, we were no longer the sole distributor for two SKUs (25mg and 50mg). As of April 15, 2010, Par was no longer the sole distributor for the 100mg and 200mg SKUs. Our sales volume and unit price for metoprolol were adversely impacted subsequent to each entry of a competitor’s SKU into the market. In addition, another competitor received FDA approval for all four strengths of metoprolol on July 23, 2010 and our sales volume and unit price for metoprolol were adversely impacted by this second generic competitor. Additional competitors on any or all of the four SKUs will result in significant additional declines in sales volume and unit price, which would negatively impact our revenues and gross margins (including possible inventory write-downs) as compared to 2010. As the authorized generic distributor for metoprolol, we do not control the manufacturing of the product, and any disruption in supply due to manufacturing or transportation issues could also have a negative effect on our revenues and gross margins.

In August 2009, we launched clonidine TDS, the generic version of Boehringer Ingelheim’s Catapres TTS^®. The product was manufactured by Aveva Drug Delivery Systems, Inc., our third party development partner, with whom we have a profit sharing arrangement. From launch to July 15, 2010, we were the sole generic distributor of this product. On July 16, 2010, Mylan received FDA approval for its generic version of clonidine TDS, therefore we were no longer the sole generic distributor. Our sales and related gross margins for clonidine TDS were negatively impacted due to Mylan’s receipt of FDA approval and subsequent launch. In May 2010, Aveva, the manufacturer of our product, received a Warning Letter from the FDA that cited conditions at the facility where clonidine TDS is manufactured that the FDA investigators believe may violate current Good Manufacturing Practices, based on their observations made between October and December of 2009. In April 2011, Aveva decided to discontinue manufacturing clonidine and the product was voluntarily withdrawn from the distribution channel. Because of these events, Par has discontinued marketing clonidine.

In the fourth quarter of 2008, we launched 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. As of September 30, 2011, we believe we were the sole generic distributor of three SKUs with one competitor for a single SKU. On August 1, 2011, an additional competitor launched a single SKU of sumatriptan. We believe our future sales volume and unit price for sumatriptan may be adversely impacted by the additional competition. We do not control the manufacturing of the product, and any disruption in supply due to manufacturing or transportation issues could also have a negative effect on our revenues and gross margins. The remaining net book value of the associated intangible asset was $0.1 million at September 30, 2011 and will be amortized over approximately one year.

We marketed meclizine until the supplier of our active pharmaceutical ingredient (“API”) experienced an explosion at its manufacturing facility in early 2008. Subsequently, we qualified a new API source and received the appropriate approval from the FDA of our ANDA to manufacture and market meclizine utilizing our new supplier. We reintroduced meclizine HCl tablets in 12.5mg and 25mg strengths in 2008. From the beginning of 2009 to May 2010, we were the exclusive supplier of this generic product. In June 2010, a competitor entered this market. This new competition negatively impacted our sales and gross margins for meclizine. Any additional competition could result in significant additional declines in sales volume and unit price, which may negatively impact our revenues and gross margins (including possible inventory write-downs) as compared to 2010.

In November 2009, we launched tramadol ER, the generic version of Ultram^® ER, after a favorable court ruling in the related patent matter. We believe we are one of two competitors in this market, with the other competitor being the authorized generic. We manufacture and distribute this product.

In July 2010, we launched two strengths of omeprazole/sodium bicarbonate capsules, the generic version of Zegerid^®. We were awarded 180 days of marketing exclusivity for being the first to file an ANDA containing a paragraph IV certification for these two strengths of the product. We are now one of two competitors in this market, with the other competitor being the authorized generic. Omeprazole/sodium bicarbonate capsules had been the subject of litigation in the U.S. District Court for the District of Delaware, but in April 2010, the Court ruled in our favor, finding that the related patents were invalid as being obvious and without adequate written description. The case is currently on appeal to the U.S. Court of Appeals for the Federal Circuit. We will continue to vigorously defend the appeal.

In the third quarter of 2008, we launched dronabinol in 2.5mg, 5mg and 10mg strengths in soft gel capsules. We believe we are one of two generic distributors of dronabinol. We share net product margin, as contractually defined, on sales of dronabinol with SVC Pharma LP, an affiliate of Rhodes Technologies. We do not control the manufacturing of the product, and any disruption in supply due to manufacturing or transportation issues could also have a negative effect on our revenues and gross margins. The remaining net book value of the associated intangible asset was $0.8 million at September 30, 2011 and will be amortized over approximately two years.

On October 5, 2010, we announced that our licensing partner, Tris Pharma, Inc., had received final FDA approval for its ANDA for hydrocodone polistirex and chlorpheniramine polistirex (CIII) extended-release (ER) oral suspension (equivalent to 10 mg of hydrocodone bitartrate and 8 mg of chlorpheniramine maleate per 5 mL). Hydrocodone polistirex and chlorpheniramine polistirex (CIII) ER oral suspension is a generic version of UCB Manufacturing, Inc.’s (“UCB”) Tussionex^®. We participate in a profit sharing arrangement with Tris Pharma based on our commercial sale of generic Tussionex^®. We commenced a limited launch of generic Tussionex^® on October 5, 2010. Our market share will continue to be limited for the foreseeable future by Drug Enforcement Administration regulations concerning allowable commercial quantities of controlled substances like hydrocodone, which is contained in generic Tussionex^®. We do not control the manufacturing of the product, and any disruption in supply due to manufacturing or transportation issues could also have a negative effect on our revenues and gross margins. In October 2010, UCB filed a complaint naming us, our development partner Tris Pharma, and Tris Pharma’s head of research and development as defendants. The complaint alleged that Tris and its head of research and development misappropriated UCB’s trade secrets and, by their actions, breached contracts and agreements to which they were bound. The complaint further alleges unfair competition against the defendants relating to the parties’ manufacture and marketing of generic Tussionex^®. On October 6, 2010, the Court denied UCB’s petition for a temporary restraining order against us and Tris and set a schedule for discovery during which UCB must substantiate its claims. On December 23, 2010, the Court denied UCB’s motion for a preliminary injunction, ruling that UCB’s alleged trade secrets were known to the public and not misappropriated. On June 2, 2011, the Court granted Tris’s motion for summary judgment dismissing UCB’s claims and UCB appealed the Court’s order on June 22, 2011. We intend to vigorously defend the appeal by UCB.

We began selling budesonide in June 2011 as the authorized generic distributor pursuant to a supply and distribution agreement with AstraZeneca. We are one of two competitors in this market. As the authorized generic distributor for budesonide, we do not control the manufacturing of the product, and any disruption in supply due to manufacturing or transportation issues could also have a negative effect on our revenues and gross margins.

In addition, our investments in generic product development, including projects with development partners, are expected to yield approximately 5 to 7 new ANDA filings during each of 2011, 2012 and 2013. These ANDA filings are expected to lead to product launches based on one or more of the following: expiry of the relevant 30-month stay period; patent expiry date; and expiry of regulatory exclusivity. However, such potential product launches may be delayed or may not occur due to various circumstances, including extended litigation, outstanding citizens petitions, other regulatory requirements set forth by the FDA, and stays of litigation. These ANDA filings would be significant mileposts for us, as we expect many of these potential products to be first-to-file/first-to-

market opportunities with gross margins in excess of the average of our current portfolio. We or our strategic partners currently have approximately 32 ANDAs pending with the FDA, which include 13 first-to-file opportunities, exclusive of any ANDAs or first-to-file opportunities that may be obtained from the pending acquisitions of Anchen and Edict. No assurances can be given that we or any of our strategic partners will successfully complete the development of any of these potential products either under development or proposed for development, that regulatory approvals will be granted for any such product, that any approved product will be produced in commercial quantities or sold profitably.

Strativa Pharmaceuticals - Branded Products Division

For Strativa, in the near term we will continue to invest in the marketing and sales of our existing product portfolio (Megace^® ES and Nascobal^®Nasal Spray). In addition, in the longer term, we will continue to consider new strategic licenses and acquisitions to expand Strativa’s presence in supportive care and adjacent commercial areas.

In July 2005, we received FDA approval for our first NDA, and immediately began marketing Megace^® ES (megestrol acetate) oral suspension. Megace^® ES is indicated for the treatment of anorexia, cachexia or any unexplained significant weight loss in patients with a diagnosis of AIDS and utilizes the Megace^® brand name that we have licensed from Bristol-Myers Squibb Company. The remaining net book value of the trademark was $1.3 million at September 30, 2011, and will be amortized over approximately one year. We promoted Megace^® ES as our primary brand product from 2005 through March 2009. With the acquisition of Nascobal^® in March 2009, Strativa increased its sales force and turned its focus on marketing both products. In July 2011, we received a notice letter from a generic pharmaceutical manufacturer, advising that it has filed an Abbreviated New Drug Application (ANDA) with the U.S. FDA containing a Paragraph IV certification referencing Megace^® ES. Megace^® ES is protected by Alkermes Pharma Ireland Limited (Elan)’s U.S. Patents 6,592,903 and 7,101,576. We intend, with Elan, to investigate the Paragraph IV certification and ANDA, and to enforce Elan’s patents, which expire in 2020 and 2024, respectively, as appropriate.

On March 31, 2009, we acquired the worldwide rights to Nascobal^® (cyanocobalamin, USP) Nasal Spray from QOL Medical, LLC. Under the terms of the all cash transaction, we paid QOL Medical $54.5 million for the worldwide rights to Nascobal^®. We manufacture Nascobal^® with assets acquired on March 31, 2009 from MDRNA, Inc. The remaining net book value of the related intangible asset was $43.3 million at September 30, 2011, and will be amortized over approximately 10 years.

In January 2011, we completed a modest reorganization of the Strativa management team (approximately 10 positions eliminated) and refined our sales and marketing plan for each of Strativa’s currently marketed products as part of our on-going efforts to maximize the value and potential of our existing product portfolio. We announced that the President of Strativa Pharmaceuticals resigned and that effective January 31, 2011, Patrick G. LePore, the Chairman, CEO and President of Par Pharmaceutical Companies, Inc., assumed day-to-day oversight of Strativa on an interim basis. We have taken steps to further align the Strativa home office sales and marketing team with the objectives of our sales force and to leverage the relevant expertise and experience within our Par Pharmaceutical generics division.

In June 2011, we announced our plans to resize Strativa as part of a strategic assessment. We reduced our Strativa workforce by approximately 90 people. The remaining Strativa sales force focus their marketing efforts on Megace^®ES and Nascobal^®Nasal Spray. The intangible assets related to products no longer a priority for our remaining Strativa sales force were fully impaired by these actions. In July 2011, Strativa returned the U.S. commercialization rights of Zuplenz^®to MonoSol, as part of this resizing. In September 2011, Strativa executed a termination agreement with BioAlliance returning all Oravig^® rights and obligations to BioAlliance.

OTHER CONSIDERATIONS

In addition to the substantial costs of product development, we 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 often sue companies that produce generic forms of their 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 filer may certify either that any 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 filer for alleged patent infringement or other violations of intellectual property rights. Because a substantial portion of our 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 our business, financial condition, prospects and results of operations.

RESULTS OF OPERATIONS

Results of operations, including segment net revenues, segment gross margin and segment operating income (loss) information for our Par Pharmaceutical - Generic Products segment and our Strativa Branded Products segment, consisted of the following:

Revenues

Total revenues of our top selling products were as follows:


	Three months ended			Nine months ended
($ amounts in thousands)	September 30,	September 30,		September 30,	September 30,
Product	2011	2010	$ Change	2011	2010	$ Change
Par Pharmaceutical
Metoprolol succinate ER (Toprol-XL®)	$67,509	$97,360	($29,851)	$194,634	$400,247	($205,613)
Budesonide (Entocort® EC)	20,551	-	20,551	36,908	-	36,908
Propafenone (Rythmol SR®)	18,083	-	18,083	53,432	-	53,432
Sumatriptan succinate injection (Imitrex®)	16,795	18,315	(1,520)	48,777	53,062	(4,285)
Dronabinol (Marinol®)	7,208	9,073	(1,865)	22,197	20,347	1,850
Tramadol ER (Ultracet ER®)	6,280	5,546	734	18,233	16,508	1,725
Chlorpheniramine/Hydrocodone (Tussionex®)	4,854	-	4,854	24,555	-	24,555
Amlodipine and Benazepril HCl (Lotrel®)	4,467	-	4,467	35,143	-	35,143
Meclizine Hydrochloride (Antivert®)	3,859	6,219	(2,360)	13,295	25,771	(12,476)
Omeprazole (Zegerid®)	3,853	13,508	(9,655)	11,037	14,085	(3,048)
Cholestyramine Powder (Questran®)	3,789	4,850	(1,061)	11,549	11,761	(212)
Nateglinide (Starlix®)	3,213	5,960	(2,747)	11,333	10,948	385
Cabergoline (Dostinex®)	2,998	3,221	(223)	8,871	9,735	(864)
Clonidine TDS (Catapres TTS®)	-	7,848	(7,848)	5,225	52,599	(47,374)
Other	25,801	32,402	(6,601)	89,331	88,963	368
Other product related revenues	6,192	5,445	747	23,126	9,698	13,428
Total Par Pharmaceutical Revenues	$195,452	$209,747	($14,295)	$607,646	$713,724	($106,078)

Strativa
Megace® ES	$14,228	$16,806	($2,578)	$42,362	$46,097	($3,735)
Nascobal® Nasal Spray	4,665	4,922	(257)	14,816	12,924	1,892
Oravig®	477	101	376	2,253	101	2,152
Zuplenz®	235	-	235	721	-	721
Other product related revenues	300	2,864	(2,564)	4,699	9,000	(4,301)
Total Strativa Revenues	$19,905	$24,693	($4,788)	$64,851	$68,122	($3,271)


	Three months ended
					Percentage of Total Revenues
	September 30,	September 30,			September 30,	September 30,
($ in thousands)	2011	2010	$ Change	% Change	2011	2010
Revenues:
Par Pharmaceutical	$195,452	$209,747	($14,295)	(6.8%)	90.8%	89.5%
Strativa	19,905	24,693	(4,788)	(19.4%)	9.2%	10.5%
Total revenues	$215,357	$234,440	($19,083)	(8.1%)	100.0%	100.0%


	Nine months ended
					Percentage of Total Revenues
	September 30,	September 30,			September 30,	September 30,
($ in thousands)	2011	2010	$ Change	% Change	2011	2010
Revenues:
Par Pharmaceutical	$607,646	$713,724	($106,078)	(14.9%)	90.4%	91.3%
Strativa	64,851	68,122	(3,271)	(4.8%)	9.6%	8.7%
Total revenues	$672,497	$781,846	($109,349)	(14.0%)	100.0%	100.0%

The decrease in generic segment revenues in the third quarter and year-to-date period of 2011 was primarily due to the following factors;

Additional competition on all SKUs (packaging sizes) of metoprolol succinate ER. The dollar amount decrease of metoprolol revenues for the third quarter and year-to-date period of 2011 can be attributed to a decrease in the volume of units sold (approximately 46% of total dollar decrease for third quarter 2011 and approximately 54% of total dollar decrease for the year-to-date period of 2011) with the remainder of the dollar amount decrease due to price. We expect metoprolol revenues to continue to decline in the future as competition increases in this market.

The non-recurrence of prior year launch volumes of omeprazole, coupled with significant competition from the authorized generic.

In April 2011, the manufacturer of clonidine, Aveva, decided to discontinue manufacturing clonidine and the product was voluntarily withdrawn from the distribution channel. Because of these events, Par has discontinued marketing clonidine.

Additional competition for meclizine beginning in June 2010 and additional competition for nateglinide in the third quarter of 2011.

The decreases above in the third quarter and year-to-date period of 2011 were tempered by;

The launches of budesonide in June 2011, propafenone and amlodipine and benazepril HCl in January 2011 and the launch of chlorpheniramine/hydrocodone in October 2010.

Improved royalties primarily from the sales of diazepam, which launched in September 2010 and from the sales of fenofibrate both of which are included in Par Pharmaceutical third quarter and year-to-date period of 2011 “Other product related revenues”.

Net sales of contract-manufactured products (which are manufactured for us by third-parties under contract) and licensed products (which are licensed to us from third-party development partners and also are generally manufactured by third parties) were approximately 57% of our total product revenues for the nine month period ended September 30, 2011 and approximately 72% of our total product revenues for the nine month period ended September 30, 2010. The decrease in the percentage is primarily driven by decreased revenues of metoprolol and clonidine combined with the launches of propafenone, and amlodipine and benazepril HCl. We are substantially dependent upon contract-manufactured and licensed products for our overall sales, and any inability by our suppliers to meet demand could adversely affect our future sales.

The decrease in the Strativa segment revenues in the third quarter and year-to-date period of 2011 was primarily due to the decrease in other product-related revenues driven by the termination of the extended-reach agreement to co-promote Androgel^® in December 2010 coupled with a net sales decline of Megace^® ES primarily due to decreased volume coupled with a decrease in average net selling price as compared to the prior year comparable periods. The decreases were tempered by the continued growth of Nascobal^®in the year-to-date periodand the latter half of 2010 launches of Oravig^®and Zuplenz^®.

Strativa launched Oravig^®in the third quarter of 2010 and Zuplenz^® in the fourth quarter of 2010. In connection with the launches, our direct customers ordered, and we shipped, Oravig^® and Zuplenz^®units at a level commensurate with initial forecasted demand for the product. Due to our relatively limited history in the branded pharmaceutical marketplace, it is impractical to predict with reasonable certainty the rate of Oravig^®’s and Zuplenz^®’sprescription demand uptake and ultimate acceptance in the marketplace. Therefore, during the initial launch phase of Oravig^®and Zuplenz^®, we recognize revenue and all associated cost of sales as the product is prescribed to patients based on an analysis of third party market prescription data, third party wholesaler inventory data, order refill rates, and all substantive quantitative and qualitative data available to us at the time. Accordingly, for the nine month period ended September 30, 2011, we have recognized $2.3 million of Oravig^® revenues and $0.7 million of revenues for Zuplenz^® and deferred revenues of $0.3 million for Oravig^® and deferred revenues of $0.5 million for Zuplenz^®, related to product that has been shipped to customers but not yet been prescribed to patients. In June 2011, we resized our Strativa business. As part of this strategic assessment, we reduced our Strativa workforce by approximately 90 people. Refer to Note 18 – “Restructuring Costs.” We will continue to recognize revenue and all associated cost of sales as Oravig^® and Zuplenz^® are prescribed to patients based on an analysis of third party market prescription data, third party wholesaler inventory data, order refill rates, and all substantive quantitative and qualitative data available to us. In July 2011, Strativa returned the U.S. commercialization rights of Zuplenz^®to MonoSol, as part

of the resizing of Strativa. In September 2011, Strativa executed a termination agreement with BioAlliance returning all Oravig^® rights and obligations to BioAlliance.

Gross Revenues to Total Revenues Deductions

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

We have the experience and the access to relevant information that we believe necessary to reasonably estimate the amounts of such deductions from gross revenues. Some of the assumptions we use for certain of our estimates are based on information received from third parties, such as wholesale customer inventory data and market data, or other market factors beyond our 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. We regularly review the information related to these estimates and adjust our 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-month to four-month period, on average.

We recognize revenue for product sales when title and risk of loss have transferred to our customers and when collectability is reasonably assured. This is generally at the time that products are received by the customers. Upon recognizing revenue from a sale, we record estimates for chargebacks, rebates and incentives, returns, cash discounts and other sales reserves that reduce accounts receivable.

Our gross revenues for the nine month periods ended September 30, 2011 and 2010 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 as follows:


	Nine months ended
($ thousands)	September 30, 2011	Percentage of Gross Revenues	September 30, 2010	Percentage of Gross Revenues
Gross revenues	$1,082,020		$1,153,959

Chargebacks	(185,832)	17.2%	(160,223)	13.9%
Rebates and incentive programs	(83,164)	7.7%	(98,097)	8.5%
Returns	(22,681)	2.1%	(16,921)	1.5%
Cash discounts and other	(74,969)	6.9%	(66,210)	5.7%
Medicaid rebates and rebates due under other US Government pricing programs	(42,877)	4.0%	(30,662)	2.7%
Total deductions	(409,523)	37.8%	(372,113)	32.2%

Total revenues	$672,497	62.2%	$781,846	67.8%

The total gross-to-net adjustments as a percentage of sales increased for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010 primarily due to an increase in medicaid rebates and rebates due under other US Government pricing programs, chargebacks, and cash discounts and other.

Chargebacks: the increase in the percentage of gross revenues was primarily driven by higher chargeback rates for certain products that had limited or no competition in the comparable period in 2010.

Returns: the increase in the rate was driven by higher returns experienced for sumatriptan, clonidine and dronabinol partially offset by increased sales volume of products with lower than average return rates.

Cash discounts and other: the increase is primarily due to a change in customer mix, mainly for metoprolol, which resulted in higher price adjustments.

Rebates and incentive programs: the decrease in dollars was primarily driven by product mix, mainly metoprolol and clonidine, partially offset by the impact of new product launches.

Medicaid rebates and rebates due under other U.S. Government pricing programs: expense increase was due to the full year-to-date period impact of the March 2010 health care reform acts which led to higher Medicaid rebate rates and additional patients eligible for managed Medicaid benefits coupled with the Medicare Part D - Gap Coverage which was effective in the first quarter of 2011.

The following tables summarize the activity for the nine months ended September 30, 2011 and September 30, 2010 in the accounts affected by the estimated provisions described above ($ amounts in thousands):


	Nine Months Ended September 30, 2011
Accounts receivable reserves	Beginning balance	Provision recorded for current period sales	(Provision) reversal recorded for prior period sales		Credits processed	Ending balance
Chargebacks	($19,482)	($185,832)	$ -	(1)	$187,467	($17,847)
Rebates and incentive programs	(23,273)	(83,824)	660		77,808	(28,629)
Returns	(48,928)	(22,946)	265		16,781	(54,828)
Cash discounts and other	(16,606)	(74,612)	(357)		76,497	(15,078)
Total	($108,289)	($367,214)	$568		$358,553	($116,382)

Accrued liabilities (2)	($32,169)	($43,223)	$346		$35,222	($39,824)


	Nine Months Ended September 30, 2010
Accounts receivable reserves	Beginning balance	Provision recorded for current period sales	(Provision) reversal recorded for prior period sales		Credits processed	Ending balance
Chargebacks	($16,111)	($160,146)	($77)	(1)	$158,090	($18,244)
Rebates and incentive programs	(39,938)	(96,901)	(1,196)	(3)	106,802	(31,233)
Returns	(39,063)	(17,358)	437		10,941	(45,043)
Cash discounts and other	(19,160)	(64,236)	(1,974)	(4)	69,491	(15,879)
Total	($114,272)	($338,641)	($2,810)		$345,324	($110,399)

Accrued liabilities (2)	($24,713)	($30,048)	($614)		$20,249	($35,126)

(1)

(2)

(3)

During the first quarter of 2010, the Company settled a dispute with a major customer and as a result recorded an additional reserve of $1.3 million.

(4)

Use of Estimates in Reserves

We believe that our 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 our allowances and accruals to fluctuate, particularly with newly launched or acquired products. We review the rates and amounts in our allowance and accrual estimates on a quarterly basis. If future estimated rates and amounts are significantly greater than those reflected in our recorded reserves, the resulting adjustments to those reserves would decrease our reported net revenues; conversely, if actual product returns, rebates and chargebacks are significantly less than those reflected in our recorded reserves, the resulting adjustments to those reserves would

increase our reported net revenues. If we were to change our assumptions and estimates, our reserves would change, which would impact the net revenues that we report. We regularly review the information related to these estimates and adjust our reserves accordingly, if and when actual experience differs from previous estimates.

Gross Margin


	Three months ended
				Percentage of Total Revenues
	September 30,	September 30,		September 30,	September 30,
($ in thousands)	2011	2010	$ Change	2011	2010
Gross margin:
Par Pharmaceutical	$71,641	$84,734	($13,093)	36.7%	40.4%
Strativa	13,463	18,560	(5,097)	67.6%	75.2%
Total gross margin	$85,104	$103,294	($18,190)	39.5%	44.1%

The decrease in Par Pharmaceutical gross margin dollars for the three months ended September 30, 2011 is primarily due to lower sales of omeprazole, metoprolol, clonidine, nateglinide, and meclizine tempered by the launches of propafenone, amlodipine and benazepril HCl, and budesonide.

The top sales volume generic products (metoprolol, budesonide, propafenone, sumatriptan, dronabinol, tramadol ER, chlorpheniramine/hydrocodone, amlodipine and benazepril HCl, and meclizine) accounted for approximately $44 million gross margin dollars and a margin percentage of approximately 30% for the third quarter of 2011. For the third quarter of 2010, these top net revenue products (excluding budnesonide, propafenone, amlodipine and benazepril HCl, and chlorpheniramine/hydrocodone all of which launched after the third quarter of 2010) totaled approximately $36 million gross margin dollars with a margin percentage of approximately 26%. The increase in gross margin dollars in the third quarter of 2011 for the top sales volume generic products compared to the third quarter of 2010 is primarily due to the launches of budesonide, propafenone, and amlodipine and benazepril HCl. The increase in the gross margin percentage in the third quarter of 2011 for the top sales volume generic products compared to the third quarter of 2010 is primarily due to the launches of higher gross margin percentage products like propafenone, and amlodipine and benazepril HCl, coupled with declines in lower gross margin percentage products like metoprolol.

Gross margin dollars related to all other Par generic revenues totaled approximately $27 million with a margin percentage of approximately 59% for the third quarter of 2011. For the third quarter of 2010, gross margin dollars for all other generic revenues totaled approximately $49 million with a margin percentage of approximately 67%. Gross margin dollars and gross margin percentage for these revenue streams decreased mainly due to lower sales of clonidine, omeprazole and nateglinide tempered by royalties from the sales of diazepam, which launched in September 2010, and higher royalties from the sales of fenofibrate.

Strativa gross margin dollars decreased for the three months ended September 30, 2011, primarily due to the decrease in other product-related revenues driven by the termination of the extended-reach agreement to co-promote Androgel^® in December 2010 coupled with a net sales decline of Megace^® ES primarily due to decreased volume.


	Nine months ended
				Percentage of Total Revenues
	September 30,	September 30,		September 30,	September 30,
($ in thousands)	2011	2010	$ Change	2011	2010
Gross margin:
Par Pharmaceutical	$248,195	$226,798	$21,397	40.8%	31.8%
Strativa	45,588	51,465	(5,877)	70.3%	75.5%
Total gross margin	$293,783	$278,263	$15,520	43.7%	35.6%

The increase in Par Pharmaceutical gross margin dollars for the nine months ended September 30, 2011 is primarily due to the launches of propafenone, amlodipine and benazepril HCl, budesonide, and chlorpheniramine/hydrocodone, tempered by lower sales of metoprolol, clonidine, and meclizine.

of higher gross margin percentage products like propafenone, and amlodipine and benazepril HCl, coupled with declines in lower gross margin percentage products like metoprolol.

Gross margin dollars related to all other Par generic revenues totaled approximately $95 million with a margin percentage of approximately 59% for the year-to-date period of 2011. For the year-to-date period of 2010, gross margin dollars for all other generic revenues totaled approximately $108 million with a margin percentage of approximately 54%. Gross margin dollars and gross margin percentage for these revenue streams decreased mainly due to lower sales of clonidine, omeprazole, and other products discontinued in 2011 like propranolol tempered by royalties from the sales of diazepam, which launched in September 2010, and higher royalties from the sales of fenofibrate and improved sales performance of calcitonin nasal spray due to competitor supply issues and the November 2010 launch of zafirlukast.

Strativa gross margin dollars decreased for the nine months ended September 30, 2011, primarily due to the decrease in other product-related revenues driven by the termination of the extended-reach agreement to co-promote Androgel^® in December 2010 coupled with a net sales decline of Megace^® ES primarily due to decreased volume tempered by higher revenues from Nascobal^®.

For the nine months ended September 30, 2011, the impact of healthcare reform resulted in a decrease of approximately $6.4 million to our total gross margin.

Operating Expenses

Research and Development


	Three months ended
					Percentage of Total Revenues
	September 30,	September 30,			September 30,	September 30,
($ in thousands)	2011	2010	$ Change	% Change	2011	2010
Research and development:
Par Pharmaceutical	$9,151	$9,594	($443)	(4.6%)	4.7%	4.6%
Strativa	459	551	(92)	(16.7%)	2.3%	2.2%
Total research and development	$9,610	$10,145	($535)	(5.3%)	4.5%	4.3%

Par Pharmaceutical:

The decrease in Par Pharmaceutical research and development expense for the three month period ended September 30, 2011 is driven by a net $0.9 million decrease in outside development costs driven by the non-recurrence of a $2.0 million milestone payment triggered and expensed in the prior year period, tempered by incremental expenditures incurred under pre-existing product development agreements with Edict Pharmaceuticals. Please refer to “Note 2 – Pending Acquisitions” for further information regarding our pending acquisition of Edict.

Strativa:

Strativa research and development principally reflects FDA filing fees for the three months ended September 30, 2011 and September 30, 2010.


	Nine months ended
					Percentage of Total Revenues
	September 30,	September 30,			September 30,	September 30,
($ in thousands)	2011	2010	$ Change	% Change	2011	2010
Research and development:
Par Pharmaceutical	$26,862	$35,869	($9,007)	(25.1%)	4.4%	5.0%
Strativa	1,535	1,588	(53)	(3.3%)	2.4%	2.3%
Total research and development	$28,397	$37,457	($9,060)	(24.2%)	4.2%	4.8%

Par Pharmaceutical:

The decrease in Par’s research and development expense for the nine month period ended September 30, 2010 is driven by a net $15.9 million decrease in outside development costs driven by the non-recurrence of an $11.0 million up-front payment related to the acquisition of an ANDA from a third party, a $6.0 million up-front payment to acquire the rights and obligations of a collaboration product in development, and the aforementioned $2.0 million milestone payment, all of which were expensed as incurred in the prior year period. The effect of these items was tempered by a $5.2 million increase in biostudy and material costs and a $1.2 million increase in employment costs related to the ongoing internal development of generic products.

Strativa:

Strativa research and development principally reflects FDA filing fees for the nine months ended September 30, 2011 and September 30, 2010.

Selling, General and Administrative Expenses


	Three months ended
					Percentage of Total Revenues
	September 30,	September 30,			September 30,	September 30,
($ in thousands)	2011	2010	$ Change	% Change	2011	2010
Selling, general and administrative:
Par Pharmaceutical	$20,349	$21,498	($1,149)	(5.3%)	10.4%	10.2%
Strativa	15,413	28,804	(13,391)	(46.5%)	77.4%	116.6%
Total selling, general and administrative	$35,762	$50,302	($14,540)	(28.9%)	16.6%	21.5%

The net decrease in SG&A expenditures principally reflects:

a $10.8 million reduction in direct Strativa selling costs driven by reduction of headcount of approximately 90 people as a result of our second quarter 2011 restructuring activities, lower marketing expenditures across all products and the non-recurrence of certain pre-launch activities incurred in the prior year period related to Zuplenz^® and Oravig^®;

a reduction in legal costs of $5.4 million driven by reduced AWP litigation and DOJ investigation activity;

lower stock based compensation expense, worth approximately $1.3 million; tempered by,

banking, legal, accounting, consulting, and filing fees relating to corporate acquisitions, worth approximately $2.9 million; and

$0.5 million of expense related to the annual pharmaceutical manufacturer’s fee assessed by the Secretary of Treasury under the 2011 provisions of last year’s U.S. healthcare reform.


	Nine months ended
					Percentage of Total Revenues
	September 30,	September 30,			September 30,	September 30,
($ in thousands)	2011	2010	$ Change	% Change	2011	2010
Selling, general and administrative:
Par Pharmaceutical	$69,533	$61,296	$8,237	13.4%	11.4%	8.6%
Strativa	59,330	79,106	(19,776)	(25.0%)	91.5%	116.1%
Total selling, general and administrative	$128,863	$140,402	($11,539)	(8.2%)	19.2%	18.0%

The net decrease in SG&A expenditures principally reflects:

a $16.3 million reduction in direct Strativa selling costs driven by lower marketing expenditures across all products, including the non-recurrence of pre-launch activities incurred in the prior year period related to the launch of Zuplenz^® and Oravig^®, coupled with the aforementioned reduction of sales force headcount;

lower stock based compensation expense, worth approximately $2.6 million;

lower one-time (non-restructuring related) executive severance charges of approximately $1.3 million; tempered by,

banking, legal, accounting, consulting and filing fees relating to corporate acquisitions, worth approximately $4.9 million;

$1.6 million of accrued expense related to the annual pharmaceutical manufacturer’s fee assessed by the Secretary of Treasury under the 2011 provisions of last year’s U.S. healthcare reform;

$1.0 million of incremental legal costs driven by higher ANDA related litigation activities; and

modest increase in certain employment related expense.

Settlements and Loss Contingencies, net


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
($ in thousands)	2011	2010	2011	2010
Settlements and loss contingencies, net	$ -	$2,312	$190,560	($1,694)

In first quarter of 2011, we recorded the settlement in principal of AWP litigation claims related to federal contributions to state Medicaid programs in 49 states (excluding Illinois), and the claims of Texas, Florida, Alaska, South Carolina and Kentucky relating to their Medicaid programs for $154 million and a settlement with the State of Idaho for $1.7 million. We also recorded an accrual for the remaining AWP matters. In August of 2010 we settled AWP litigation with the State of Hawaii for $2.3 million. Refer to Note 14 – Commitments, Contingencies and Other Matters contained elsewhere in this Form 10-Q for further details.

In May 2010, we announced that Par entered into a licensing agreement with Glenmark Generics to market ezetimibe 10 mg tablets, the generic version of Merck’s Zetia^®, in the U.S. Subsequent to our entering that agreement, Glenmark entered into a separate settlement agreement with Merck that resolved patent litigation relating to Glenmark’s challenge to Merck’s patent covering Zetia^®. Under the terms of our agreement with Glenmark, Par earned $4.1 million of one-time income from Glenmark in connection with the settlement agreement.

Restructuring costs

In June 2011, we announced our plans to resize our branded products division, Strativa Pharmaceuticals, as part of a strategic assessment. We reduced our Strativa workforce by approximately 90 people. The remaining Strativa sales force will focus their marketing efforts on Megace^®ES and Nascobal^®Nasal Spray. In connection with these actions, we incurred expenses for severance and other employee-related costs. The intangible assets related to products no longer a priority for our remaining Strativa sales force were fully impaired by these actions. We also had non-cash inventory write downs for product and samples associated with the products no longer a priority for our remaining Strativa sales force. Inventory write downs were classified as cost of goods sold on the condensed consolidated statements of operations for the quarter ended September 30, 2011. In July 2011, Strativa returned the U.S. commercialization rights of Zuplenz^®to MonoSol as part of the resizing of Strativa. In September 2011, Strativa executed a termination agreement with BioAlliance returning all Oravig^®rights and obligations to BioAlliance.


Restructuring Activities	Initial Charge	Cash Payments	Non-Cash Charge Related to Inventory and/or Intangible Assets	Reversals, Reclass or Transfers	Liabilities at September 30, 2011
Intangible asset impairments	$24,226	$ -	($24,226)	$ -	$ -
Severance and employee benefits to be paid in cash	1,556	1,291	-	-	(265)
Sample inventory write-down and other	1,204	-	(1,204)	-	-
Total restructuring costs line item	$26,986	$1,291	($25,430)	$ -	($265)
Commercial inventory write-down classified as cost of goods sold	674	-	(674)	-	-
Total	$27,660	$1,291	($26,104)	$ -	($265)

The total charge related to the Strativa segment. We expect that the liability amount at September 30, 2011 will result in cash expenditures during 2011. The charges related to this plan to reduce the size of the Strativa business are reflected on the condensed consolidated statements of operations for the quarter ended September 30, 2011.

Gain on Sale of Product Rights and other


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
($ in thousands)	2011	2010	2011	2010
Gain on sale of product rights and other	$ -	$79	$ -	$6,000

In the first quarter of 2010, Optimer Pharmaceuticals announced positive results from the second of two pivotal Phase 3 trials evaluating the safety and efficacy of fidaxomicin in patients with clostridium difficile infection (CDI), triggering a one-time $5 million milestone payment due to us under a termination agreement entered into by the parties in 2007. The cash payment was received in the second quarter of 2010. Under the terms of the 2007 agreement, we are also entitled to royalty payments on future sales of fidaxomicin.

In addition, we recognized a gain on the sale of product rights of $1.0 million during the nine-month period ended September 30, 2010, related to the sale of multiple ANDAs.

Gain (loss) on Marketable Securities and Other Investments, net


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
($ in thousands)	2011	2010	2011	2010
Gain on sale of marketable securities and other investments, net	-	$3,567	-	$3,567

During the third quarter of 2010, we were notified that we were to participate in an “Earnout” payment settlement related to our former investment in Abrika Pharmaceuticals. Abrika merged with Actavis in 2007. As part of that transaction, the possibility of potential “Earnout” payments existed if the post-merger entity achieved certain gross profit targets in 2007, 2008 and/or 2009. The representative of the former Abrika shareholders informed us that a settlement had been reached with Actavis and that our share of that settlement was $3.6 million. Of this amount, we received $2.5 million in October 2010, and the remainder in March 2011.

Operating (Loss) Income


	Three months ended
	September 30,	September 30,
($ in thousands)	2011	2010	$ Change
Operating income (loss):
Par Pharmaceutical	$42,141	$51,409	($9,268)
Strativa	(2,409)	(10,795)	8,386
Total operating income (loss)	$39,732	$40,614	($882)

For the three months ended September 30, 2011, the decrease in our operating income as compared to prior year was primarily due to a decrease in gross margin tempered by lower SG&A expenditures driven by reduced marketing activity and headcount in our Strativa division.


	Nine months ended
	September 30,	September 30,
($ in thousands)	2011	2010	$ Change
Operating income (loss):
Par Pharmaceutical	($38,760)	$132,327	($171,087)
Strativa	(42,263)	(24,229)	(18,034)
Total operating income (loss)	($81,023)	$108,098	($189,121)

The decrease in our operating income in the nine month period ended September 30, 2011 as compared to the prior year was primarily due to the first quarter AWP settlement in principal related accruals and restructuring costs associated with the second quarter reorganization of our Strativa segment somewhat tempered by an increase in gross margin from our Par Pharmaceutical segment and lower overall SG&A and R&D expenditures.

Interest Income


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
($ in thousands)	2011	2010	2011	2010
Interest income	$160	$341	$965	$942

Interest income principally includes interest income derived from money market and other short-term investments.

Interest Expense


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
($ in thousands)	2011	2010	2011	2010
Interest expense	($150)	($928)	($451)	($2,754)

Interest expense in the three and nine month period ended September 30, 2011, was principally comprised of amortization of deferred financing costs relating to our October 1, 2010 unsecured credit facility. We have not drawn on the unsecured credit facility as of the date of this Quarterly Report on Form 10-Q.

Interest expense in the three and nine month period ended September 30, 2010, related to our senior subordinated convertible notes which matured on September 30, 2010.

Income Taxes


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
($ in thousands)	2011	2010	2011	2010
Provision (benefit) for income taxes	$17,687	$12,933	($2,900)	$34,731
Effective tax rate	45%	30%	4%	32%

The income tax provisions (benefit) were based on the applicable federal and state tax rates for those periods (see Notes to Condensed Consolidated Financial Statements - Note 9 – “Income Taxes”). The effective tax rate for the three months ended September 30, 2011 is higher than the statutory rate principally due to our estimate of the portion of corporate acquisition transaction costs which may not be tax deductible and by the non-deductibility of our portion of the annual pharmaceutical manufacturer’s fee. In addition to these factors, the effective tax rate for the nine months ended September 30, 2011 is impacted by a change in valuation of our net deferred tax asset resulting from favorable state law changes enacted during the second quarter and our estimate of the portion of legal settlements in the year which may not be tax deductible.

Discontinued Operations


	Three months ended		Nine months ended
	September 30,	September 30,	September 30,	September 30,
($ in thousands)	2011	2010	2011	2010
Provision (benefit) for income taxes	$127	$127	$380	($105)
(Loss) income from discontinued operations	($127)	($127)	($380)	$105

In January 2006, we announced the divestiture of FineTech Laboratories, Ltd (“FineTech”), effective December 31, 2005. In the periods presented we recorded tax amounts to discontinued operations for interest related to contingent tax liabilities. The results of FineTech operations have been classified as discontinued for all periods presented because we had no continuing involvement in FineTech.

FINANCIAL CONDITION

Liquidity and Capital Resources


		Nine months ended
		September 30,
($ in thousands)		2011
Cash and cash equivalents at beginning of period		$218,674
Net cash provided by operating activities		13,873
Net cash used in investing activities		(12,497)
Net cash provided by financing activities		5,919
Net increase in cash and cash equivalents		$7,295
Cash and cash equivalents at end of period		$225,969

Cash provided by operations for the nine months ended September 30, 2011, reflects increased gross margin dollars generated from revenues coupled with inventory draw downs and timing of outflows to distribution partners tempered by payments of legal settlements related to AWP litigation in the third quarter of 2011. Cash flows used by investing activities were primarily driven by capital expenditures and the net investment in available for sale debt securities. Cash provided by financing activities in the nine month period ended September 30, 2011 mainly represented the proceeds from stock option exercises coupled with excess tax benefits on share-based compensation as actual tax benefits exceeded the projected benefits as the value of vested restricted shares exceeded their grant date value tempered by the payment of withholding taxes related to the vesting of restricted shares coupled with the partial cash settlement of restricted stock grants with market vesting conditions.

Our working capital, current assets minus current liabilities, of $350 million at September 30, 2011 decreased approximately $15 million from $365 million at December 31, 2010, which primarily reflects the AWP settlement in principal related accruals at September 30, 2011 coupled with the timing of payments to distribution agreement partners tempered by the cash generated by operations. The working capital ratio, which is calculated by dividing current assets by current liabilities, was 2.97x at September 30, 2011 compared to 4.28x at December 31, 2010. We believe that our working capital ratio indicates the ability to meet our ongoing and foreseeable obligations for at least the next 12 fiscal months.

Detail of Operating Cash Flows


	Nine months ended
	September 30,	September 30,
($ in thousands)	2011	2010
Cash received from customers, royalties and other	$724,506	$879,048
Cash paid for inventory	(110,355)	(106,090)
Cash paid to employees	(95,332)	(67,577)
Cash paid to all other suppliers and third parties	(506,687)	(519,017)
Interest received (paid), net	1,394	354
Income taxes received (paid), net	347	(38,428)
Net cash provided by operating activities	$13,873	$148,290

Sources of Liquidity

Our primary source of liquidity is cash received from customers. The decrease in net cash provided by operating activities for the year-to-date period of 2011 as compared to the prior year comparable period can be attributed to lower cash receipts from customers, as detailed above, driven primarily by lower net revenues for metoprolol. Our ability to continue to generate cash from operations is predicated not only on our ability to maintain a sustainable amount of sales of our current product portfolio, but also our ability to monetize our product pipeline and future products that we may acquire. Our Par generic product pipeline consists of approximately 32 ANDAs pending with the FDA, including 13 first-to-file opportunities, exclusive of any ANDAs or first-to-file opportunities that may be obtained from the pending acquisitions of Anchen and Edict. Our future profitability depends, to a significant extent, upon our ability to introduce, on a timely basis, new generic products that are either the first to market (or among the first to market) or otherwise can gain significant market share. No assurances can be given that we or any of our strategic partners will successfully complete the development of any of these potential products either under development or proposed for development, that regulatory approvals will be granted for any such product, that any approved product will be produced in commercial quantities or that any approved product will be sold profitably. Commercializing brand pharmaceutical products is more costly than generic products. We cannot be certain that our brand product expenditures will result in the successful development or launch of brand products that will prove to be commercially successful or will improve the long-term profitability of our business.

Another source of potential liquidity is the capital markets. We filed a “shelf” registration statement during the second quarter of 2009, under which we may sell a combination of common stock, preferred stock, debt securities, or warrants from time to time for an aggregate offering price of up to $150 million.

We intend to enter into a credit agreement with a syndicate of banks, led by JPMorgan Chase Bank, N.A., as Administrative Agent, U.S. Bank National Association and PNC Bank National Association as Co-Syndication Agents, DnB NOR Bank ASA and SunTrust Bank as Co-Documentation Agents and J.P. Morgan Securities LLC as Sole Bookrunner and Lead Arranger, to provide senior credit facilities comprised of a five-year Term Loan Facility in an initial aggregate principal amount of $350 million and a five-year Revolving Credit Facility in an initial amount of $100 million. We plan to use the proceeds of the Term Loan Facility, together with cash on hand, to finance the pending acquisition of Anchen, and the proceeds of the Revolving Credit Facility would be available for general corporate purposes. We anticipate that this senior credit facility will replace our existing $75 million unsecured credit facility. We had no borrowings under the existing unsecured credit facility as of September 30, 2011 or December 31, 2010.

Uses of Liquidity

Our uses of liquidity and future and potential uses of liquidity include the following:

The payment of the $154 million settlement for certain Average Wholesale Prices (“AWP”) matters (specifically, claims related to federal contributions to state Medicaid programs in 49 states (excluding Illinois), and the claims of Texas, Florida, Alaska, South Carolina and Kentucky relating to their Medicaid programs) in the third quarter of 2011. In addition on June 2, 2011, we reached a settlement in principle to resolve claims brought by the city of New York, New York Counties and the state of Iowa under respective state law for $23 million. The Mississippi suit was settled and paid in September 2011 for $3.6 million. On October 18, 2011, we reached an agreement in principle to settle the Oklahoma suit for $0.9 million. The related payment of the settlements in principle is also expected to be made in 2011.

Potential liabilities related to the outcomes of litigation, such as the remaining AWP matters, or the outcomes of investigations by federal authorities, such as the Department of Justice. In the event that we experience any loss, such loss may result in a material impact on our liquidity or financial condition when such liability is paid.

Cash paid for inventory purchases as detailed in “Details of Operating Cash Flows” above.

Cash paid to all other suppliers and third parties as detailed in “Details of Operating Cash Flows” above. The decrease is mainly due to lower metoprolol sales and sales of other licensed products that resulted in lower amounts paid to partners.

Cash compensation paid to employees as detailed in “Details of Operating Cash Flows” above. The increase for this period was mainly due to the bonus payments in the first quarter 2011 related to our 2010 operating performance coupled with a larger sales force for Strativa in the first quarter of 2011 as compared to the first quarter of 2010.

Cash paid to Glenmark Generics of $15 million in the second quarter of 2010 related to a licensing agreement to market ezetimibe 10 mg tablets, the generic version of Merck’s Zetia^®, in the U.S.

Potential liabilities related to the outcomes of audits by regulatory agencies like the IRS or the Office of Inspector General of the Department of Veterans Affairs. In the event that our loss contingency is ultimately determined to be higher than originally accrued, the recording of the additional liability may result in a material impact on our liquidity or financial condition when such additional liability is paid.

2011 capital expenditures are expected to total approximately $12 million, approximately $8 million of which had been incurred as of September 30, 2011.

We entered into a definitive agreement to purchase privately-held Edict Pharmaceuticals, a Chennai, India-based developer and manufacturer of generic pharmaceuticals, for up to $37.6 million in cash and our repayment of certain additional pre-close indebtedness. The closing of our acquisition of Edict is subject to customary closing conditions. Refer to Note 14 – “Commitments, Contingencies and Other Matters” for further details.

During the three months ended September 30, 2011, we entered into a definitive agreement to purchase Anchen Pharmaceuticals, a privately-held specialty pharmaceutical company focused on developing and commercializing extended release and niche generic products, for $410 million in cash. We intend to finance this transaction with cash on hand and a $350 million five-year term loan.

Expenditures related to current business development and product acquisition activities. As of September 30, 2011, the total potential future payments that ultimately could be due under existing agreements related to products in various stages of development were approximately $15.2 million. This amount is exclusive of contingent payments tied to the achievement of sales milestones, which cannot be determined at this time and would be funded through future revenue streams.

Normal course payables due to distribution agreement partners of approximately $53.5 million as of September 30, 2011 related primarily to amounts due under profit sharing agreements. We expect to pay substantially all of the $53.5 million during the first two months of the fourth quarter of 2011. The risk of lower cash receipts from customers due to potential decreases in revenues associated with competition or supply issues related to partnered products, in particular metoprolol and budesonide, would be mitigated by proportional decreases in amounts payable to distribution agreement partners.

We believe that we will be able to monetize our current product portfolio, our product pipeline, and future product acquisitions and generate sufficient operating cash flows that, along with existing cash, cash equivalents and available for sale securities, will allow us to meet our financial obligations over the foreseeable future. We expect to continue to fund our operations, including our research and development activities, capital projects, in-licensing product activity and obligations under our existing distribution and development arrangements discussed herein, out of our working capital. Our future business or product acquisitions may require additional debt and/or equity financing; there can be no assurance that we will be able to obtain any such additional financing when needed on acceptable or favorable terms.

Stock Repurchase Program

In 2007, our Board approved an expansion of our share repurchase program allowing for the repurchase of up to $75.0 million of our common stock. The repurchases may be made, subject to compliance with applicable securities laws, from time to time in the open market or in privately negotiated transactions. Shares of common stock acquired through the repurchase program are and will be available for general corporate purposes. We repurchased 1,643 thousand shares of our common stock for approximately $31.4 million pursuant to the expanded program in 2007. We did not repurchase any shares of common stock under this authorization in 2008, 2009, 2010 or the year-to-date period of 2011. The authorized amount remaining for stock repurchases under the repurchase program was $43.6 million, as of September 30, 2011. The repurchase program has no expiration date.

Analysis of available for sale debt securities held as of September 30, 2011

In addition to our cash and cash equivalents, we had approximately $31 million of available for sale marketable debt securities classified as current assets on the condensed consolidated balance sheet as of September 30, 2011. These available for sale marketable debt securities were all available for immediate sale. We intend to continue to use our current liquidity to support our Par Pharmaceutical and Strativa businesses, enter into product license arrangements, potentially acquire other complementary businesses and products, and for general corporate purposes.

Contractual Obligations as of September 30, 2011

The dollar values of our material contractual obligations and commercial commitments as of September 30, 2011 were as follows ($ in thousands):


		Amounts Due by Period
Obligation	Total Monetary	2011	2012 to	2014 to	2016 and
Obligation	Obligations	2011	2013	2015	thereafter	Other
AWP settlements in principle	$23,884	$23,884	$ -	$ -	$ -	$ -
Operating leases	16,677	895	8,038	6,043	1,701	-
Fees related to credit facility	525	66	459	-	-	-
Purchase obligations (1)	88,919	88,919	-	-	-	-
Long-term tax liability (2)	44,009	-	-	-	-	44,009
Severance payments	877	403	474	-	-	-
Other	277	277	-	-	-	-
Total obligations	$175,168	$114,444	$8,971	$6,043	$1,701	$44,009

(1)

Purchase obligations consist of both cancelable and non-cancelable inventory and non-inventory items. At September 30, 2011 of the total purchase obligations, approximately $10 million related to sumatriptan and approximately $23 million related to metoprolol.

(2)

The difference between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to FASB ASC 740-10 Income Taxes represents an unrecognized tax benefit. An unrecognized tax benefit is a liability that represents a potential future obligation to the taxing authorities. As of September 30, 2011, the amount represents unrecognized tax benefits, interest and penalties based on evaluation of tax positions and concession on tax issues challenged by the IRS. For presentation on the table above, we included the related long-term liability in the “Other” column.

Financing

Refer to Note 10 – Senior Credit Facility for a description of a new senior credit facility that we plan to enter into in connection with closing our pending acquisition of Anchen.

Critical Accounting Policies and Use of Estimates

Our critical accounting policies are set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. There has been no change, update or revision to our critical accounting policies subsequent to the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Subsequent Events

On October 18, 2011, we announced that we acquired rights to three products from Teva Pharmaceuticals in connection with Teva’s acquisition of Cephalon. Under terms of the agreement, Par will own the ANDAs of fentanyl citrate lozenges, a generic version of Actiq^®, and cyclobenzaprine ER capsules, the generic version of Amrix^®, as well as the U.S. rights to market modafinil tablets, the generic version of Provigil^®. According to IMS Health data, annual sales in the U.S. for Actiq^® and the equivalent generic products are $173 million. Annual sales in the U.S. for Provigil^® and Amrix^® are approximately $1.1 billion and $125 million, respectively. Par is currently shipping to the trade all strengths of fentanyl citrate lozenges that were previously available from Teva. Cyclobenzaprine ER capsules and modafinil tablets were not previously marketed by Teva and are not yet available. We paid $24 million to acquire fentanyl citrate lozenges and modafinil tablets. We would also be obligated to pay up to an additional $1 million milestone upon the launch of cyclobenzaprine ER capsules depending on timing of our launch relative to other market competitors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Available for sale debt securities

The primary objectives for our 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. We do not buy and sell securities for trading purposes. Our 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. We are subject to market risk primarily from changes in the fair values of our 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 on September 30, 2011 would have caused the fair value of our investments in available for sale debt securities to decline by approximately $0.1 million as of that date. Additional investments are made in overnight deposits and money market funds. These instruments are classified as cash and cash equivalents for financial reporting purposes, which generally have lower interest rate risk relative to 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 the interest income we earned by approximately $0.1 million on an annual basis.

The following table summarizes the carrying value of available for sale securities that subject us to market risk at September 30, 2011 and December 31, 2010 ($ amounts in thousands):


	September 30,	December 31,
	2011	2010
Corporate bonds	$30,861	$27,866

We do not have any financial obligations exposed to significant variability in interest rates.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our 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 our management, including our 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, we have 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 our controls and procedures. An evaluation was performed under the supervision and with the participation of our management, including our CEO and CFO, to assess the effectiveness of the design and operation of our disclosure controls and procedures (as defined under the Exchange Act) as of September 30, 2011. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 30, 2011.

Changes in Internal Control over Financial Reporting

There have been no changes identified during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Legal Proceedings

Unless otherwise indicated in the details provided below, we cannot predict with certainty the outcome or the effects 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 below, at this time we are not able to estimate the possible loss or range of loss, if any, associated with these legal proceedings. From time to time, we may settle or otherwise resolve these matters on terms and conditions that we believe are in the best interests of the Company. Resolution of any or all claims, investigations, and legal proceedings, individually or in the aggregate, could have a material adverse effect on our results of operations, cash flows or financial condition.

Corporate Litigation

Following the announcement of our agreement to acquire Edict Pharmaceuticals Private Limited (referred to as “Edict” or “Edict Pharmaceuticals”), a Chennai, India-based developer and manufacturer of generic pharmaceuticals, Gavis Pharma LLC (“Gavis”), an affiliate of Novel Laboratories, Inc. and a former shareholder of Edict, filed a lawsuit on June 29, 2011, in the Superior Court for the State of New Jersey, Somerset County, against us, Edict, and the shareholders of Edict, seeking to enjoin the closing of our acquisition of Edict and money damages (the “Gavis Litigation”). Gavis asserts claims against certain Edict shareholders for fraudulent inducement in connection with Gavis’s 2009 decision to sell its equity interest in Edict; against Edict and certain Edict shareholders for breach of contract; and against us for tortious interference with contract for entering into our agreement to acquire Edict. The defendants filed motions to dismiss the Gavis Litigation and agreed by stipulation to delay closing our acquisition of Edict until the Court renders a ruling on the plaintiff’s preliminary injunction motion, which was heard on August 3, 2011. Since August 15, 2011, the Gavis Litigation has been voluntarily stayed by stipulation of the parties pending the outcome of settlement discussions. On October 20, 2011, the parties entered into a Settlement Agreement & Mutual Release and Covenant Not to Sue. Under the terms of the Settlement Agreement, on the date that we close our acquisition of Edict: (a) an Edict shareholder will pay a portion of the closing proceeds to Gavis, (b) the parties will file with the Court a Stipulation of Dismissal with Prejudice dismissing all claims under the Gavis Litigation and (c) the parties will execute and deliver a Mutual Release and Covenant Not to Sue. The Settlement Agreement will become null and void in the event (i) our Share Purchase Agreement with Edict is terminated or (ii) our closing of the Edict acquisition does not occur within 60 days of execution of the Settlement Agreement (i.e., December 19, 2011).

Patent Related Matters

We 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^®. As a result of the filing of an ANDA, Unimed and Laboratories Besins Iscovesco (“Besins”), co-assignees of the patent-in-suit, filed a lawsuit on August 22, 2003 against Paddock in the U.S. District Court for the Northern District of Georgia alleging patent infringement (the “Paddock litigation”). On September 13, 2006, we acquired from Paddock all rights to the ANDA for the testosterone 1% gel, and the Paddock litigation was resolved by a settlement and license agreement that terminates all on-going litigation and permits us to launch the generic version of the product no earlier than August 31, 2015, and no later than February 28, 2016, assuring our ability to market a generic version of Androgel^®well before the expiration of the patents at issue. On March 7, 2007, we were issued a Civil Investigative Demand seeking information and documents in connection with the court-approved settlement in 2006 of the patent dispute. On January 30, 2009, the Bureau of Competition for the Federal Trade Commission (“FTC”) filed a lawsuit against us in the U.S. District Court for the Central District of California alleging violations of antitrust laws stemming from our court-approved settlement in the Paddock litigation, and several distributors and retailers followed suit with a number of private plaintiffs’ complaints beginning in February 2009. On April 9, 2009, the U.S. District Court for the Central District of California granted Par’s motion to transfer the FTC lawsuit and the private plaintiffs’ complaints to the U.S. District Court for the Northern District of Georgia. On July 20, 2009, we filed a motion to dismiss the FTC’s case and on September 1, 2009, we filed a motion to dismiss the private plaintiffs’ cases in the U.S. District Court for the Northern District of Georgia, and on February 23, 2010, the Court granted our motion to dismiss the FTC’s claims and granted in part and denied in part our motion to dismiss the claims of the private plaintiffs. On June 10, 2010, the FTC appealed the District Court’s dismissal of the FTC’s claims to the U.S. Court of Appeals for the 11th Circuit. On May 13, 2011, oral argument was held before the

Court of Appeal and we currently await the Court’s decision. We believe we have complied with all applicable laws in connection with the court-approved settlement and intend to continue to vigorously defend these actions.

On September 13, 2007, Santarus, Inc. (“Santarus”) and The Curators of the University of Missouri (“Missouri”) filed a lawsuit against us in the U.S. 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 we submitted a Paragraph IV certification to the FDA for approval of 20 mg and 40 mg omeprazole/sodium bicarbonate capsules. On December 20, 2007, Santarus and Missouri filed a second lawsuit against us in the U.S. District Court for the District of Delaware alleging infringement of the patents because we submitted a Paragraph IV certification to the FDA for approval of 20 mg and 40 mg omeprazole/sodium bicarbonate powders for oral suspension. On March 4, 2008, the cases pertaining to our ANDAs for omeprazole capsules and omeprazole oral suspension were consolidated for all purposes. The District Court conducted a bench trial from July 13-17, 2009, and found for Santarus only on the issue of infringement, while not rendering an opinion on the issues of invalidity and unenforceability. On April 14, 2010, the District Court ruled in our favor, finding that plaintiffs’ patents were invalid as being obvious and without adequate written description. On May 17, 2010, Santarus filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit, appealing the District Court’s decision of invalidity of the plaintiffs’ patents. On May 27, 2010, we filed our notice of cross-appeal to the Court of Appeals, appealing the District Court’s decision of enforceability of plaintiffs’ patents. On July 1, 2010, we launched our generic Omeprazole/Sodium Bicarbonate product. Oral argument for the appeal was held on May 2, 2011. We will continue to vigorously defend the appeal.

patent infringement because we submitted a Paragraph IV certification to the FDA for approval of 5 mg, 10 mg, 20 mg and 40 mg rosuvastatin calcium tablets. On June 29, 2010, after an eight day bench trial, the District Court ruled in favor of the plaintiffs and against us, stating that the plaintiffs’ patents were infringed, and not invalid or unenforceable. On August 11, 2010, we filed our notice of appeal to the U.S. Court of Appeals for the Federal Circuit, appealing the District Court’s decision. On December 15, 2010, the District Court granted our motion to dismiss a case brought by AstraZeneca asserting we infringed its rosuvastatin process patents, which decision AstraZeneca appealed January 14, 2011. On May 23, 2011, we filed our opening appeal brief in the second action and an oral hearing has been scheduled for November 7, 2011. On April 25, 2011, we filed our final appeal brief in the first action and an oral hearing was conducted October 5, 2011. We intend to defend all of these actions vigorously.

On September 20, 2010, Schering-Plough HealthCare Products (“Schering-Plough”), Santarus, Inc. (“Santarus”), and the Curators of the University of Missouri filed a lawsuit against us in the U.S. District Court for the District of New Jersey. The complaint alleges infringement of U.S. Patent Nos., 6,699,885; 6,489,346; 6,645,988; and 7,399,772 because we submitted an ANDA with a Paragraph IV certification to the FDA for approval of a 20mg/1100 mg omeprazole/sodium bicarbonate capsule, a version of Schering-Plough’s Zegerid OTC^®. We have previously received a decision of invalidity with respect to all of these patents in our case against Santarus and Missouri with respect to the prescription version of this product, which decision is presently on appeal. On November 9, 2010, we entered into a stipulation with the plaintiffs to stay litigation on the OTC product pending the decision by the U.S. Court of Appeals for the Federal Circuit on the prescription product appeal, and the parties have agreed to be bound by such decision for purposes of the OTC product litigation. We intend to pursue our appeal and defend this action vigorously.

On October 4, 2010, UCB Manufacturing, Inc. (“UCB”) filed a verified complaint in the Superior Court of New Jersey,

Chancery Division, Middlesex, naming us, our development partner Tris Pharma, and Tris Pharma’s head of research and development, Yu-Hsing Tu. The complaint alleges that Tris and Tu misappropriated UCB’s trade secrets and, by their actions, breached contracts and agreements to which UCB, Tris, and Tu were bound. The complaint further alleges unfair competition against Tris, Tu, and us relating to the parties’ manufacture and marketing of generic Tussionex^®. On October 6, 2010, the Court denied UCB’s petition for a temporary restraining order against us and Tris and set a schedule for discovery during which UCB must substantiate its claims. On December 23, 2010, the Court denied UCB’s motion for a preliminary injunction, ruling that UCB’s alleged trade secrets were known to the public and not misappropriated. On June 2, 2011, the Court granted Tris’ motion for summary judgment dismissing UCB’s claims and UCB appealed the Court’s order on June 22, 2011. We intend to vigorously defend the lawsuit and any appeal by plaintiffs.

Industry Related Matters

Beginning in September 2003, we, along with numerous other pharmaceutical companies, have been named as a defendant in actions brought by a number of state Attorneys General and municipal bodies within the state of New York, as well as a federal qui tam action brought on behalf of the United States by the pharmacy Ven-A-Care of the Florida Keys, Inc. ("Ven-A-Care") alleging generally that the defendants defrauded the state Medicaid systems by purportedly reporting “Average Wholesale Prices” (“AWP”) and/or “Wholesale Acquisition Costs” that exceeded the actual selling price of the defendants’ prescription drugs. To date, we have been named as a defendant in substantially similar civil law suits filed by the Attorneys General of Alabama, Alaska, Florida, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Mississippi, Oklahoma, South Carolina, Texas and Utah, and also by the city of New York, 46 counties across New York State and Ven-A-Care. These cases generally seek some combination of actual damages, and/or double damages, treble damages, compensatory damages, statutory damages, civil penalties, disgorgement of excessive profits, restitution, disbursements, counsel fees and costs, litigation expenses, investigative costs, injunctive relief, punitive damages, imposition of a constructive trust, accounting of profits or gains derived through the alleged conduct, expert fees, interest and other relief that the court deems proper. The remaining cases will likely be litigated in the state or federal courts in which they were filed. In the Utah suit, the time for responding to the complaint has not yet elapsed. The Hawaii suit was settled on August 25, 2010 for $2,250 thousand. The Massachusetts suit was settled on December 17, 2010 for $500 thousand. The Alabama suit was settled on January 5, 2011 for $2,500 thousand. The Idaho suit was settled on March 25, 2011 for $1,700 thousand. On August 24, 2011, we settled claims brought by Ven-A-Care, Texas, and Florida, under federal and state law, as well as Alaska, South Carolina, and Kentucky under state law, for $154,000 thousand. The settlement resolved the lawsuit relating to federal contributions to state Medicaid programs in 49 states (excluding Illinois), and claims of Texas, Florida, Alaska, South Carolina and Kentucky relating to their Medicaid programs. The settlement eliminated the majority of the alleged damages asserted against us in the various drug pricing litigations and, with the exception of South Carolina, removed all trials that had been scheduled. An order of dismissal in the South Carolina action is expected in the near future. We paid the $154,000 thousand settlement amount during the third quarter of 2011. On June 2, 2011, we reached a settlement in principle to resolve claims brought by the city of New York, New York Counties and the state of Iowa under respective state law for $23,000 thousand. The Mississippi suit was settled on September 1, 2011 for $3,600 thousand. On October 18, 2011, we reached an agreement in principle to settle the Oklahoma suit for $884 thousand. The remaining

matters have yet to be scheduled for trial. We have accrued a $37,800 thousand reserve under the caption “Accrued legal settlements” on our condensed consolidated balance sheet as of September 30, 2011, in connection with the June 2, 2011 settlement in principle and the remaining AWP actions. In each of the remaining matters, we have either moved to dismiss the complaints or answered the complaints denying liability. We will continue to defend or explore settlement opportunities in other jurisdictions as we feel are in our best interest under the circumstances presented in those jurisdictions. However, we can give no assurance that we will be able to settle the remaining actions on terms that we deem reasonable, or that such settlements or adverse judgments, if entered, will not exceed the amount of the reserve.

Department of Justice Matter

Declaratory Judgment

Other

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

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2010, which could materially affect our business, results of operations, financial condition or liquidity. The risks described in our Annual Report on Form 10-K for the year ended December 31, 2010 have not materially changed, other than as set forth below. The risks described below and in our Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that we currently believe are immaterial, also may materially adversely affect our business, results of operations, financial condition or liquidity.

Our pending acquisitions of Anchen and/or Edict involve numerous risks, including the risks that we may be unable to integrate the acquired business(es) successfully and that we may assume liabilities that adversely affect us.

On August 24, 2011, we announced our entry into a definitive agreement to purchase Anchen Incorporated and its subsidiary, Anchen Pharmaceuticals (collectively referred to as “Anchen” or “Anchen Pharmaceuticals”), a privately-held specialty pharmaceutical company focused on developing and commercializing extended release and niche generic products. Closing of the acquisition is subject to customary conditions and approvals, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (refer to Note 2 – “Pending Acquisitions” for further details).

On May 23, 2011, we announced our entry into a definitive agreement to purchase privately-held Edict Pharmaceuticals Pvt. Ltd. (“Edict”), a Chennai, India-based developer and manufacturer of generic pharmaceuticals. Closing of the acquisition is subject to regulatory approvals and other customary conditions (refer to Note 2 – “Pending Acquisitions” and Note 14 – “Commitments, Contingencies and Other Matters” for further details).

Acquisitions involve numerous risks, including operational risks associated with the integration of acquired businesses. These risks include, but are not limited to:

difficulties in achieving identified financial and operating synergies, cost savings, revenue synergies and growth opportunities;

difficulties in assimilating the personnel, operations and products of an acquired company, and the potential loss of key employees;

difficulties in consolidating information technology platforms, business applications and corporate infrastructure;

difficulties in integrating our corporate culture with local customs and cultures;

possible overlap between our products or customers and those of an acquired entity that may create conflicts in relationships or other commitments detrimental to the integrated businesses;

the diversion of management’s attention from other business concerns; and

risks and challenges of entering or operating in markets in which we have limited or no prior experience, including the unanticipated effects of export controls, exchange rate fluctuations, foreign legal and regulatory requirements, and foreign political and economic conditions.

Our acquisitions incur significant transaction costs, including substantial fees for investment bankers, attorneys, and accountants. Any acquisition could result in our assumption of unknown and/or unexpected, and perhaps material, liabilities. Additionally, in any acquisition agreement, the negotiated representations, warranties and agreements of the selling parties may not entirely protect us, and liabilities resulting from any breaches could exceed negotiated indemnity limitations. These factors could impair our growth and ability to compete; divert resources from other potentially more profitable areas; or otherwise cause a material adverse effect on our business, financial position and results of operations and could cause a decline in the market value of our common stock.

In addition, either or both pending acquisitions could result in an increase in goodwill, intangible assets and amortization expenses that could ultimately negatively impact our profitability. If the fair value of our goodwill or intangible assets is determined at some future date to be less than its recorded value, a charge to earnings may be required. Such a charge could be in an amount that is material to our results of operations and net worth.

We plan to borrow $350 million under a new senior credit facility to finance our pending acquisition of Anchen. Any failure by us to comply with operating and financial restrictions and covenants under the new senior credit facility could result in the accelerated maturity of debt obligations, which could materially and adversely affect our liquidity.

In connection with our pending acquisition of Anchen Pharmaceuticals, we plan to replace our current unsecured credit facility with a new senior credit facility and to take out a $350 million term loan to finance the pending acquisition. The new senior credit facility will be provided under a new credit agreement (the “New Credit Agreement”) will contain numerous restrictive covenants that limit our discretion in the operation of our business, which could have a materially adverse effect on our business, financial condition and results of operations. If we are unable to generate sufficient cash flow or otherwise obtain the funds necessary to make required repayments under the New Credit Agreement, or if we fail to comply with the requirements of our indebtedness, we could create an event of default under the New Credit Agreement. Any default that is not cured or waived could result in the acceleration of the obligations under the New Credit Agreement. Any such default which actually causes an acceleration of obligations could have a material adverse effect on our liquidity and financial condition. Additionally, the covenants in the New Credit Agreement may restrict the conduct of our business, which could adversely affect our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities that may be beneficial to our business. See “Liquidity and Capital Resources” under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition.” Our ability to comply with covenants contained in the New Credit Agreement may be affected by events beyond our control, including prevailing economic, financial and industry conditions.

Upon the closing of our pending acquisition of Edict, we will be subject to risks associated with doing business internationally.

Upon the consummation of the acquisition of Edict, we expect that some of our drug products will be developed and/or manufactured at Edict’s facility in India. We have little or no experience in establishing and running foreign operations. We will face certain risks inherent in the establishment of foreign operations, many of which will be beyond our control. These risks include, among other things:

geopolitical risks, terrorism, and changing economic conditions and political instability;

foreign currency exchange rates and the impact of shifts in the U.S. and local economies on those rates;

maintaining compliance with, and unexpected changes in, U.S. and foreign laws and regulations applicable to our international operations, including quality standards and other certification requirements, labor relations laws, tax laws, anti-competition regulations, import and trade restrictions, export requirements, and anti-bribery laws such as the U.S. Foreign Corrupt Practices Act and local laws that prohibit corrupt payments to governmental officials;

the protection of our intellectual property;

the ability to provide sufficient working capital to a foreign subsidiary and to effectively and efficiently supply an international facility with the required personnel, equipment and materials;

import/export license requirements, tariffs, customs, duties and other trade barriers; and

difficulties in coordinating and managing foreign operations.

We may not be able to successfully manage these risks or avoid their effects, and our foreign operations may not produce the strategic benefits that we anticipate. Any of these risks could have a material adverse effect on our business, financial condition and results of operations.

Upon the closing of our pending acquisition of Edict, we will own and operate (through Edict) a facility located in India, and we will be subject to regulatory, economic, social and political uncertainties in India, which could cause a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

Upon consummation of our pending acquisition of Edict, we will be subject to certain risks associated with having (through Edict) a portion of our assets and operations located in India. Edict’s operations in India may be adversely affected by general economic conditions and economic and fiscal policy in India, including changes in exchange rates and controls, interest rates and taxation policies; any reversal of India’s recent economic liberalization and deregulation policies; as well as social stability and political, economic or diplomatic developments affecting India in the future. India has, from time to time, experienced instances of civil unrest and hostilities, both internally and with neighboring countries. Rioting, military activity, terrorist attacks, or armed hostilities could cause our operations there to be adversely affected or suspended. We generally do not have insurance for losses and interruptions caused by terrorist attacks, military conflicts and wars.

In addition, India is known to have experienced governmental corruption to some degree and, in some circumstances, anti-bribery laws may conflict with some local customs and practices. As a result of our policy to comply with the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws, we may be at a competitive disadvantage to competitors that are not subject to, or do not comply with, such laws.

Upon the closing of our pending acquisition of Edict, we will have increased exposure to tax liabilities, including foreign tax liabilities.

As a corporation with a subsidiary in India, we will be subject to income taxes as well as non-income based taxes, in both the United States and India. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. Changes in tax laws or tax rulings may have a significantly adverse impact on our effective tax rate. Recent proposals by the current U.S. administration for fundamental U.S. international tax reform, if enacted, could have a significant adverse impact on our effective tax rate following the Edict acquisition.

In addition, we will have potential tax exposures resulting from the varying application of statutes, regulations and interpretations, which include exposures on intercompany terms of cross border arrangements among any foreign subsidiary in relation to various aspects of our business, including research and development activities and manufacturing. Tax authorities in various jurisdictions may disagree with and subsequently challenge the amount of profits taxed in their country, which may result in increased tax liability, including accrued interest and penalties, which would cause our tax expense to increase. This could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

We may make acquisitions of, or investments in, complementary businesses or products, which may be on terms that are not commercially advantageous, may require additional debt or equity financing, and may involve numerous risks, including those set forth above.

We regularly review the potential acquisition of technologies, products, product rights and complementary businesses. We may choose to enter into such transactions at any time. Nonetheless, we cannot provide assurance that we will be able to identify suitable acquisition or investment candidates. To the extent that we do identify candidates that we believe to be suitable, we cannot provide assurance that we will be able to make such acquisitions or investments on commercially advantageous terms or at all. If we make any acquisitions or investments, we may finance such acquisitions or investments through our cash reserves, debt financing, or by issuing additional equity securities, which could dilute the holdings of our then-existing stockholders. If we require financing, we cannot provide assurance that we will be able to obtain required financing when needed on acceptable terms or at all. Any future acquisitions may involve numerous risks, including but not limited to the types of risks set forth above with respect to the Anchen and Edict acquisitions.

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

Issuer Purchases of Equity Securities⁽¹⁾

Quarter Ending September 30, 2011


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⁾
July 1, 2011 through July 31, 2011	780	N/A	-	-
August 1, 2011 through August 31, 2011	9,111	N/A	-	-
September 1, 2011 through September 30, 2011	567	N/A	-	1,636,326
Total	10,458	N/A	-

(1)

In April 2004, the Board authorized the repurchase of up to $50.0 million of our 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 September 2007, we announced that the Board approved an expansion of our share repurchase program allowing for the repurchase of up to $75 million of our 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 September 30, 2011. The repurchase program has no expiration date.

(2)

The total number of shares purchased represents 10,458 shares surrendered to us to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees.

(3)

Based on the closing price of our common stock on the New York Stock Exchange of $26.62 at September 30, 2011.

ITEM 6. EXHIBITS

10.1

Amendment No. 1 dated October 25, 2011 to the Share Purchase Agreement by and among Par Pharmaceutical, Inc., Clan Laboratories Pvt. Ltd., Muthasamy Shanmugam, Jaganathan Jayaseelan, Seema Suresh, Thertha Investment & Portfolio Services Private Limited, Edict Pharmaceuticals Private Limited and Jaganathan Jayaseelan, as Sellers’ Representative, dated as of May 17, 2011(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). *

101

The following financial statements and notes from the Par Pharmaceutical Companies, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 formatted in eXtensible Business Reporting Language (XBRL): (i) unaudited condensed consolidated balance sheets, (ii) unaudited condensed consolidated statements of operations, (iii) unaudited condensed consolidated statements of cash flows, and (iv) the notes to the unaudited condensed consolidated financial statements.

* The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed to be filed with the SEC and are not to be incorporated by reference into any filing of ours under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in any such filing.

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: November 2, 2011

/s/ Michael A. Tropiano

Michael A. Tropiano

Executive Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit Number

Description

10.1

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).

101