The Company depends on its ability to protect its intellectual property and proprietary rights. The Company cannot be certain of the confidentiality and protection of such rights.

The success of the Company depends on its ability to protect its current and future products and to defend its intellectual property rights. If the Company fails to protect its intellectual property adequately, competitors may manufacture and market products similar to, or confused with, the Company’s products.

Some patent applications in the United States are maintained in secrecy or not published until the resulting patents issue. Because the publication of discoveries or inventions tends to follow their actual discovery or invention by several months, the Company cannot be certain that it was the first to invent and reduce to practice any of its discoveries or inventions. The Company also cannot be certain that patents will be issued with respect to any of its patent applications or that any existing or future patents issued to or licensed by it will provide competitive advantages for its products or will not be challenged, invalidated, circumvented or held unenforceable in proceedings commenced by its competitors. Furthermore, its patent rights may not prevent or limit its present and future competitors from developing, making, importing, using or commercializing products that are functionally similar to its products.

The Company relies particularly on trade secrets, trademarks, unpatented proprietary expertise and continuing innovation that it seeks to protect, in part, by registering and using marks, and, with regard to other intellectual property, entering into confidentiality agreements with licensees, suppliers, employees, consultants and other parties. This is done in large part because few of the Company’s products are protected by patents. The Company cannot provide assurance that these agreements will not be breached or circumvented. The Company also cannot be certain that there will be adequate remedies in the event of a breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. The Company cannot be sure that its trade secrets and proprietary technology will not otherwise become known or be independently developed by its competitors or, if patents are not issued with respect to products arising from research, that it will be able to maintain the confidentiality of information relating to these products. In addition, efforts to ensure its intellectual property rights can be costly, time-consuming and/or ultimately unsuccessful.

The Company’s stock price is volatile and the value of your investment could decline in value.

The market prices for securities of pharmaceutical companies like the Company’s have been and are likely to continue to be highly volatile. As a result, investors in these companies often buy at high prices only to see the prices drop substantially later, resulting in an extreme drop in value in the holdings of these investors. Factors such as announcements of fluctuations in the Company’s or its competitors’ operating results, changes in its prospects and general market conditions for pharmaceutical stocks could have a significant impact on the future trading prices of its common stock. In particular, the trading price of the common stock of many pharmaceutical companies, including the Company, has experienced extreme price and volume fluctuations, which have at times been unrelated to the operating performance of the companies whose stocks were affected. Some of the factors that may cause volatility in the price of the Company’s securities include:

the timing of new product introductions,

quarterly variations in results,

clinical trial results and regulatory developments,

competition, including both brand and generic,

business and product market cycles,

fluctuations in customer requirements,

the availability and utilization of manufacturing capacity,

the timing and amounts of royalties paid to us by third parties,

issues with the safety or effectiveness of the Company’s products, and

developments in pending litigation matters or new litigation matters.

The price of the Company’s common stock may also be adversely affected by the estimates and projections of the investment community, general economic and market conditions, and the cost of operations in the Company’s product markets. These factors, individually or in the aggregate, could result in significant variations in the trading prices of its common stock. Volatility in the trading prices of its common stock could result in additional securities class action litigations. Any litigation would likely result in substantial costs, and divert its management’s attention and resources.

ITEM 2. Properties

The Company owns an approximately 120,000 square foot facility built in 1986 that contains manufacturing and packaging operations. The facility is located in Spring Valley, New York, on an approximately 26 acre parcel of land, of which approximately 15 acres are available for future uses.

The Company owns a second facility in Spring Valley, New York, across the street from its manufacturing facility, occupying approximately 34,000 square feet on two acres. This property was acquired in 1994 and was remodeled in 2003 for use as research and quality control laboratories and additional office space.

The Company leases 190,000 square feet for its primary warehousing operation in Suffern, New York. The lease expires in September 2012.

The Company occupies approximately 55,000 square feet in two buildings located in Spring Valley, New York for administrative offices, research and development labs and warehouse space under a lease that expires in December 2014.

The Company leases office space in Woodcliff Lake, New Jersey covering approximately 61,000 square feet. The lease expires in March 2011. This facility houses the majority of the Company’s corporate and administrative functions.

In 2004, the Company executed a lease for an additional 27,000 square foot research and development facility located in Franklin Township, New Jersey. The lease expires in July 2010.

In 2007 the Company ceased all operations and vacated a 45,000 square foot facility used for research and development and manufacturing located in Somerset, New Jersey.

The Company believes that its owned and leased properties are sufficient in size, scope and nature to meet its anticipated needs for the reasonably foreseeable future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Financial Condition” and Notes to Consolidated Financial Statements — Note 17 — “Commitments, Contingencies and Other Matters.”

ITEM 3. Legal Proceedings

Contractual Matters

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

Corporate Litigation

The Company and certain of its executive officers have been named as defendants in several purported stockholder class action lawsuits filed on behalf of purchasers of common stock of the Company between April 29, 2004 and July 5, 2006. The lawsuits followed the Company’s July 5, 2006 announcement regarding the restatement of certain of its financial statements and allege that the Company and certain members of its management engaged in violations of the Securities Exchange Act of 1934, as amended, by issuing false and misleading statements concerning the Company’s financial condition and results. The class actions have been consolidated and are pending in the United States District Court, District of New Jersey. The Court has appointed co-lead plaintiffs and co-lead counsel. Co-lead plaintiffs filed a Consolidated Amended Complaint on April 30, 2007, purporting to represent purchasers of common stock of the Company between July 23, 2001 and July 5, 2006. Defendants filed a motion to dismiss the Amended Complaint on June 29, 2007. The Company intends and the members of management named as defendants have stated their intentions to vigorously defend the lawsuits and any additional lawsuits that may hereafter be filed with respect to the restatement. Additionally, the Company has been informed by a letter from the Staff of the SEC dated July 7, 2006, that the SEC is conducting an informal investigation of the Company related to its restatement. The Company intends to fully cooperate with and assist the SEC in this investigation. The letter from the SEC states that the investigation should not be construed as an indication by the SEC or its Staff that any violation of law has occurred or as a reflection upon any person, entity or security. In addition, on September 6, 2006, in connection with this informal investigation, the SEC also requested certain information with respect to the Company’s internal review of its accounting for historical stock option grants. The Company has provided the information that the SEC has requested in December 2006. The SEC has not contacted the Company about its informal investigation since the Company filed its Annual Report on Form 10-K/A for 2005 on March 13, 2007.

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

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

The Company believes that it has complied with its obligations under the Indenture relating to the Notes. Therefore, the Company believes that the above-mentioned notice of default and notice of acceleration are invalid and without merit. Under the Indenture, the Company is required only to provide the Trustee with copies of its annual and other reports (or copies of such portions of such reports as the SEC may by rules and regulations prescribe) that it is required to file with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, within 15 calendar days after it files such annual and other reports with the SEC. Moreover, the Company’s Indenture specifically contemplates providing the Trustee with portions of reports. On August 24, 2006 (within 15 days of filing with the SEC), the Company provided to the Trustee a copy of its Quarterly Report on Form 10-Q for the second quarter of 2006. The Company’s Form 10-Q did not include the Company’s financial statements for the second quarter of 2006 and related Management’s Discussion and Analysis due to the Company’s work to restate certain of its past financial statements, and, therefore, in accordance with SEC rules, the Company filed a Form 12b-25 Notification of Late Filing disclosing the omissions. The Company’s Form 12b-25 also was provided to the Trustee on August 24, 2006. Accordingly, the Company believes that it complied with the Indenture provision in question.

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

Patent Related Matters

On November 25, 2002, Ortho-McNeil Pharmaceutical, Inc. (“Ortho-McNeil”) filed a lawsuit against Kali, a wholly owned subsidiary of the Company, in the United States District Court for the District of New Jersey (the "2002 Litigation"). Ortho-McNeil alleged that Kali infringed U.S. Patent No. 5,336,691 (the “‘691 patent”) by submitting a Paragraph IV certification to the FDA for approval of tablets containing tramadol HCl and acetaminophen. Kali denied Ortho-McNeil’s allegation, asserting that the ‘691 patent was not infringed and is invalid and/or unenforceable, and that the lawsuit is barred by unclean hands. Kali also counterclaimed for declaratory judgments of non-infringement, invalidity and unenforceability of the ‘691 patent. Ortho-McNeil amended its complaint on July 27, 2005 to assert infringement against the Company, and to include a claim for damages against the Company and Kali. The Company and Kali have answered and counterclaimed, alleging that the ‘691 patent is not infringed, and is invalid and unenforceable for inequitable conduct. On August 1, 2006, the Patent and Trademark Office reissued the ‘691 patent as U.S. Patent No. RE 39,221 (the "'221 Patent"), containing original claim 6 from the '691 Patent and several additional new claims. On August 1 and August 4, 2006, Ortho-McNeil filed a complaint and then an amended complaint against Kali, the Company, and two other companies, Barr and Caraco Pharmaceutical Laboratories, Ltd. (“Caraco”) (the "2006 Litigation"). Ortho-McNeil alleged infringement and willful infringement of the claims of the re-issue patent (other than claim 6, which is the subject of the 2002 Litigation) against the Company through the Company’s marketing of its tramadol HCl and acetaminophen tablets. Ortho-McNeil made similar allegations against Barr and Caraco. On April 4, 2007, the United States District Court for the District of New Jersey granted Kali's and the Company's motions for summary judgment that claim 6 of the '221 Patent, the only claim at issue in the 2002 Litigation, was invalid and was not infringed by the Company's ANDA product. Ortho-McNeil filed a motion requesting permission to immediately appeal this decision, and the Court denied Ortho-McNeil's motion and entered an order consolidating the 2002 and 2006 litigations. The Company has requested permission from the Court to file immediate summary judgment motions as to all of the remaining '221 Patent claims at issue, and also has requested that the Court proceed to trial on the Company's counterclaims for invalidity, unenforceability and intervening rights as to the '221 Patent. Ortho-McNeil has opposed the Company's requests, and the parties are awaiting a decision by the Court on these requests. On July 18, 2007, the Company entered into a settlement and license agreement with Ortho-McNeil that resolves patent litigation related to the Company’s sales of its generic tramadol HCl and acetaminophen product. Under the terms of the settlement, the Company will pay Ortho-McNeil a royalty on sales of its generic product commencing with sales from August 2006. In accordance with the settlement and license agreement, the pending patent litigation between Ortho-McNeil, the Company and Kali in the United States District Court for the District Court of New Jersey will be concluded. As part of the settlement, the Company is entering into a consent judgment on the validity, enforceability and infringement of the ‘221 Patent.

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

On July 7, 2004, Xcel Pharmaceuticals, Inc. (now known as Valeant Pharmaceuticals, North America (“Valeant”)) filed a lawsuit against Kali Laboratories, Inc. (“Kali”), a wholly owned subsidiary of the Company, in the United States District Court for the District of New Jersey. Valeant alleged that Kali infringed U.S. Patent No. 5,462,740 (“the ‘740 patent”) by submitting a Paragraph IV certification to the FDA for approval of a generic version of Diastat brand of diazepam rectal gel. Kali has denied Valeant’s allegation, asserting that the ‘740 patent was not infringed and is invalid and/or unenforceable. Kali also has counterclaimed for declaratory judgments of non-infringement, invalidity and unenforceability of the ‘740 patent as well as a judgment that the ‘740 patent was unenforceable due to patent misuse. The parties conducted fact and expert discovery through April 2006. The parties submitted their proposed final pretrial order in June 2006 and appeared before the Court for pretrial conferences on June 13, 2006 and November 16, 2006. Under applicable law and regulations, the filing of the lawsuit triggered an automatic 30-month stay of FDA approval of Kali’s Abbreviated New Drug Application, or ANDA. That stay expired on November 29, 2006. The parties appeared before the Court for settlement conferences on May 17, 2007 and June 28, 2007. At the June 28 settlement conference the parties entered into an agreement in principle to settle the action. Immediately thereafter, the Court entered an order dismissing the action without prejudice to its being reinstated if the parties have not finalized their settlement agreement within 60 days. On October 16, 2007, the parties submitted a stipulated dismissal of the litigation which was entered on October 23, 2007, terminating the lawsuit. The settlement terms also permitted the Company, through its marketing partner Barr Laboratories, Inc., ("Barr") to introduce generic versions of the Diastat products on or after September 1, 2010. Profits from the sale of these products will be split between the Company and Barr.

On November 1, 2004, Morton Grove Pharmaceuticals, Inc. (“Morton Grove”) filed a lawsuit against the Company in the United States District Court for the Northern District of Illinois, seeking a declaratory judgment that four Company patents relating to megestrol acetate oral suspension are invalid, unenforceable and not infringed by a Morton Grove product that was launched in the fourth quarter of 2004. Morton Grove acknowledges that its product is covered by the Company’s patent claims. The Company asserted counterclaims that the Morton Grove product infringed three patents and that such infringement was willful. Morton Grove amended its complaint to allege antitrust violations. On November 29, 2007, a stipulated dismissal with prejudice was signed by the judge with each party only liable for its own costs and attorneys’ fees.

In February 2006, the Company entered into a collaborative agreement with Spectrum Pharmaceuticals, Inc. (“Spectrum”) to develop and market generic drugs, including sumatriptan succinate injection. In 2004, Spectrum filed an ANDA containing a Paragraph IV certification with the FDA seeking marketing clearance for sumatriptan injection. On February 18, 2005, GlaxoSmithKline (“GSK”) filed a lawsuit against Spectrum in the United States District Court for the District of Delaware. GSK alleged that Spectrum’s October 2004 ANDA for sumatriptan succinate injection 6mg/0.5ml infringed GSK’s U.S. Patent No. 5,037,845 and that the infringement was willful. Spectrum denied the allegations and counterclaimed for declaratory judgments of invalidity, non-infringement and unenforceability. The non-infringement counterclaim was subsequently withdrawn. The lawsuit was resolved by settlement in November 2006. The confidential terms of the settlement, which remain subject to government review, permit the Company to sell generic versions of certain sumatriptan injection products with an expected launch no later than November 2008.

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

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

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

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

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

On April 10, 2007, Abbott Laboratories (“Abbott”) and Astellas Pharma Inc. (“Astellas”), filed an amended complaint against the Company and six other defendants, seeking judgment alleging that U.S. Patent Nos. 4,599,334 (the “’334 patent”) and 4,935,507 (the “’507 patent”) are, or will be, infringed by the defendants’ planned production of cefdinir products. The Company denied Abbott and Astellas’ allegations, asserting that the ’334 and ’507 patents are not infringed and are invalid. The Company counterclaimed for declaratory judgments of non-infringement and invalidity of the patents. On September 27, 2007, the Company's motion for stipulated substitution of Orchid Chemicals & Pharmaceuticals Ltd for the Company was entered and the Company's involvement in the case was terminated.

On May 9, 2007, Purdue Pharma Products L.P., Napp Pharmaceutical Group Ltd., Biovail Laboratories International SRL, and Ortho-McNeil, Inc. filed a lawsuit against the Company in the United States District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent No. 6,254,887 (the “’887 patent”) because the Company submitted a Paragraph IV certification to the FDA for approval of 200mg extended release tablets containing tramadol hydrochloride. On May 30, 2007, the Company filed its answer and counterclaim to the complaint seeking a declaration of noninfringement and invalidity of the '887 patent. A subsequent complaint was served on July 2, 2007 in the same District Court. The new complaint alleges that the Company's 100mg and 200mg extended release tablets containing tramadol hydrochloride infringe the ‘887 patent. The Company filed its answer and counterclaim on July 23, 2007 and will assert all available defenses in addition to seeking a declaration of noninfringement and invalidity of the '887 patent. On October 24, 2007, plaintiffs filed an amended complaint in the Delaware District Court in view of the Company's amendment of its ANDA to include the 300 mg strength of extended release tramadol. The Company filed its answer and counterclaims on November 13, 2007. It is anticipated that fact discovery will be completed in May 2008, and expert discovery completed in August 2008 with a trial date set for October/November of 2008. The Company intends to defend this action vigorously and pursue its counterclaims against Purdue, Napp, Biovail and Ortho-McNeil.

On July 6, 2007, Sanofi-Aventis and Debiopharm, S.A. filed a lawsuit against the Company and its development partner, MN Pharmaceuticals ("MN"), in the United States District Court for the District of New Jersey. The complaint alleges infringement of U.S. Patent Nos. 5,338,874 and 5,716,988 because the Company and MN submitted a Paragraph IV certification to the FDA for approval of 50 mg/10 ml, 100 mg/20 ml, and 200 mg/40 ml oxaliplatin by injection. The Company and MN filed their answer and counterclaims on October 10, 2007. On January 14, 2008, following MN's amendment of its ANDA to include oxaliplatin injectable 5 mg/ml, 40 ml vial, Sanofi-Aventis filed a complaint asserting infringement of the '874 and the '998 patents. The Company has not yet answered this complaint. The Company and MN intend to defend these actions vigorously and pursue their counterclaims against Sanofi and Debiopharm.

On September 21, 2007, Sanofi-Aventis and Sanofi-Aventis U.S., LLC (“Sanofi-Aventis”) filed a lawsuit against the Company and its development partner, Actavis South Atlantic LLC ("Actavis"), in the United States District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent Nos. 4,661,491 and 6,149,940 because the Company and Actavis submitted a Paragraph IV certification to the FDA for approval of 10 mg alfuzosin hydrochloride extended release tablets. The Company filed its answer and counterclaims on October 24, 2007. The Company filed its amended answer and counterclaims on November 19, 2007. The Company intends to defend this action vigorously and pursue its counterclaims against Sanofi-Aventis.

On October 1, 2007, Elan Corporation, PLC filed a lawsuit against the Company and its development partner, IntelliPharmaCeutics Corp., and IntelliPharmaCeutics Ltd. ("IPC") in the United States District Court for the District of Delaware. On October 5, 2007, Celgene and Novartis filed a lawsuit against IPC in the United States District Court for the District of New Jersey. The complaint in the Delaware case alleged infringement of U.S. Patent Nos. 6,228,398 and 6,730,325 because the Company submitted a Paragraph IV certification to the FDA for approval of 5, 10, 15, and 20 mg dexmethylphenidate hydrochloride extended release capsules. Elan filed an amended Complaint on October 15, 2007. The original complaint in the New Jersey case alleged infringement of U.S. Patent Nos. 6,228,398; 6,730,325; 5,908,850; 6,355,656; 6,528,530; 5,837,284; and 6,635,284 because the Company and IPC submitted a Paragraph IV certification to the FDA for approval of 5, 10, 15, and 20 mg dexmethylphenidate extended release capsules. The Company and IPC filed their answer and counterclaims in the Delaware case on November 19, 2007. Celgene and Novartis filed an amended complaint on October 15, 2007 and the Company and IPC filed their answer and counterclaims in the New Jersey case on November 20, 2007. The Company and IPC filed an amended answer in Delaware December 12, 2007, and Elan filed their answer and motion to consolidate the cases on January 2, 2008. The Company intends to defend these actions vigorously and pursue its counterclaims against Elan, Celgene and Novartis.

On September 13, 2007, Santarus, Inc. (“Santarus”), and The Curators of the University of Missouri (“Missouri”) filed a lawsuit against the Company in the United States District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent Nos. 6,699,885; 6,489,346; and 6,645,988 because the Company submitted a Paragraph IV certification to the FDA for approval of 20 mg and 40 mg omeprazole/sodium bicarbonate capsules. The Company filed its answer and counterclaims on October 17, 2007. The Company intends to defend this action vigorously and pursue its counterclaims against Santarus and Missouri.

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

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

Industry Related Matters

On September 10, 2003, the Company and a number of other generic and brand pharmaceutical companies were sued by Rockland County in New York State (the suit has since been joined by additional New York counties) that has alleged violations of laws (including the Racketeer Influenced and Corrupt Organizations Act, common law fraud and obtaining funds by false statements) related to participation in the Medicaid program. The complaint seeks declaratory relief; actual, statutory and treble damages, with interest; punitive damages; an accounting and disgorgement of any illegal profits; a constructive trust and restitution; and attorneys’ and experts’ fees and costs. On August 4, 2004, the Company and a number of other generic and brand pharmaceutical companies were also sued by the City of New York, which has alleged violations of laws (including common law fraud and obtaining funds by false statements) related to participation in its Medicaid program. On June 15, 2005, a consolidated complaint was filed on behalf of a number of the New York counties and the City of New York. This case was transferred to the United States District Court for the District of Massachusetts for coordinated and consolidated pre-trial proceedings. The complaint filed by Erie County in New York was not included in the consolidated complaint and has been removed to federal district court. In addition, on September 25, 2003, the Office of the Attorney General of the Commonwealth of Massachusetts filed a complaint in the District of Massachusetts against the Company and 12 other leading generic pharmaceutical companies, alleging principally that the Company and such other companies violated, through their marketing and sales practices, state and federal laws, including allegations of common law fraud and violations of Massachusetts false statements statutes, by inflating generic pharmaceutical product prices paid for by the Massachusetts Medicaid program. The complaint seeks injunctive relief, treble damages, disgorgement of excessive profits, civil penalties, reimbursement of investigative and litigation costs (including experts’ fees) and attorneys’ fees. On January 29, 2004, the Company and the other defendants involved in the litigation brought by the Office of the Attorney General of the Commonwealth of Massachusetts filed a motion to dismiss, which was denied on August 15, 2005. The Commonwealth of Massachusetts subsequently filed an amended complaint, and the defendants, including the Company, have filed a motion to dismiss the amended complaint. In addition to Massachusetts, the Commonwealth of Kentucky, the State of Illinois and the State of Alabama have filed similar suits in their respective jurisdictions, all of which have been removed to federal district court. The lawsuit brought by the State of Alabama was remanded to the Alabama state court on August 11, 2005. Following the remand, on October 13, 2005, the Court denied the defendants’ motion to dismiss, but granted in part the defendants’ motion for a more definite statement, and further ruled that the State may amend its complaint within 90 days. On October 20, 2005, the State of Mississippi filed in the Chancery Court for Hinds County, Mississippi a complaint naming the Company (among other companies) as a defendant. The Company intends to defend vigorously these actions.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Other

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

ITEM 4. Submission of Matters to a Vote of Security Holders

The Company held its Annual Meeting of Stockholders on October 16, 2007. The following matters were voted upon at the Annual Meeting of Stockholders.

PROPOSAL 1

The stockholders voted in favor of the proposal to elect the two Company nominees for Class II directors for a term expiring at the Annual Meeting of Stockholders to be held in 2010.

	VOTES	VOTES
	FOR	WITHHELD
John D. Abernathy	25,271,166	5,014,830
Dr. Melvin Sharoky	26,663,841	3,622,155

PROPOSAL 2

The stockholders approved the Company’s amendment and restatement of the 1997 Directors’ Stock and Deferred Fee Plan. 15,761,743 shares voted in favor of the amendment and restatement of the 1997 Plan, 7,114,224 voted against and 34,565 shares abstained. In addition, there were 7,375,464 non-voted Broker shares.

PROPOSAL 3

The firm of Deloitte & Touche LLP was ratified as the Company’s independent registered public accounting firm for the 2007 fiscal year. 30,210,383 shares voted in favor of the ratification of the selection of Deloitte & Touche LLP, 51,447 shares voted against, and 24,166 shares abstained.

PROPOSAL 4

The stockholder proposal concerning benchmarking executive compensation against peer group company performance was approved. 12,031,339 voted in favor of the proposal concerning benchmarking executive compensation, 10,555,759 shares voted against, and 323,435 shares abstained. In addition there were 7,375,463 non-voted Broker shares.

PROPOSAL 5

The stockholder proposal concerning an advisory vote on named executive officer compensation was approved. 12,308,886 shares voted in favor of the proposal concerning an advisory vote on named executive officer compensation, 9,363,548 shares voted against, and 1,238,099 shares abstained. In addition, there were 7,375,463 non-voted Broker shares.

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a) Market information. The Company’s Common Stock is traded on the New York Stock Exchange (the “NYSE”) (ticker symbol: PRX). The following table shows the range of the closing prices for the Common Stock, as reported by the NYSE, for each fiscal quarter during the Company’s two most recent years.

	2007				2006
Quarter ended (approximately)	High		Low		High		Low
March 31	$	27.40	$	23.11	$	36.31	$	26.93
June 30		29.46		25.03		28.18		18.19
September 30		30.30		18.56		19.86		13.47
December 31		24.32		16.97		22.50		17.65

(b) Holders. As of February 15, 2008, there were 1,549 holders of record of the Company’s common stock.

(c) Dividends. During 2007, 2006 and 2005, the Company did not pay any cash dividends on its common stock. The payment of future dividends on its Common Stock is subject to the discretion of the Board and is dependent upon many factors, including the Company’s earnings, its capital needs, the terms of any financing agreements and its financial condition.

(d) Securities authorized for issuance under equity compensation plans.

	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance
Plan Category
Equity compensation plans approved by stockholders:
2004 Performance Equity Plan (1)		1,955,000	$	29.76		4,777,000
2001 Performance Equity Plan (2)		2,122,000		41.27		1,005,000
1997 Directors Stock Option Plan (3)		274,000		37.66		233,000
1990 Stock Incentive Plan		1,000		4.13		-
Equity compensation plans not approved by stockholders:
2000 Performance Equity Plan (2)		174,000		7.16		110,000
Total		4,526,000	$	34.76		6,125,000

(1)

For the 2004 Plan the maximum number of stock options available for future issuance is 4,777,000. Of the total number of shares available for future grant 1,344,000 shares are available for the issuance of restricted stock and/or restricted stock units.

(2)

For the 2000 and 2001 Plans the total number of securities available for future issuance is all stock options.

(3)

For the 1997 Plan, the indicated total number of securities remaining available for future issuance may be any combination of stock options and restricted stock units.

(e) Performance graph

The following graph compares the total cumulative stockholder return on our Common Stock for the period December 31, 2002, through December 31, 2007, with the cumulative total return of (a) the S&P 400 Mid-Cap Index and (b) the Dow Jones US Pharmaceuticals Index. The comparison assumes that $100 was invested on December 31, 2002, in our Common Stock and in each of the comparison indices. In addition, the comparison assumes that any dividends paid were reinvested.

COMPARE 5-YEAR CUMULATIVE TOTAL RETURN

AMONG PAR PHARMACEUTICAL COMPANIES, INC.,

S&P MID-CAP 400 INDEX AND DOW JONES US PHARMACEUTICALS INDEX

Company/Index	12/31/2002		12/31/2003		12/31/2004		12/31/2005		12/31/2006		12/31/2007
Par Pharmaceutical Companies, Inc.	$	100.00	$	218.62	$	138.86	$	105.17	$	75.07	$	80.54
S&P 400 Mid-Cap	$	100.00	$	134.02	$	154.33	$	171.72	$	187.15	$	199.68
Dow Jones US Pharmaceuticals	$	100.00	$	109.45	$	100.39	$	98.73	$	112.93	$	117.98

(f) Issuer Purchases of Equity Securities⁽¹⁾

Quarter Ending December 31, 2007

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⁾
September 30, 2007 through October 27, 2007		149		N/A		-		-
October 28, 2007 through November 24, 2007		1,646,517	$	19.14		1,643,094		-
November 25, 2007 through December 31, 2007		15,595		N/A		-		1,814,958
Total		1,662,261	$	19.14		1,643,094

(1) In April 2004, the Board authorized the repurchase of up to $50.0 million of the Company’s common stock. Repurchases are made, subject to compliance with applicable securities laws, from time to time in the open market or in privately negotiated transactions, whenever it appears prudent to do so. Shares of common stock acquired through the repurchase program are available for reissuance for general corporate purposes. On September 28, 2007, the Company announced that its Board approved an expansion of its share repurchase program allowing for the repurchase of up to $75 million of the Company’s common stock, inclusive of the $17.8 million remaining from the April 2004 authorization. The authorized amount remaining for stock repurchases under the repurchase program was $43.6 million, as of December 31, 2007. The repurchase program has no expiration date.

(2) The total number of shares purchased includes 19,167 shares surrendered to the registrant to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees and issuance of stock in connection with restricted stock units issued to employees.

(3) Based on the closing price of the Company’s common stock on the New York Stock Exchange of $24.00 at December 31, 2007.

ITEM 6. Selected Financial Data

	As of and for the years ended
(In thousands, except per share amounts)	12/31/07			12/31/06(a)		12/31/05(a)			12/31/04			12/31/03
INCOME STATEMENT DATA:
Revenues:
Net product sales	$	739,020		$	705,378	$	412,126		$	626,477		$	609,534
Other product related revenues		30,646			19,790		20,130			21,498			22,490
Total revenues		769,666			725,168		432,256			647,975			632,024
Cost of goods sold		501,147			507,220		277,554			435,988			375,760
Gross margin		268,519			217,948		154,702			211,987			256,264

Operating expenses (income):
Research and development		77,659			62,442		62,497			47,533			21,109
Selling, general and administrative		138,217			148,488		92,309			67,954			56,043
Acquired in-process research and development		-			-		-			84,000			-
Intangible assets impairment		-			1,100		6,999			-			-
Settlements, net		(945	)		1,250		-			(2,846	)		-
Gain on sale of facility		-			-		-			(2,812	)		-
Total operating expenses		214,931			213,280		161,805			193,829			77,152
Gain on sale of product rights		20,000			3,054		-			-			-
Operating income (loss)		73,588			7,722		(7,103	)		18,158			179,112

	As of and for the years ended
(In thousands, except per share amounts)	12/31/07			12/31/06(a)			12/31/05(a)			12/31/04			12/31/03
Other income (expense), net		(56	)		126			(831	)		63			(35	)
Equity in loss of joint venture		(387	)		(663	)		(534	)		(795	)		(1,521	)
Net investment (loss) gain		(1,583	)		(583	)		16,013			-			-
Interest income		13,673			8,974			5,343			4,869			2,292
Interest expense		(6,803	)		(6,781	)		(6,793	)		(6,804	)		(2,748	)
Income from continuing operations before provision (benefit) for income taxes		78,432			8,795			6,095			15,491			177,100
Provision (benefit) for income taxes		27,322			2,054			(5,726	)		4,918			68,928
Income from continuing operations		51,110			6,741			11,821			10,573			108,172
Loss from discontinued operations and loss from disposal before benefit for income taxes		-			-			(42,975	)		(4,942	)		(2,603	)
Provision (benefit) for income taxes		1,212			894			3,220			(1,927	)		(1,015	)
Loss from discontinued operations		(1,212	)		(894	)		(46,195	)		(3,015	)		(1,588	)
Net income (loss)	$	49,898		$	5,847		$	(34,374	)	$	7,558		$	106,584

Net income (loss) per share of common stock:
Basic:
Income from continuing operations	$	1.48		$	0.20		$	0.35		$	0.31		$	3.23
Loss from discontinued operations		(0.04	)		(0.03	)		(1.35	)		(0.09	)		(0.05	)
Net income (loss)	$	1.44		$	0.17		$	(1.00	)	$	0.22		$	3.18

Diluted:
Income from continuing operations	$	1.47		$	0.19		$	0.35		$	0.30		$	3.12
Loss from discontinued operations		(0.04	)		(0.03	)		(1.35	)		(0.09	)		(0.05	)
Net income (loss)	$	1.43		$	0.16		$	(1.00	)	$	0.21		$	3.07

Weighted average number of common shares outstanding:
Basic:		34,494			34,422			34,191			34,142			33,483
Diluted		34,718			34,653			34,435			34,873			34,638

BALANCE SHEET DATA:
Working capital	$	210,514		$	105,209		$	288,545		$	292,833		$	433,378
Property, plant and equipment, net		82,650			89,155			87,570			60,001			47,208
Total assets		781,523			814,677			736,030			714,647			743,720
Long-term debt, less current portion		-			-			202,001			202,308			200,489
Total stockholders’ equity		437,755			401,050			358,123			368,772			371,912

(a) In preparing its consolidated financial statements for year ended December 31, 2007, the Company identified a balance sheet reclassification and accounting errors related to its discontinued operations reported in the Company’s 2006 and 2005 financial information contained in its Annual Report on Form 10-K for the year ended December 31, 2006 and filed on September 6, 2007. See Note 1 - “Restatement of Previously Issued Financial Statements” to the consolidated financial statements contained elsewhere in this Form 10-K.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this Report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including those concerning management’s expectations with respect to future financial performance, trends and future events, particularly relating to sales of current products and the introduction of new manufactured and distributed products. Such statements involve known and unknown risks, uncertainties and contingencies, many of which are beyond the control of the Company, which could cause actual results and outcomes to differ materially from those expressed herein. These statements are often, but not always, made using words such as “estimates,” “plans,” “projects,” “anticipates,” “continuing,” “ongoing,” “expects,” “intends,” “believes,” “forecasts” or similar words and phrases. Factors that might affect such forward-looking statements set forth in this Report include: (i) increased competition from new and existing competitors, and pricing practices from such competitors (particularly upon completion of exclusivity periods), (ii) pricing pressures resulting from the continued consolidation by the Company’s distribution channels, (iii) the amount of funds available for internal research and development and research and development joint ventures, (iv) research and development project delays and unanticipated costs in obtaining regulatory approvals, (v) continuation of distribution rights under significant agreements, (vi) the continued ability of distributed product suppliers to meet future demand, (vii) the costs, delays involved in and outcome of any threatened or pending litigations, including patent and infringement claims, (viii) unanticipated costs, delays and liabilities in integrating acquisitions, (ix) obtaining or losing 180-day marketing exclusivity periods on products, and future new product launches, and (x) general industry and economic conditions. To the extent that any statements made in this Report contain information that is not historical, such statements are essentially forward-looking and are subject to certain risks and uncertainties, including the risks described above as well as the risks and uncertainties discussed under Item 1A Risk Factors and from time to time in other of the Company's filings with the SEC, including its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Any forward-looking statements included in this Annual Report on Form 10-K are made as of the date hereof only, based on information available to the Company as of the date hereof, and, subject to any applicable law to the contrary, the Company assumes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

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

The following discussion should be read in conjunction with the Company’s consolidated financial statement and related notes to consolidated financial statements contained elsewhere in this Form 10-K.

In preparing its consolidated financial statements for year ended December 31, 2007, the Company identified an accounting error related to its discontinued operations reported in the Company’s 2006 and 2005 financial information contained in its Annual Report on Form 10-K for the year ended December 31, 2006 and filed on September 6, 2007. See Note 1 - “Restatement of Previously Issued Financial Statements” in the notes to consolidated financial statements contained elsewhere in this Form 10-K. The effects of the restatement on the consolidated financial statements are reflected in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.

OVERVIEW

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

These efforts resulted in new product introductions in 2007, including propranolol HCl extended release (“ER”) capsules, which is an outcome of the Company’s strategic partnership with Nortec Development Associates, Inc, ranitidine HCl syrup, pursuant to a supply and distribution agreement with GSK and the launch of metoprolol succinate ER 25 mg in the fourth quarter of 2006 and additional strengths (50mg, 100mg, and 200mg) in the third quarter 2007, pursuant to a supply and distribution agreement with AstraZeneca (“AZ”). Additionally, in accordance with the development, sales, marketing and supply agreement with Barr, the Company receives royalties from the sales of ondansetron tablets, which launched in the fourth quarter of 2006.

In 2006, the Company’s efforts resulted in higher sales from new product introductions, including fluticasone pursuant to a supply and distribution agreement with GSK, several other products pursuant to agreements with Teva, Ivax, and Orchid Chemicals & Pharmaceuticals Ltd. including amoxicillin products and cefprozil, and the launch of cabergoline in December of 2005.

The Company’s business plan includes developing and marketing branded drugs as part of its effort to add products with longer life cycles and higher profitability to the Company’s product line. In July 2005, the Company received FDA approval for its first New Drug Application (“NDA”), filed pursuant to Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, and immediately began marketing megestrol acetate oral suspension NanoCrystal^®Dispersion (“Megace^®ES”). Megace^®ES is indicated for the treatment of anorexia, cachexia or any unexplained significant weight loss in patients with a diagnosis of AIDS and is utilizing the Megace^® brand name that the Company has licensed from Bristol-Myers Squibb Company (“BMS”). In September 2006, the Company entered into an extended-reach agreement with Solvay Pharmaceuticals, Inc. (“Solvay”) that provides for the Company’s branded sales force to co-promote Androgel®, as well as future versions of the product or other products that are mutually agreed upon, for a period of six years. As compensation for its marketing and sales efforts, the Company will receive $10 million annually, paid quarterly, for the six-year period. The Company has progressed on its business plan during 2007 by acquiring the rights to additional branded products currently in Phase III clinical trials. In July 2007, the Company also acquired an exclusive licensing agreement under which the Company will receive commercialization rights in the U.S. to BioAlliance Pharma's Loramyc (miconazole Lauriad®), an antifungal therapy for the treatment of oropharyngeal candidiasis, an opportunistic infection commonly found in immunocompromised patients, including those with HIV and cancer. In August 2007, the Company also acquired the North American commercial rights to Zensana^TM (ondansetron HCl) Oral Spray from Hana Biosciences, Inc. (“Hana”). Ondansetron is used to prevent nausea and vomiting after chemotherapy, radiation and surgery, and following successful development and approval, Zensana^TM could be among the first in its class of 5-HT3 antagonist anti-emetic therapies to be available in an oral spray form. The Company also announced that it has entered into an agreement with NovaDel, to collaborate in the reformulation of Zensana^TM. Following completion of reformulation efforts already under way, the Company will reconfirm the product's pharmacokinetic profile and resubmit the NDA to the FDA. Another Phase III candidate to which the Company acquired U.S. commercialization rights in 2007, pafuramidine maleate, had its development program terminated in February 2008. Due to the termination, the Company has no further monetary obligations under its agreement with Immtech Pharmaceuticals, Inc. (“Immtech”), the developer of the product. The Company had paid a $3.0 million licensing fee to acquire the U.S. commercialization rights from Immtech in June 2007. In January 2008, the Company announced that it entered into an exclusive licensing agreement with Alfacell Corporation (“Alfacell”) to acquire the commercialization rights in the United States and its territories for Onconase® (ranpirnase). Onconase is in Phase III development for the treatment of inoperable malignant mesothelioma, a rare cancer affecting the lungs usually associated with exposure to asbestos. Onconase was previously granted orphan drug status as well as fast-track development status by the FDA for the treatment of malignant mesothelioma. For additional information on these agreements and other similar matters, refer to Notes to Consolidated Financial Statements - Note 11 - “Research and Development Agreements” and Note 22 - “Subsequent Events.”

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

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

The Company divested FineTech effective December 31, 2005 and, as such, its results are being reported as discontinued operations for all periods presented (see Notes to Consolidated Financial Statements - Note 18 - “Discontinued Operations-Related Party Transaction”).

Effective January 1, 2006, the Company adopted SFAS 123R, which requires the Company to measure and recognize compensation expense for all stock-based payments at their fair-value. SFAS 123R is being applied on the modified prospective basis. Prior to its adoption of SFAS 123R, the Company accounted for its stock-based compensation plans in accordance with provisions of APB 25, “Accounting for Stock Issued to Employees,” as permitted by SFAS 123. Prior to 2006, compensation costs related to stock options granted at fair value under those plans were not recognized in the consolidated statements of operations. Compensation costs related to restricted stock and restricted stock units were recognized in the statements of operations (see Notes to Consolidated Financial Statements - Note 3 - “Share-Based Compensation”).

The following table shows the revenues, gross margin, and operating income by segment for the years ended December 31, 2007, 2006, and 2005:

	2007		2006			2005
Revenues:
Generic	$	684,917	$	675,938		$	417,384
Brand		84,749		49,230			14,872
Total revenues	$	769,666	$	725,168		$	432,256

Gross Margin:
Generic	$	204,130	$	183,543		$	143,736
Brand		64,389		34,405			10,966
Total gross margin	$	268,519	$	217,948		$	154,702

Operating income (loss):
Generic	$	73,357	$	39,028		$	34,159
Brand		231		(31,306	)		(41,262	)
Total operating income (loss)	$	73,588	$	7,722		$	(7,103	)

Total revenues and gross margin dollars increased $44,498, or 6.1% and $50,571, or 23.2%, respectively, for the year ended December 31, 2007 compared to the same period in 2006. For the year ended December 31, 2006, the Company’s total revenues and gross margin dollars increased $292,912, or 67.8% and $63,246, or 40.9%, respectively, when compared to 2005. Generic revenues and gross margin dollars increased $8,979, or 1.3% and $20,587, or 11.2%, respectively, for the year ended December 31, 2007 compared to the same period in 2006. Generic revenues and gross margin dollars increased $258,554, or 61.9% and $39,807, or 27.7%, respectively, for the year ended December 31, 2006 from the year ended December 31, 2005. Increased generic sales in 2007 were primarily due to product introductions including metoprolol succinate ER (25mg, 50mg, 100mg, and 200mg), propranolol HCl ER caps and ranitidine HCl syrup, and royalties earned related to the sales of ondansetron tablets, which launched in the fourth quarter of 2006. These increases were partially offset by lower sales of existing products including fluticasone, various amoxicillin products, quinapril, cefprozil, tramadol HC1 and acetaminophen tablets, lovastatin, paroxetine, fluoxetine and glyburide metformin. The increase in generic gross margin was primarily due to the introduction of new product launches including propranolol HCl ER and metoprolol succinate ER, royalties earned from the sales of ondansetron tablets, which launched in the fourth quarter of 2006, and lower inventory write-offs for the year ended December 31, 2007 compared with the same period in 2006. Branded revenues and gross margin dollars for the year ended December 31, 2007 increased $35,519 or 72.1% and $29,984 or 87.2%, respectively, driven by increased sales of Megace® ES and fees received related to the co-promotion of Androgel®. Brand revenues and gross margin dollars for the year ended December 31, 2006 increased $34,358 or 231.0% and $23,439 or 213.7%, respectively, primarily due to the July 2005 launch of Megace® ES.

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

Operating income from the generic business was impacted in 2007 by the sales and gross margins discussed above, including a reduction in inventory write-offs of $6,155 driven by improved inventory management and the non-recurrence of the 2006 write-off of pre-launch inventories ($2,145) related to the delayed launch of clonidine, as well as by increased investment in generic research and development projects ($5,889), and costs associated with the Company’s tender offer for certain eligible unvested stock options ($2,898) - see Notes to Consolidated Financial Statements - Note 3 - “Share-Based Compensation,” partially offset by the non-recurrence of the 2006 write-off of invalid customer deductions ($10,000). Brand operating loss was favorably impacted in 2007 due to higher gross margin on higher sales, the co-promotion fees for Androgel® ($6,931), the sale of Par 101 ($20,000) and the cancellation of the development programs for PAR 101 and the Megace® ES oncology clinical program (approximately $5,700), tempered by higher costs incurred in connection with the in-license of several late stage compounds in support of the Company’s strategy to expand its brand segment ($19,150) and the costs of the Company’s tender offer for certain eligible unvested stock options ($1,717).

RESULTS OF OPERATIONS

Revenues

Total revenues for the year ended December 31, 2007 were $769,666, increasing $44,498, or 6.1%, from total revenues of $725,168 for the year ended December 31, 2006. Revenues for generic products for the year ended December 31, 2007 were $684,917, increasing $8,979, or 1.3% from revenues for generic products of $675,938 for the year ended December 31, 2006, due primarily to the introduction of new products. Among the top-selling products in 2007 that did not have sales in 2006 was metoprolol succinate ER 50mg, 100mg, and 200mg (net sales of $82,250), propranolol HCl ER caps (net sales of $57,459), and ranitidine HCl syrup (net sales of $12,243). Among the top-selling products in 2007 that were introduced in the fourth quarter of 2006 was metoprolol succinate ER 25mg (net sales of $59,627), which increased by $51,343. Partially offsetting these increases were lower sales in 2007 of certain existing products, including fluticasone (net sales of $130,475), which decreased $104,979, various amoxicillin products (net sales of $27,714), which decreased by $31,543, quinapril (net sales of $1,851), which decreased by $18,198, cefprozil (net sales of $1,165), which decreased $10,714, tramadol HCl and acetaminophen tablets (net sales of $16,024), which decreased by $10,500, lovastatin (net sales of $7,360), which decreased $8,954 and paroxetine (net sales of $2,773), which decreased $8,261 from 2006. Increased competition adversely affected both the volume and pricing on the above existing products. Net sales of distributed products, which consist of products manufactured under contract and licensed products, were approximately 53% of the Company’s total revenues in 2007 and approximately 66% of the Company’s total revenues in 2006. Revenues for the Company’s brand segment were $84,749 for the year ended December 31, 2007, increasing $35,519, or 72.1%, from Brand revenues of $49,230 for the year ended December 31, 2006. The increase in 2007 is driven by increased sales of Megace® ES and fees received related to the co-promotion of Androgel®.

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

The Company’s gross revenues before deductions for chargebacks, rebates and incentive programs (including rebates paid under federal and state government Medicaid drug reimbursement programs), sales returns and other sales allowances were $1,409,651 for the year ended December 31, 2007 compared to $1,379,347 for the year ended December 31, 2006. Deductions from gross revenues were $639,985 in 2007 and $654,179 in 2006. These deductions are discussed in the Notes to Consolidated Financial Statements - Note 6 - “Accounts Receivable.” The total gross-to-net sales adjustments as a percentage of gross sales decreased to 45.4% in 2007 compared to 47.4% in 2006, primarily due to a decrease in wholesaler acquisition costs in 2006, less price competition for new products, higher sales of Megace® ES, lower non-expiry returns, and higher royalties and co-promotion fees in 2007, which are not impacted by deductions, tempered by pricing pressure for certain existing products. The top selling products that did not have sales in the prior year were metoprolol succinate ER (50mg, 100mg and 200mg), propranolol HCl ER and ranitidine HCl syrup.

Total revenues for the year ended December 31, 2006 were $725,168, increasing $292,912, or 67.8%, from total revenues of $432,256 for the year ended December 31, 2005. Revenues for generic products for the year ended December 31, 2006 were $675,938, increasing $258,554, or 61.9% from revenues from generic products of $417,384 for the year ended December 31, 2005, due primarily to the introduction of new products. Among the top-selling products in 2006 that did not have sales in 2005 were fluticasone (net sales of $235,454), and various amoxicillin products (net sales of $59,257), introduced in the first quarter of 2006. Among the top-selling products in 2006 that were introduced in the fourth quarter of 2005 were cabergoline (net sales of $34,824), which increased by $32,477, and cefprozil (net sales of $11,879), which increased by $11,316. Partially offsetting these increases were lower sales in 2006 of certain existing products, including tramadol HCl and acetaminophen tablets (net sales of $26,524), which decreased by $41,293, and paroxetine (net sales of $11,034), which decreased by $26,415 from 2005. Increased competition adversely affected both the volume and pricing on the above existing products. Product revenues in the year ended December 31, 2005 also included a $6,000 payment from a business partner to compensate the Company for lost revenues on a terminated product manufacturing and supply agreement. Net sales of distributed products, which consist of products manufactured under contract and licensed products, were approximately 66% of the Company’s total revenues in 2006 and approximately 50% of the Company’s total revenues in 2005. The Company is substantially dependent upon distributed products for its overall sales and any inability by its suppliers to meet demand could adversely affect the Company’s future sales. Revenues for the Company’s brand segment were $49,230 for the year ended December 31, 2006, increasing $34,358, or 231.0%, from Brand revenues of $14,872 for the year ended December 31, 2005. The increase in 2006 is driven by the third quarter 2005 launch of Megace® ES.

The Company’s gross revenues before deductions for chargebacks, rebates and incentive programs (including rebates paid under federal and state government Medicaid drug reimbursement programs), sales returns and other sales allowances were $1,379,347 for the year ended December 31, 2006 compared to $1,184,659 for the year ended December 31, 2005. Deductions from gross revenues were $654,179 in 2006 and $752,403 in 2005. These deductions are discussed in the Notes to Condensed Consolidated Financial Statements – Note 6 – “Accounts Receivable.” The total gross-to-net sales adjustments as a percentage of gross sales decreased to 47.4% in 2006 compared to 63.5% in 2005, primarily due to less competition for new products, mainly fluticasone and cabergoline, and reductions of wholesale invoice prices on certain of the Company’s existing products. The top selling products that did not have sales in the prior year were fluticasone and various amoxicillin products.

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

Gross Margin

The Company’s gross margin of $268,519 (34.9% of total revenues) in the year ended December 31, 2007 increased $50,571 from $217,948 (30.1% of total revenues) in the year ended December 31, 2006. Generic product gross margins of $204,130 (29.8% of generic revenues) in the year ended December 31, 2007 increased $20,587 from $183,543 (27.2% of generic revenues) in 2006 primarily due to the introduction of new product launches including propranolol HCl ER and metoprolol succinate ER, royalties earned from the sales of ondansetron tablets, which launched in the fourth quarter of 2006, and lower inventory write-offs ($6,155). The branded products gross margin of $64,389 (76.0% of branded revenues) for the year ended December 31, 2007 increased by $29,984 from $34,405 (69.9% of branded revenues) for the year ended December 31, 2006 due to higher sales of Megace® ES and co-promotion fees for selling Androgel®, which was commenced in the fourth quarter of 2006. The rate of gross margin as a percentage of net product sales in 2007 reflects the launch of higher margin propranolol HC1 ER, lower inventory write-offs of finished product, lower sales of lower margin existing products including fluticasone and lovastatin, increased sales of higher margin Megace® ES, the co-promotion fee for Androgel®, and royalties earned from the sales of ondansetron tablets, which launched in the fourth quarter 2006, tempered by the launch of lower margin metoprolol succinate ER.

The Company’s gross margin of $217,948 (30.1% of total revenues) in the year ended December 31, 2006 increased $63,246 from $154,702 (35.8% of total revenues) in the year ended December 31, 2005. Generic product gross margins of $183,543 (27.2% of generic revenues) in the year ended December 31, 2006 increased $39,807 from $143,736 (34.4% of generic revenues) in 2005. The increase in generic gross margins was due primarily to the introduction of fluticasone and amoxicillin products, which have significantly lower gross margin percentages after profit splits with partners, the launch of cabergoline, offset by lower sales of higher margin tramadol HCl and acetaminophen tablets, higher inventory write-offs ($8,248) related to a delayed product launch for clonidine of $2,145 and for write-offs of finished products for which inventory levels exceed forecasted sales, a non-recurring 2005 payment of $6,000 from a business partner related to the termination of a manufacturing and supply agreement, and higher intangibles amortization on new product acquisitions of $4,187. Gross margin from brand products was $34,405 for the year ended December 31, 2006 due primarily to Megace^®ES, which was launched in the third quarter of 2005, tempered by increased royalties.

Operating Expenses

Stock Option Tender Offer

In November 2007, the Company issued a tender offer to repurchase certain eligible stock options in exchange for a one-time cash payment in the range of $3.08 to $5.96 per option. Eligible options were certain unvested stock options with exercise prices in excess of $33.61 per share. The tender offer was completed in December 2007 with approximately 181 stock options cash settled and resulted in $4,615 of additional share-based compensation expense in the fourth quarter of 2007, that otherwise would have been recognized ratably in 2008 and 2009, of which $3,323, $923, and $369 was charged to selling, general and administrative expense, research and development expense, and costs of goods sold, respectively.

Research and Development

The Company’s research and development expenses of $77,659 (10.1 % of total revenues) for the year ended December 31, 2007 increased $15,217 or 24.4% from $62,442 (8.6% of total revenues) from the year ended December 31, 2006. The increase was primarily attributable to costs incurred in support of the Company’s strategy to expand its brand segment, principally the in-license of three compounds in late-stage development. In June 2007, the Company executed an exclusive licensing agreement with Immtech for the U.S. commercial rights to parfuramidine maleate for the treatment of pneumocystis pneumonia in AIDS patients. The Company paid Immtech $3,000 upon the execution of this agreement. As discussed above the parfuramidine program was discontinued in February 2008. In July 2007, the Company acquired the U.S. commercialization rights from BioAlliance Pharma (“BioAlliance”) to Loramyc (micronazole Lauriad®), an innovative antifungal therapy for the treatment of oropharyngeal candidiasis, an opportunistic infection commonly found in immunocompromised patients, including those with HIV and cancer. The Company paid BioAlliance $15,000 upon the execution of the agreement. In August 2007, the Company acquired the North American commercial rights from Hana Biosciences, Inc. (“Hana”) to Zensana^TM (ondansetron HCl) oral spray, which is used to prevent nausea and vomiting after chemotherapy, radiation and surgery. Under the terms of this agreement, the Company made a $5,000 equity investment in Hana at a contractually agreed premium to the prevailing market price. Of this amount, $1,150, representing the premium paid, was charged to research and development expense in 2007. In addition to these up-front costs, the Company incurred an additional $1,121 in outside development costs related to these products. These increases were tempered by $4,143 relating to the 2006 termination of the Megace ES clinical development program for oncology, and $1,585 relating to the first quarter 2007 termination of Par 101.

In support of its generic segment, the Company entered into an agreement with IntelliPharmaCeutics Ltd (“IPC”), a privately held corporation, in August 2007, to develop and market four controlled release generic drug products. Under the terms of this agreement, the Company made a $5,000 private placement equity investment, of which $2,500 was charged to research and development expense in 2007, based on the estimated fair value of the investment in IPC. In addition, on-going development and material costs associated with the generic portfolio increased $2,217.

The net increases referenced above were partially offset by an overall reduction in personnel cost of $4,041, principally the result of the restructuring of the R&D organization which occurred during the first half of 2007, tempered by costs associated with the fourth quarter 2007 stock option tender offer detailed above.

The Company’s research and development expenses of $62,442 for the year ended December 31, 2006 decreased $55 from the year ended December 31, 2005. The decrease was primarily attributable to lower expenses for outside development projects of $12,886, primarily due to the termination of an agreement with Advancis in 2005, pursuant to which the Company had paid $14,250 in the year ended December 31, 2005. The decrease in 2006 was partially offset by increased operating costs related to new R&D facilities of $2,775 and additional personnel costs of $8,383 including stock option expense related to the Company’s implementation of SFAS 123R ($2,217).

As a result of its product development program, the Company or its strategic partners currently have approximately 45 ANDAs pending with the FDA. No assurances can be given that the Company or any of its strategic partners will successfully complete the development of any of these products either under development or proposed for development, that they will obtain regulatory approvals for any such product, that any approved product will be produced in commercial quantities or that any approved product will be sold profitably.

Although there can be no such assurance, research and development expenses for 2008, including payments to be made to unaffiliated companies, and expected milestone payments under currently executed brand licensing arrangements (refer to Notes to Consolidated Financial Statements – Note 11 – “Research and Development Agreements” and Note 22 – “Subsequent Events”) are expected to decrease by approximately 20% to 25% from 2007.

Selling, General and Administrative

Total selling, general and administrative expenses of $138,217 (18.0% of total revenues) for the year ended December 31, 2007 decreased $10,271 or 6.9% from $148,488 (20.5% of total revenues) for the year ended December 31, 2006. The decrease in 2007 was primarily due to the non-recurrence of the second quarter 2006 write-off of approximately $10,000 in bad debts for invalid customer deductions that the Company determined would not be pursued for collection, lower severance costs associated with executive officers of $11,052, partially offset by the expansion of the finance and accounting functions, higher other compensation related costs, including the fourth quarter 2007 stock option tender offer (detailed above), and increased professional costs related to the Company’s restatement of prior periods.

Total selling, general and administrative expenses of $148,488 (20.5% of total revenues) for the year ended December 31, 2006 increased $56,179, or 60.9%, from $92,309 (21.4% of total revenues) for the year ended December 31, 2005. The increase in 2006 was primarily attributable to higher selling and marketing costs of $17,628 due to the Company’s launch of its first branded product, Megace^®ES, in the third quarter of 2005, increased stock compensation expense driven by the Company’s implementation of SFAS 123R ($8,229), the second quarter 2006 write-off of approximately $10.0 million in bad debts for invalid customer deductions that the Company determined would not be pursued for collection, severance cost associated with the termination of executive officers of $11,052, including $3,811 of stock option expense, and increased finance and accounting costs.

Although there can be no such assurance, selling, general and administrative expenses in 2008 are expected to decrease by approximately 2% to 4% from 2007 expenses.

Intangible Asset Impairment

In July 2004, the Company entered into a license agreement with NovaDel Pharma Inc. (“NovaDel”) whereby the Company has the exclusive rights to market, sell and distribute NovaDel’s nitroglycerin lingual spray, NitroMist^TM, in the United States and Canada. In November 2006, the FDA approved the nitroglycerin lingual spray and the Company paid NovaDel a $1,000 milestone payment, which was capitalized. The Company continued to evaluate the potential market for this product and determined that based upon competitive factors, it would not yield sufficient profits and that the product no longer fit the Company’s long-term strategy. This product was never launched by the Company. As a result, the Company recorded an impairment charge of approximately $1,100 in 2006. In the third quarter of 2005, the Company recorded an impairment charge related to two intangible assets totaling $6,999. Both assets related to the generic drug latanoprost. The Company had been in litigation relating to patent infringement due to its filing of an ANDA for latanoprost. During the third quarter of 2005, the Company was informed that it had received an unfavorable ruling in the lawsuit. As a result of these facts, the Company determined that these intangibles were fully impaired at that time.

Settlements, net

Settlements, net of $945 during 2007 is comprised of a $367 gain related to the settlement of a class action law suit against a former supplier of raw materials that was found guilty of anti-competitive activities; a $378 gain relating to the termination of a product development manufacturing and supply agreement entered into in 2003 between the Company and Perrigo Pharmaceuticals; and a $200 gain relating to the termination of a development, manufacture and marketing agreement entered into in 1999 between the Company and Resolution Chemicals.

The loss of $1,250 for the year ended December 31, 2006, relates to the settlement with Genpharm that resolved disputes related to distribution and other agreements between the companies. The Company recorded approximately $1,502 of expenses in the second quarter of 2006 as a result of the settlement, of which $1,250 was recorded in settlements, net. The remaining $252 was recorded in research and development expenses.

Gain on Sales of Product Rights

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

In September 2006 the Company sold the Company’s rights associated with ribavirin products, including certain assets and the assumption of certain liabilities, to Three Rivers Pharmaceuticals LLC for $6,604. The Company recorded a gain of $3,054 in 2006 relating to this agreement.

Other Income / (Expense), net

Other income (expense), net was ($56), $126, and ($831), respectively, for 2007, 2006 and 2005, respectively. In 2005, the other expense was primarily realized losses on the sale of short-term investments.

Loss on marketable securities, net

In February 2007, the Company sold approximately 1.1 million shares of its investment in Optimer stock for $6,836 and recognized a pre-tax gain of $1,398 for the three month period ended March 31, 2007. The Company held 1.3 million shares of Optimer common stock as of September 29, 2007. During the fourth quarter of 2007, the Company sold its remaining investment in Optimer common stock for approximately $9,621 and recognized a corresponding pre-tax gain of $3,059. These realized gains of $4,457 were more than offset by a $6,040 realized investment loss relating to the complete loss of an investment recognized in the second quarter of 2007 that the Company held, as a limited partner, in a fund that invested in various floating rate structured finance securities.

In November 2006, Abrika agreed to be purchased by a wholly owned subsidiary of the Actavis group. Based on the terms of the merger agreement, the Company received approximately $4,589 for its equity stake in Abrika in 2007. The Company wrote down its investment in Abrika by $3,773 in the second quarter of 2006 based on the terms of the merger agreement between Abrika and Actavis that indicated that the investment was impaired. This loss is partially offset by a gain in the fourth quarter of 2006 on the sale of Advancis Pharmaceutical Corporation (“Advancis”) common stock in the amount of $3,190.

During the year ended December 31, 2005, the Company sold all of its investment in New River Pharmaceuticals, Inc. (“New River”) common stock for $31,299 and recorded a gain on the sale of $24,293. In the second quarter of 2005, the Company recorded an investment impairment of $8,280 related to its investment in Advancis. On October 16, 2003, the Company purchased 1,000 shares of the common stock of Advancis for approximately $10.0 million. In June and July 2005, Advancis announced that it had failed to achieve the desired microbiological and clinical endpoints in its Amoxicillin PULSYS phase III clinical trials for the treatment of pharyngitis/tonsillitis. Due to the results of the clinical trial, and the continued significant decline in the stock price of Advancis, which is publicly traded, the Company determined that the significant decline in fair market value of its investment was other-than-temporary and as such wrote the investment down to its fair market value, based on the market value of the Advancis common stock at July 2, 2005.

Equity in Loss of Joint Venture

Equity loss from joint venture was $387, $663 and $534 for the years ended December 31, 2007, 2006 and 2005, respectively. The amounts represent the Company’s share of loss in the joint venture created with Rhodes Technology (“Rhodes”) which primarily relates to research and development costs incurred by the joint venture to develop ANDAs.

Interest Income

Interest income was $13,673, $8,974 and $5,343 for the years ended December 31, 2007, 2006 and 2005, respectively, and principally includes interest income derived primarily from money market and other short-term investments.

Interest Expense

Interest expense was $6,803, $6,781, and $6,793 for the years ended December 31, 2007, 2006 and 2005, respectively, and principally includes interest payable on the Company’s convertible notes.

Income Taxes

The Company recorded a provision (benefit) for income taxes of $27,322, $2,054, and ($5,726) for the years ended December 31, 2007, 2006 and 2005, respectively. The provisions were based on the applicable federal and state tax rates for those periods (see Notes to Consolidated Financial Statements - Note 16 - “Income Taxes”). The Company’s effective tax rates for years ended 2007, 2006 and 2005 were 35%, 23% and (94%) respectively. In 2006, the tax rate was impacted by income amounts taxable in different state jurisdictions and other permanent items. In 2005, the Company reduced its tax reserves and recorded a credit to tax expense of $7,218 due to the closing of statutory periods related to net operating loss carry forwards and tax credits, which was partially offset by the tax provision on the current period income of $1,492.

Discontinued Operations

In January 2006, the Company announced the divestiture of FineTech, effective as of December 31, 2005. As a result, this business is being reported as a discontinued operation for all periods presented. The Company transferred the business for no consideration to Dr. Arie Gutman, president and chief executive officer of FineTech. Dr. Gutman also resigned from the Company’s Board. The Company had pre-tax loss from discontinued operations for the year ended December 31, 2005 of $4,957. For the year ended December 31, 2005, the Company recorded a pre-tax loss on the divestiture of $38,018 due primarily to the write-off of goodwill and intangibles, the impairment of fixed assets, severance payments and the acceleration of restricted stock and stock options.

FINANCIAL CONDITION

Liquidity and Capital Resources

Cash and cash equivalents of $200,132 at December 31, 2007 increased $79,141 from $120,991 at December 31, 2006. Cash provided by operations was $100,783 for the year ended December 31, 2007 driven by net income from continuing operations of $51,110 (inclusive of a non-recurring gain of $20,000, pre-tax, related to sale of marketing / product rights of PAR 101 to Optimer) and adjusted primarily for depreciation and amortization of $25,625 and share-based compensation of $23,503. The decrease in net accounts receivable of $34,861 is driven primarily by cash collections and lower fourth quarter net sales when compared to the same period in 2006, tempered by lower overall accounts receivable reserves. The decrease in accounts receivable reserves is driven mainly by net improvements in the Company's lag for processing customer credits, as well as lower trade inventory for future chargebacks and the improvements in the gross to net rate discussed previously. Inventories declined $21,435 driven by improved inventory turns for purchased finished goods, the sell-out of launch quantities on hand at the end of 2006 including for metoprolol succinate ER and propranolol HCl ER and inventory related to products terminated during 2007, and increased material usage of megestrol raw materials from higher sales. The factors that increased operating cash flows in the year ended December 31, 2007 were partially offset by a decrease in payables due to distribution agreement partners of $53,106 due to payments to partners as well as lower sales of distributed products, $19,150 payments related to the in-license of three compounds in late stage development in support of Strativa, and a decrease in income taxes payable mainly due to the payment of 2006 taxes in 2007. Cash flows provided by investing activities of $16,024 were driven by proceeds of $16,457 from the sale of Optimer common stock, $12,000 from Abrika related to the repayment of an advance and the redemption of a promissory note and $4,588 relating to the sale of the Company’s remaining stake in Abrika, tempered by capital investments of $8,585 and equity investments in Hana and IPC, worth $6,350. Cash used in financing activities of $37,666 was primarily due to the purchase of treasury stock of $33,217 and the repayment of short-term debt related to financed insurance premiums of $4,391.

The Company’s working capital, current assets minus current liabilities, of $210,514 at December 31, 2007 increased $105,305 from $105,209 at December 31, 2006. The working capital ratio, which is calculated by dividing current assets by current liabilities, was 1.67x at December 31, 2007 compared to 1.25x at December 31, 2006. The Company believes that its working capital ratio indicates the ability to meet its ongoing and foreseeable obligations for the next 12 fiscal months.

In 2004, the Board authorized the repurchase of up to $50,000 of the Company’s common stock. Repurchases are made, subject to compliance with applicable securities laws, from time to time in the open market or in privately negotiated transactions. Shares of common stock acquired through the repurchase program are available for general corporate purposes. On September 28, 2007, the Company announced that its Board approved an expansion of its share repurchase program allowing for the repurchase of up to $75,000 of the Company’s common stock, inclusive of the $17,800 remaining from the April 2004 authorization. The Company repurchased 1,643 shares of its common stock for approximately $31,400 pursuant to the expanded program in the fourth quarter of 2007. The authorized amount remaining for stock repurchases under the repurchase program was $43,600, as of December 31, 2007.

In addition to its cash and cash equivalents, the Company had $85,375 of available for sale debt securities classified as current assets on the consolidated balance sheet as of December 31, 2007. These available for sale debt securities were all available for immediate sale. The Company intends to continue to use its current liquidity to support the expansion of its business, increasing its generic research and development activities, entering into product license arrangements, potentially acquiring other complementary businesses and products and for general corporate purposes.

As of December 31, 2007, the Company had payables due to distribution agreement partners of $36,479 related primarily to amounts due under profit sharing agreements, particularly including an amount owed to Pentech with respect to paroxetine. The Company paid substantially all of these amounts, with the exception of the payable due to Pentech, which is being disputed in current litigation with Pentech, out of its working capital during the first two months of 2008. In 2004, Pentech filed a legal action against the Company alleging that the Company breached its contract with Pentech. The Company and Pentech are in dispute over the amount of gross profit share. The decrease in payables due to distribution agreement partners from December 31, 2006 can be primarily attributed to lower payables associated with fluticasone and amoxicillin.

The dollar values of the Company’s material contractual obligations and commercial commitments as of December 31, 2007 were as follows, in thousands:

			Amounts Due by Period
Obligation	Total Monetary Obligations		2008		2009 to 2010		2011 to 2012		2013 and thereafter
Operating leases	$	19,387	$	5,572	$	9,751	$	3,144	$	920
Convertible notes*		200,000		200,000		-		-		-
Interest payments**		15,813		5,750		10,063		-		-
Purchase obligations***		75,034		75,034		-		-		-
Long-term tax liability****		30,975		-		-		-		30,975
Other		1,984		1,984		-		-		-
Total obligations	$	343,193	$	288,340	$	19,814	$	3,144	$	31,895

* The Notes mature on September 30, 2010, unless earlier converted, accelerated or repurchased. See “Legal Proceedings” in Note 17 to Consolidated Financial Statements, “Commitments, Contingencies and Other Matters” for discussion involving notices of default and acceleration the Company received from the Trustee of the Company’s 2.875% Senior Subordinated Convertible Notes due 2010 and related litigation. Until the matter is resolved, the Company is recording the payment obligations as a current liability as of December 31, 2007 because the Court in the matter could (i) rule against the Company’s position and (ii) determine that the appropriate remedy would be the accelerated payment of the Notes.

** Interest payments represent the total interest due under the Notes until their contractual maturity on September 30, 2010. A portion of these amounts would not be payable if the Notes are earlier converted, accelerated or repurchased.

*** Purchase obligations consist of both cancelable and non-cancelable inventory and non-inventory items.

**** The cumulative effect of applying the provisions of FIN 48 resulted in a reclassification of $26.7 million of certain tax liabilities from current to non-current as of January 1, 2007. The difference between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to FIN 48 represents an unrecognized tax benefit. An unrecognized tax benefit is a liability that represents a potential future obligation to the taxing authorities. The total amount of unrecognized tax benefits as of January 1, 2007 was $21.8 million, excluding interest and penalties, and increased to $24.1 million, excluding interest and penalties, as of December 31, 2007 based on evaluation of tax positions. As of January 1, 2007, the Company had accrued $4.9 million of interest and penalties related to uncertain tax positions. As of December 31, 2007, $6.9 million of interest and penalties related to uncertain tax positions is included in other long-term liabilities in the Company’s consolidated balance sheet. We do not expect to make a significant tax payment related to these other long-term liabilities within the next year, however, the Company cannot estimate in which period thereafter such tax payments may occur. For presentation on the table above, the Company included the related long-term liability in the “2013 and thereafter” column.

In addition to its internal research and development costs, the Company, from time to time, enters into agreements with third parties for the development of new products and technologies. To date, the Company has entered into agreements and advanced funds and has commitments or contingent liabilities with several non-affiliated companies for products in various stages of development. These contingent payments or commitments are generally dependent on the third party achieving certain milestones or the timing of third-party research and development or legal expenses. Due to the uncertainty of the timing and/or realization of such contingent commitments, these obligations are not included in the contractual obligations table above presented as of December 31, 2007. Payments made pursuant to these agreements are either capitalized or expensed in accordance with the Company’s accounting policies. The total amount that ultimately could be due under agreements with contingencies was approximately $34,000 as of December 31, 2007, excluding the potential milestones of $29,000 related to the Immtech licensing agreement due to the termination of the parfuramidine program detailed above. This amount is exclusive of contingencies tied to the achievement of sales milestones, which will be funded through future revenue streams. The agreements that contain such commitments that the Company believes are material are described in Notes to Consolidated Financial Statements - Note 11 - “Research and Development Agreements” elsewhere in this Form 10-K and in “Subsequent Events” below.

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

Financing

At December 31, 2007, the Company’s total outstanding short and long-term debt, including the current portion, was $200,000. The amount consisted solely of senior subordinated convertible notes. In 2003, the Company sold an aggregate principal amount of $200,000 of senior subordinated convertible notes pursuant to Rule 144A under the Securities Act. The notes bear interest at an annual rate of 2.875%, payable semi-annually on March 30 and September 30 of each year. The Notes are convertible into shares of common stock of the Company at an initial conversion price of $88.76 per share, only upon the occurrence of certain events. Upon redemption, the Company has agreed to satisfy the conversion obligation in cash in an amount equal to the principal amount of the Notes converted. The Notes mature on September 30, 2010, unless earlier converted, accelerated or repurchased. The Company may not redeem the Notes prior to the maturity date. The Trustee under the Indenture governing the Notes has alleged that the Company has defaulted in the performance of its obligations under the Indenture and has initiated a lawsuit in connection therewith. Accordingly, until the matter is resolved, the Company is recording the payment obligations under the Notes as a current liability on the Company’s consolidated balance sheet as of December 31, 2007. Refer to Item 3 – Legal Proceedings and Notes to Consolidated Financial Statements – Note 17 – “Commitments, Contingencies and Other Matters” elsewhere in this Form 10-K.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Subsequent Events

On January 14, 2008, the Company entered into an exclusive license agreement with Alfacell. Under the agreement, the Company received the exclusive U.S. commercialization rights to Alfacell’s ONCONASE^® (ranpirnase). ONCONASE^® is currently in Phase III clinical development for the treatment of inoperable malignant mesothelioma, a rare cancer affecting the lungs usually associated with exposure to asbestos. In exchange for the U.S. commercialization rights, the Company made an initial payment to Alfacell of $5 million and will make a subsequent payment of up to $30 million upon (and subject to) Alfacell’s receipt of FDA approval for the product. If ONCONASE^®receives FDA approval, the Company will commercialize the product in the United States and pay Alfacell royalties on net sales of the product. Alfacell will also be eligible to receive additional milestone payments if net sales reach certain threshold amounts in any given calendar year. In addition, Alfacell may be eligible to receive milestone payments upon the achievement of certain development and regulatory milestones with respect to future indications for ONCONASE^®. Under a separate supply agreement between Alfacell and the Company, Alfacell will supply commercial quantities of ONCONASE^® to the Company.

Critical Accounting Policies and Use of Estimates

Critical accounting policies are those policies that are most important to the portrayal of the Company’s financial condition and results of operations, and require management’s most difficult, subjective and complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. The Company’s most critical accounting policies, as discussed below, pertain to revenue recognition and the determination of deductions from gross revenues, the determination of whether certain costs pertaining to the Company’s significant development and marketing agreements are to be capitalized or expensed as incurred, the valuation and assessment of impairment of intangible assets, the determination of depreciable and amortizable lives and issues related to legal proceedings. In applying such policies, management often must use amounts that are based on its informed judgments and estimates. Because of the uncertainties inherent in these estimates, actual results could differ from the estimates used in applying the critical accounting policies. The Company is not aware of any likely events or circumstances that would result in different amounts being reported that would materially affect its financial condition or results of operations.

Revenue Recognition and Provisions for Deductions from Gross Revenues

The Company recognizes revenues for product sales when title and risk of loss have transferred to its customers, when reliable estimates of rebates, chargebacks, returns and other adjustments can be made, and when collectibility is reasonably assured. This is generally at the time products are received by the customers. Upon recognizing revenue from sales, the Company records estimates for the following items that reduce gross revenues:

Chargebacks

Rebates and incentive programs

Product returns

Cash discounts and other

Medicaid rebates

The following table summarizes the activity for the years ended December 31, 2007, 2006 and 2005 in the accounts affected by the estimated provisions described below, in thousands:

	For the year ended December 31, 2007
Accounts receivable reserves	Beginning balance (3)			Provision recorded for current period sales			(Provision) reversal recorded for prior period sales			Credits processed		Ending balance
Chargebacks	$	(51,891	)	$	(345,526	)	$	-	(1)	$	351,411	$	(46,006	)
Rebates and incentive programs		(85,888	)		(175,775	)		2,075			216,729		(42,859	)
Returns		(42,905	)		(29,312	)		(220	)		25,335		(47,102	)
Cash discounts and other		(18,038	)		(71,552	)		211			73,221		(16,158	)
Total	$	(198,722	)	$	(622,165	)	$	2,066		$	666,696	$	(152,125	)

Accrued liabilities (2)	$	(10,412	)	$	(17,567	)	$	(2,319	)	$	13,483	$	(16,815	)

	For the year ended December 31, 2006
Accounts receivable reserves	Beginning balance			Provision recorded for current period sales			(Provision) reversal recorded for prior period sales			Credits processed		Ending balance (3)
Chargebacks	$	(102,256	)	$	(339,711	)	$	-	(1)	$	390,076	$	(51,891	)
Rebates and incentive programs		(50,991	)		(201,993	)		-			167,096		(85,888	)
Returns		(32,893	)		(36,609	)		(7,686	)		34,283		(42,905	)
Cash discounts and other		(15,333	)		(48,734	)		-			46,029		(18,038	)
Total	$	(201,473	)	$	(627,047	)	$	(7,686	)	$	637,484	$	(198,722	)

Accrued liabilities (2)	$	(9,040	)	$	(19,528	)	$	82		$	18,074	$	(10,412	)

	For the year ended December 31, 2005
Accounts receivable reserves	Beginning balance			Provision recorded for current period sales			(Provision) reversal recorded for prior period sales			Credits processed		Ending balance
Chargebacks	$	(91,986	)	$	(486,113	)	$	-	(1)	$	475,843	$	(102,256	)
Rebates and incentive programs		(49,718	)		(154,727	)		1,489			151,965		(50,991	)
Returns		(61,986	)		(24,010	)		(5,568	)		58,671		(32,893	)
Cash discounts and other		(13,287	)		(60,628	)		-			58,582		(15,333	)
Total	$	(216,977	)	$	(725,478	)	$	(4,079	)	$	745,061	$	(201,473	)

Accrued liabilities (2)	$	(8,755	)	$	(22,847	)	$	-		$	22,562	$	(9,040	)

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

(2) Includes amounts due to customers for which no underlying accounts receivable exists, including Medicaid rebates.

(3) Restated to reflect a reclassification to accrued expenses of $4.3 million for discounts due to customers for which no underlying accounts receivable existed as of December 31, 2006.

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(c) Records and Audit.

(i) For a period of three (3) years after the calendar year to which the records relate, Par shall keep, and shall cause its Sub-distributors to keep, complete and accurate records pertaining to the sale or other disposition of the Product in sufficient detail to permit Alfacell to confirm the accuracy of all payments due hereunder. Alfacell shall have the right to cause an independent, certified public accountant to which Par has no reasonably, well-founded objection to audit such records to confirm the gross invoiced sales amounts, the Net Sales, Net Margin and Royalty payments; provided, however, that such auditor shall not disclose Par’s Confidential Information to Alfacell, except to the extent such disclosure is necessary to verify the amount of Royalties and other payments due under this Agreement, and such auditor shall enter into a non-disclosure agreement reasonably acceptable to Par. Such audits may be exercised once a year on reasonable advance notice to Par and during normal business hours, within three (3) years after the Royalty period to which such records relate. Any amounts shown to be owing by such audits shall be paid promptly. Alfacell shall bear the cost of such audit unless such audit discloses a variance in the amounts paid by Par of more than five percent (5%) from the amount of Royalties and/or other payments actually owed to Alfacell for the period audited. In such case, Par shall bear the reasonable cost of such audit.

(ii) For a period of three (3) years after the calendar year to which the records relate or such longer period as may be required by applicable law, Alfacell shall keep records pertaining to calculation of Direct Cost in sufficient detail to permit Par to confirm the accuracy of Direct Cost (and thus accuracy of the Transfer Price), as well as records pertaining to any other amounts charged to or reimbursed by Par hereunder. Par shall have the right to cause an independent, certified public accountant to which Alfacell has no reasonably, well-founded objection to audit such records to confirm Direct Cost and any such other amounts charged to or reimbursed by Par pursuant to the terms hereof; provided, however, that such auditor shall not disclose Alfacell’s Confidential Information to Par, except to the extent such disclosure is necessary to verify the amount of any overpayments made by Par to Alfacell, and such auditor shall enter into a non-disclosure agreement reasonably acceptable to Alfacell. Such audits may be exercised once a year on reasonable advance notice and during normal business hours, within three (3) years after the date of payment to which such records relate, upon notice to Alfacell and during normal business hours. Any amounts shown to be owing by such audits shall be paid promptly. Par shall bear the cost of such audit unless such audit discloses an overpayment by Par of more than five percent (5%) as compared to the amount of payments and/or reimbursements actually owed to Alfacell for the period audited. In such case, Alfacell shall bear the reasonable cost of such audit.

(iii) The terms of this Section 6.5(c) shall survive any termination or expiration of this Agreement for a period of three (3) years following the calendar year in which the relevant payment obligation hereunder expires or terminates.

(d) Withholding of Taxes. Par may withhold from milestones, royalties or other amounts due to Alfacell under this Agreement such amounts for payment of any withholding tax that is required by law to be paid to any taxing authority with respect to such amounts payable to Alfacell; provided, however, that in regard to any such tax withholding, Par shall give Alfacell such documents and provide any other cooperation or assistance on a reasonable basis as may reasonably be requested by Alfacell by to enable Alfacell to claim exemption therefrom, to receive a full refund of such withholding tax or to claim a foreign tax credit and shall, upon Alfacell’s request, give proper evidence from time to time as to the payment of such tax.

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(e) Late Payment and Interest. Any payments due under this Agreement by either Party that are not paid by the date such payments are due shall bear interest at one percent (1%) per month from the date such payments are due. The foregoing interest shall be due from the Party owing the payment amount without any special notice and shall be in addition to any other remedies that the Party entitled to such payment may have pursuant to this Agreement.

ARTICLE VII

MANUFACTURE AND SUPPLY

7.1 Clinical and Commercial Supplies. Alfacell shall manufacture or cause to be manufactured all Clinical Supplies of the Product for the Development Program, including the completion of pre-clinical work and human clinical trials. Subject to the terms of the Supply Agreement, Alfacell will establish a commercial manufacturing process for manufacturing or causing to be manufactured Commercial supplies of the Product at the scale and in the amounts required to meet Par’s sales forecast, and Alfacell will exclusively supply Par with Par’s requirements of commercial supplies of the Product pursuant to the Supply Agreement.

7.2 Pricing. Subject to the terms and conditions of this Agreement and the Supply Agreement, Par shall acquire the Product from Alfacell at the Transfer Price, as provided in the Supply Agreement. The Parties acknowledge and agree that both would benefit from any commercially reasonably, achievable reduction in the Direct Cost, but only if the corresponding cost reduction does not negatively impact Product yields, output, quality, purity and the like.

7.3 Par Labeling and Packaging. The Parties agree that the label for the Product in the Field in the Territory shall be, and all packaging and presentations concerning such Product shall display, a Par label in accordance with Par’s customary practices, subject to Section 4.1(b), and the Parties shall use Commercially Reasonable Efforts to cooperate in gaining Regulatory Approval to sell Products in the Field in the Territory under the Par label.

7.4 Citizen’s Petitions. Each Party shall notify the other in writing if it becomes aware of a Third Party product under development, or a regulatory filing by a Third Party with respect to a product, that in either case incorporates Ranpirnase, including, with respect to any such regulatory filing, any 505(j) filing, 505(b)(2) filing or other form of application for approval (such development or filing, a “Third Party Product Event”). Par shall, following Regulatory Approval of the Product, have the first right to institute a citizen’s petition addressing the safety and/or efficacy of such Third Party Product Event, and, to the extent Par exercises its right in respect thereof, shall reasonably control all aspects of such citizen’s petition in a commercially reasonable manner, including correspondence and/or negotiations with the FDA; provided, however, that Par shall include Alfacell in such efforts in a consultative capacity. In the event Par does not exercise its rights above with respect to such a Third Party Product Event within three (3) months of the notice referenced above, then Alfacell shall have the exclusive right to institute a citizen’s petition addressing the safety and/or efficacy of such Third Party Product Event, and, to the extent Alfacell exercises its right in respect thereof, shall control all aspects of such citizen’s petition in a Commercially Reasonable fashion, including correspondence and/or negotiations with the FDA, provided, however, that Alfacell shall include Par in such efforts in a consultative capacity.

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ARTICLE VIII

CONFIDENTIAL AND TECHNICAL INFORMATION

8.1 Treatment of Confidential Information. Each Party agrees to retain in strict confidence and not to disclose, divulge or otherwise communicate to any Third Party any Confidential Information of the other Party, whether received prior to or after the Effective Date, and further agrees not to use any such Confidential Information for any purpose, except pursuant to, and in order to carry out, the terms and objectives of this Agreement, except that each Party may disclose Confidential Information of the other Party to the officers, directors, employees, agents, accountants, attorneys, consultants, subcontractors or other representatives of the receiving Party or its Affiliates (the “Representatives”), who, in each case, (a) need to know such Confidential Information for purposes of the implementation and performance by the receiving Party of this Agreement and (b) will use the Confidential Information only for such limited purposes. Each Party hereby agrees to use at least the same standard of care in complying with its confidentiality obligations hereunder as it uses to protect its own Confidential Information of comparable sensitivity and to exercise reasonable precautions to prevent and restrain the unauthorized disclosure of such Confidential Information by any of its Representatives. Each Party warrants that each of its Representatives to whom any Confidential Information is revealed shall previously have been informed of the confidential nature of the Confidential Information and shall have agreed to maintain its confidentiality under terms no less restrictive than those set forth in this Article VIII. Without limiting the generality of any of the foregoing, the Parties agree not to make any disclosure of Confidential Information that would be reasonably likely to impair the Parties’ ability to obtain U.S. or foreign patents on any patentable invention or discovery described or otherwise embodied in such Confidential Information. The Confidential Information of each Party includes information from Third Parties disclosed by one Party to this Agreement to the other Party to this Agreement.

8.2 Release from Restrictions.

(a) The provisions of Section 8.1 shall not apply to any Confidential Information disclosed hereunder to the extent that such Confidential Information is required to be disclosed by the receiving Party to defend or prosecute litigation or to comply with applicable laws or regulations, including filing an Information Disclosure Statement with the U.S. Patent and Trademark Office or any other patent office, or pursuant to an order of a court or regulatory agency; provided, however, that the receiving Party shall provide prior written notice of such disclosure to the other Party and shall take actions as are reasonable and lawful to avoid and/or minimize the degree of such disclosure, including assisting the other Party in seeking a protective order or other means for preventing disclosure or use. To the extent, if any, that a Party concludes in good faith that it is required by applicable laws or regulations to file or register this Agreement or a notification thereof with any governmental authority, including the U.S. Securities and Exchange Commission, such Party may do so, and the other Party shall cooperate in such filing or notification and shall execute all documents reasonably required in connection therewith. In such situation, the filing Party shall request confidential treatment of sensitive provisions of the Agreement to the extent permitted by law. The Parties shall promptly inform each other as to the activities or inquiries of any such governmental authority relating to this Agreement, and shall cooperate to respond to any request for further information therefrom.

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(b) A Party may disclose this Agreement to a Third Party in connection with or in conjunction with a proposed merger, consolidation, sale of assets that include those related to this Agreement, an assignment of this Agreement or loan financing, raising of capital, or sale of securities; provided, however, that the disclosing Party obtains an agreement for confidential treatment thereof.

8.3 No Implied Rights. Except as otherwise set forth in this Agreement, nothing herein shall be construed as giving either Party any right, title, interest in or ownership of the Confidential Information of the other Party. For the purposes of this Agreement, specific information disclosed as part of Confidential Information shall not be deemed to be in the public domain or in the prior possession of the receiving Party merely because it is embraced by more general information in the public domain or by more general information in the prior possession of the receiving Party.

8.4 Survival of Confidentiality Obligations. The confidentiality obligations of the Parties contained in this Article VIII shall remain binding on both Parties during the Term and for a period of five (5) years after the expiration or termination of this Agreement, regardless of the cause of such termination. The Parties acknowledge that breach of this Article VIII may constitute irreparable harm, and that the non-breaching Party shall be entitled to seek specific performance or injunctive relief to enforce this Article VIII in addition to whatever remedies such Party may otherwise be entitled to at law or in equity.

8.5 Superseding Prior Confidentiality Agreement. The provisions of this Article VIII shall supersede the Confidentiality Agreement between the Parties dated September 17, 2007, with respect to the subject matter hereof, and shall establish the sole obligations of confidentiality and nonuse of Confidential Information received by a Party prior to or after the Effective Date.

ARTICLE IX

PATENT PROSECUTION AND ENFORCEMENT

9.1 Program Developments. All Program Developments shall be the sole and exclusive property of Alfacell. All United States patent applications covering Program Developments and all United States patents issuing thereon will immediately, and without further action of the Parties, (a) be deemed to be Alfacell Patents and listed in Schedule 1.1 and (b) be exclusively licensed to Par in accordance with the terms of this Agreement.

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9.2 Patent Prosecution and Maintenance.

(a) The Parties shall cooperate in good faith to determine whether to seek or continue to seek or to maintain patent protection in the Territory with respect to any Alfacell Patent, Alfacell Information and any Program Development or such other things that that could reasonably be expected to affect the Commercialization or value of the Product in the Territory. In connection therewith, Alfacell shall promptly provide Par with copies of all correspondence to and from the U.S. Patent and Trademark Office, as well as any related demand, notice and summons, that relates to such Alfacell Patent or Program Development. Each Party, and its employees and agents, shall provide the other Party and its legal representatives with reasonable assistance and cooperation with respect to such Patent prosecution, including entering into any joint defense and/or joint privilege agreement that may be reasonably requested by such Party and Alfacell shall consider in good faith all reasonable suggestions of Par and its patent counsel related thereto. Alfacell’s patent prosecution and maintenance expenses associated with Alfacell Patents including the filing of any patent term extensions, shall be borne by Alfacell; prosecution- and maintenance-related expenses incurred by Par in connection with its review and consultation concerning any Alfacell Patents, including Alfacell’s filing of any patent term extensions, shall be borne by Par. Alfacell will timely apply for any applicable patent term extensions.

(b) Par agrees to cooperate fully in the preparation, filing, prosecution and maintenance of any Alfacell Patents in the Territory under this Agreement, and in the obtaining and maintenance of any patent extensions and the like with respect to any Alfacell Patent.

(c) If Alfacell elects (i) to abandon the prosecution or maintenance of any Alfacell Patent under which Par has a license hereunder, or (ii) elects not to file a patent application in the Territory for any invention within Program Developments that could reasonably be expected to affect the Commercialization or value of the Product in the Territory under this Agreement, then Alfacell shall promptly notify Par in writing at least sixty (60) days before the abandonment or applicable filing deadline therefore, and Par shall have the right, upon providing written notice to Alfacell of Par’s election to do so, at Par’s expense, to file, prosecute, continue prosecution and/or maintenance, as applicable, of such Alfacell Patent or Patent within Program Developments. In such case, Par shall keep Alfacell reasonably informed on matters regarding such filing, prosecution and maintenance, including by providing Alfacell with a copy of any and all correspondence between Par and the U.S. Patent and Trademark Office, providing Alfacell with sufficient time to review and comment on such communications (excluding any non-substantive correspondence or communications), and Par shall consider in good faith the requests and suggestions of Alfacell with respect to such communications with the U.S. Patent and Trademark Office. With respect to the activities set forth in this Section 9.2 that are continued by Par, Alfacell shall provide a power of attorney and relevant files and other information Owned or Controlled by Alfacell pertaining to such Alfacell Patents or Program Developments, as soon as reasonably practical after receiving such written election by Par.

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9.3 Infringement by a Third Party.

(a) Par and Alfacell shall inform each other promptly in writing of any alleged or suspected infringement by a Third Party in the Territory of any of Alfacell Patent that could reasonably be expected to have an adverse effect on the Commercialization or value of the Product in the Territory, and of any available evidence thereof.

(b) Subject to Sections 9.3(c), 9.3(d), and 9.3(e), Par shall have the first right, but not the obligation, at its sole option and expense, to prosecute the infringement by a Third Party in the Territory of any Alfacell Patent that could reasonably be expected to have an adverse effect on the Commercialization or value of the Product in the Territory.

(c) If a Third Party so infringes (or constructively infringes by filing an application for regulatory approval with the FDA) an Alfacell Patent, or if a declaratory judgment action alleging invalidity, unenforceability or non-infringement of any Alfacell Patent, shall be brought by a Third Party in the Territory against Par or against Alfacell or both of them (applicable to Ranpirnase, Product or Competing Product), or a Citizen’s Petition in respect of the Product shall have been filed with the FDA (each of the foregoing, a “Product Infringement”), then the Parties shall discuss whether or not to institute an infringement action (and/or defend against applicable declaratory judgment actions) with respect to such Product Infringement (and any legally or commercially relevant belief by Alfacell that it is in the Parties’ interest to not institute such action shall be considered in good faith by Par). Subject to Sections 9.3(b) and 9.3(d), Par shall have the first right to institute such a suit and control the prosecution, settlement or compromise thereof (including defense of applicable declaratory judgment actions); provided, however, that no such settlement, compromise, consent judgment or other voluntary final disposition of any Product Infringement action which invalidates or restricts any Valid Claim(s) Owned or Controlled by Alfacell may be entered into by Par without the prior written consent of Alfacell, which consent shall not be unreasonably withheld. At Par’s option, Alfacell shall agree to be joined as a party, or otherwise initiate suit if necessary, in such Product Infringement action and Par and Alfacell shall execute all papers and perform such acts as may be reasonably required to accomplish the same, at the sole expense of Par; provided, however, that Alfacell’s joining of or participation in such action shall not affect Par’s control thereof in accordance with this Section 9.3(c). Alfacell shall, at the reasonable request of Par, provide reasonable cooperation and use its Commercially Reasonable Efforts to have its employees testify when requested and make available relevant records, papers, information, samples, specimens and the like that Alfacell’s counsel agrees should be provided to Par, regardless of whether Alfacell has joined such suit. Alfacell shall have the right to join such action and/or select, at Alfacell’s expense, separate counsel to participate in such suit on Alfacell’s behalf.

(d) Within ninety (90) days of being notified of alleged or suspected Product Infringement, Par shall either (i) institute a suit for Product Infringement pursuant to Section 9.3(c) or (ii) notify Alfacell that it has a good faith belief that it is in the Parties’ interest to not institute such suit within such time and Par shall provide to Alfacell a reasoned legal and/or commercial basis for not instituting such a suit at that time. If Alfacell disagrees with such reasoned legal and/or commercial basis, then such dispute or disagreement shall be referred to the CEO of Alfacell and the CEO of Par for resolution, and the CEOs shall resolve the matter (without resort to Section 14.5). If Par takes neither action provided in the foregoing clause (i) or (ii) above within such ninety (90)-day period, or if within such ninety (90)-day period Par notifies Alfacell that it does not intend to institute such a suit, then thereafter Alfacell shall have the exclusive right to institute an action and control the prosecution, settlement or compromise thereof. At Alfacell’s option Par shall agree to be joined as a party in such litigation; provided, however, that Par’s joining of such action shall not affect Alfacell’s control thereof in accordance with this Section 9.3(d). Par shall, at the reasonable request of Alfacell, provide reasonable cooperation and, to the extent practicable, Par shall use its Commercially Reasonable Efforts to have its employees testify when requested and make available relevant records, papers, information, samples, specimens and the like that Par’s counsel agrees should be provided to Alfacell, regardless of whether Par has joined such suit. Par shall have the right to join such action and/or select, at Par’s expense, separate counsel to participate in such suit on Par’s behalf.

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(e) Any payments that represent royalties for sales of infringing products, other payments, damages, expenses, fees or other awards (collectively “Damages”), received by Par and/or Alfacell as a result of a Product Infringement suit, whether through judgment or settlement, shall first be used to reimburse each Party for its expenses associated with such infringement suit. Thereafter, (i) if Par shall have instituted and controlled a suit in accordance with Section 9.3(c), then any remainder *** and (ii) if Alfacell shall have instituted and controlled a suit in accordance with Section 9.3(d), then any remainder ***.

9.4 Infringement of Third Party Rights.

(a) If either Party becomes aware of a patent or patent application that, when issued, might provide a basis for a Third Party argument that its valid rights are being infringed by the use, offer for sale or sale of the Product in the Territory, then such Party shall promptly inform the other Party of such patent or patent application, and the Parties shall cooperate with each other so that each Party can determine whether valid rights of a Third Party are likely to be so infringed.

(b) In the event that a Third Party institutes any suit against Par and/or Alfacell for patent infringement that could reasonably be expected to have an adverse effect on the Commercialization or value of the Product in the Territory, the Party sued shall promptly notify the other Party in writing. Par shall assume the defense of such suit at Par’s expense; provided, however, that if Alfacell is also a defendant in such action and Alfacell shall have reasonably concluded that there may be legal defenses available to it that are different from or additional to those available to Par, Alfacell shall have the right to select, at Alfacell’s expense, separate counsel to participate in such legal defenses on Alfacell’s behalf; provided, further that notwithstanding any such different or additional legal defenses of Alfacell, Par shall have the first right to control the defense of any such patent infringement suit pursuant to this Section 9.4 and Par may settle or compromise such suit with the prior written consent of Alfacell, which consent shall not be unreasonably withheld. To the extent that any Damages become payable to any Third Party whether as a result of judgment or through settlement of such suit, ***.

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(c) If either Party becomes aware of a patent or patent application of a Third Party that could reasonably be expected to have an adverse effect on the Commercialization or value of the Product in the Territory and for which pursuit of a license would be reasonable in connection with Commercialization of the Product in the Territory, the Commercialization Committee shall: (A) determine whether or not Alfacell should seek such a license, (B) recommend whether or not to enter into such a license as negotiated by Alfacell, (C) determine how the expenses of such a license shall be borne by the Parties and (D) insure that Par is a beneficiary thereof consistent with the licenses granted herein. If the Commercialization Committee cannot agree with regard to any item set forth in the preceding sentence, such issue shall be determined by the CEOs of the Parties.

9.5 Trademark Infringement. Alfacell and Par shall promptly notify the other in writing of any alleged or threatened infringement or any challenge to the validity of the Trademark or any challenge to Alfacell’s ownership of or Par’ s right to use the Trademark in the Territory of which they become aware. Both Parties shall use their reasonable efforts in cooperating with each other to terminate such infringement without litigation. Alfacell shall have the sole right to bring and control any action or proceeding with respect to infringement of any of the Trademark at its own expense and by counsel of its own choice, subject to the following provisions. With respect to infringement of any of the Trademark in the Territory, if Alfacell fails to bring an action or proceeding within (i) thirty (30) days following the notice of alleged infringement or (ii) ten (10) days before the time limit, if any, set forth in the appropriate laws and regulations for the filing of such actions, whichever comes first, Par shall have the right to bring and control any such action at its own expense and by counsel of its own choice, and Alfacell shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. In the event a Party brings an infringement action, the other Party shall cooperate fully, including if required to bring such action, the furnishing of a power of attorney or being named as a party. Neither Party shall have the right to settle any infringement litigation under this Section 9.5 relating to the Trademark in a manner that diminishes the rights or interests of the other Party without the prior written consent of the other Party, which shall not be unreasonably withheld, delayed or conditioned. Except as otherwise agreed to by the Parties as part of a cost-sharing arrangement, any recovery realized as a result of such litigation, after reimbursement of any litigation expenses of Alfacell and Par, ***.

ARTICLE X

ADVERSE EXPERIENCES

10.1 Notification. The Parties shall, during the Term, keep each other promptly and fully informed of all of their pharmacological, toxicological and clinical trials, investigations and findings relating to the Product in the Field in the Territory in accordance with a pharmacovigilance agreement. To the extent required, Alfacell will notify appropriate Governmental Authorities in accordance with applicable law with respect thereto and notify Par promptly after receipt of information with respect to any adverse reaction directly or indirectly attributable to the use or application of the Product in the Field in the Territory. In such a case, the Parties shall meet as soon as possible to define, according to applicable law, appropriate procedures and actions to address the difficulty. Each Party also shall forward to the other Party, on a regular basis, information on adverse reactions and any material difficulty associated with clinical use, studies, investigations, tests and prescriptions of the Product in the Field in the Territory. Par will forward all ADE reports related to the Product in the Field in the Territory received by Par or its Sub-distributors to Alfacell within five days of receipt of the applicable event. The information forwarded will be the initial event information obtained from Par’s call center. Par will not make any medical evaluation of the event. Alfacell will be responsible for any follow-up activities with the reporting party and all tracking, trending and signal detection for the Product. The Parties will use their Commercially Reasonable Efforts to inform each other without delay of any other governmental action which may adversely impact, in a direct manner, Commercialization of the Product in the Field in the Territory, and will furnish each other copies of any relevant documents relating thereto.

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10.2 Reporting. Alfacell, as the NDA holder, is responsible for preparing, processing, assessment, and submitting aggregate and periodic reports and individual case safety reports within the Territory as required by regulatory authorities. Alfacell shall also hold and maintain reports of all adverse events and adverse drug reactions, both serious and non-serious, and reports of pregnancies in a database for the Product for preparing and submitting aggregate, periodic, and single case reports to the FDA for the Product in the Field in the Territory. Par shall reasonably cooperate at its own expense.

10.3 Literature Reports. Alfacell shall be responsible for screening published scientific and medical literature for ADEs/ICSRs related to the Product in the Field. A copy of any such relevant literature reports and/or articles shall be promptly provided to the other Party. To the extent of additional obligations contained in Section 8.1.3 of the Supply Agreement, such obligations are hereby incorporated by reference herein.

ARTICLE XI

REPRESENTATIONS AND WARRANTIES

11.1 Representations and Warranties.

(a) Mutual Representations and Warranties. Each Party hereby represents and warrants to the other Party that: (i) it has full corporate power and authority under the laws of the state of its incorporation to enter into this Agreement and to carry out the provisions hereunder; (ii) this Agreement is a legal and valid obligation binding upon it and is enforceable in accordance with its terms; (iii) the execution, delivery and performance of this Agreement by it does not materially conflict with any agreement, oral or written, to which it is a party or by which it may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having authority over it; and (iv) to the knowledge of such Party as of the Effective Date (without undertaking any special investigation), there is no claim, action, suit, proceeding or investigation pending or threatened against or affecting the transaction contemplated hereby.

(b) Alfacell Representations, Warranties and Covenants. Alfacell hereby represents, warrants and covenants to Par that:

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(i) neither Alfacell nor any of its Affiliates has granted or, during the Term, will grant to any Third Party any rights under the Alfacell Patents, or any rights, that are in conflict with or prevent the grant of the rights granted by Alfacell to Par in this Agreement;

(ii) the Alfacell Patents constitute all of the patents and patent applications Owned or Controlled by Alfacell as of the Effective Date that are necessary or are useful to Commercialize the Product in the Field in the Territory (as the Product is known to Alfacell as of the Effective Date, and if such Product were to be Commercialized as of the Effective Date);

(iii) Schedule 1.1 sets forth a true and complete list of all patents and patent applications Owned or Controlled by Alfacell that claim Ranpirnase, the Product or their uses in the Field in the Territory as of the Effective Date, which Schedule 1.1 will be updated periodically during the Term by Alfacell to reflect additions thereto;

(iv) Alfacell Owns or Controls the Patents listed on Schedule 1.1, and it has the right and authority to enter into this Agreement and to grant the license under Section 4.1(a) hereof;

(v) Alfacell has received no notice alleging infringement of a Third Party patent in connection with its development and/or manufacture of the Product in the Field in the Territory;

(vi) Alfacell has provided to Par copies of all material correspondence with the FDA related to the Product;

(vii) as of the Effective Date, the molecule for the Primary UMM Indication has been granted orphan drug designation by the FDA under the Orphan Drug Act, as amended;

(viii) as of the Effective Date, (A) there is no action or proceeding pending or, to Alfacell’s Knowledge, threatened in the Territory with respect to use, development, manufacture or importation of the Product in the Field in the Territory in accordance with this Agreement, including with respect to infringement of any Third Party patent in the Field in the Territory, the conduct of any clinical trials, manufacturing activities or development activities involving the Product, or that reasonably calls into question the validity of this Agreement or any action taken by Alfacell in connection with the execution of this Agreement, and (B) there are no unsatisfied judgments or outstanding orders, injunctions, decrees, stipulations or awards (whether rendered by a court, an administrative agency or by an arbitrator) against Alfacell with respect to the Product or the Alfacell Patents in the Field in the Territory;

(ix) Alfacell has not as of the Effective Date, and will not during the Term, grant or place any liens, security interests, other encumbrances and/or licenses in or on, or otherwise divest, the Alfacell Patents that would conflict or interfere with the licenses granted to Par in the Field in the Territory, as set forth herein;

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(x) Alfacell has not violated and will not, during the Term, violate the trade secrets and has not misappropriated, and will not, during the Term, misappropriate, the confidential information or intellectual property of any Third Party in connection with the development or manufacturing of the Product for use in the Field in the Territory;

(xi) none of the Alfacell Patents is currently involved in any interference, reissue, or reexamination proceeding, and neither Alfacell nor any of its Affiliates has received any written notice from any person of such actual or threatened proceeding;

(xii) based on its calculations as of the Effective Date, Alfacell has in its possession, or has access to, a sufficient egg inventory as of the Effective Date to manufacture enough Product to complete the current Phase III Clinical Trial for UMM and to supply *** vials of the Product after anticipated Initial Commercial Sale in the Field in the Territory and Alfacell shall not, without the prior consent of Par, utilize such egg inventory other than in respect of the Products under this Agreement;

(xiii) to Alfacell’s Knowledge, as of the Effective Date, there is no unauthorized use, infringement or misappropriation of any of the Alfacell Patents by any Third Party in the Field in the Territory, including any current or former employee or consultant of Alfacell and its Affiliates; and

(xiv) as of the Effective Date, any Alfacell research or development programs for potential follow-on RNase products (including sequence variants of Ranpirnase) are pre-IND programs.

ARTICLE XII

INDEMNIFICATION AND LIMITATION ON LIABILITY; INSURANCE

12.1 Indemnification by Alfacell. Subject to Section 12.3, Alfacell shall defend, indemnify and hold harmless each of Par and its directors, officers and employees and the successors and assigns of any of the foregoing (each a “Par Indemnitee”) from and against any and all liabilities, damages, settlements, penalties, fines, costs or expenses (including reasonable attorneys’ fees and other expenses of litigation) (collectively, “Losses”) arising, directly or indirectly, out of or in connection with Third Party claims, suits, actions, demands or judgments to the extent relating to or based on Alfacell’s gross negligence, willful misconduct, or breach of its representations, warranties or obligations under this Agreement, except, in each case, to the extent Par has an obligation to indemnify Alfacell under Section 12.2.

12.2 Indemnification by Par. Subject to Section 12.3, Par shall defend, indemnify and hold harmless each of Alfacell and its directors, officers and employees and the successors and assigns of any of the foregoing (each an “Alfacell Indemnitee”) from and against any and all Losses arising, directly or indirectly, out of or in connection with Third Party claims, suits, actions, demands or judgments to the extent relating to or based on Par’s gross negligence, willful misconduct, or breach of its representations, warranties or obligations under this Agreement, except, in each case, to the extent Alfacell has an obligation to indemnify Par under Section 12.1.

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12.3 Notice and Procedures. If an Alfacell Indemnitee or a Par Indemnitee (the “Indemnitee”) intends to claim indemnification under this Article XII, it shall promptly notify the other Party (the “Indemnitor”) in writing of any such alleged Losses promptly after it becomes aware of the basis for such indemnification. The Indemnitor shall have the right to control the defense thereof with counsel of its choice, provided, however, that such counsel is reasonably acceptable to Indemnitee; and, provided, further, that any Indemnitee shall have the right to retain its own counsel at its own expense, for any reason, including if representation of any Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between such Indemnitee and any other Party reasonably represented by such counsel in such proceeding. The Indemnitee, its employees and agents, shall reasonably cooperate with the Indemnitor and its legal representatives in the investigation of any Losses covered by this Article XII. The obligations of this Section 12.3 shall not apply to amounts paid in settlement of any claim, demand, action or other proceeding if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld, conditioned or delayed unreasonably. The failure to deliver prompt written notice to the Indemnitor shall relieve the Indemnitor of any obligation to the Indemnitee of liability under this Section 12.3 to the extent it is prejudiced thereby. It is understood that only Alfacell or Par may claim indemnity under this Article XII (on its own behalf or on behalf of its Indemnitees), and other Indemnitees may not directly claim indemnity hereunder.

12.4 Limitation of Damages. EXCEPT IN RESPECT OF (A) ANY CLAIM RELATED TO THE WILLFUL MISCONDUCT OF A PARTY OR INTENTIONAL BREACH OF A REPRESENTATION, WARRANTY OR OBLIGATION BY A PARTY UNDER THIS AGREEMENT OR (B) ANY THIRD PARTY CLAIMS UNDER ARTICLE XII, NEITHER PARTY NOR ANY OF ITS REPRESENTATIVES (AS DEFINED IN SECTION 8.1) OR AFFILIATES SHALL BE LIABLE TO THE OTHER PARTY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ECONOMIC DAMAGE OR INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF WHETHER SUCH PARTY SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW OR IN FACT SHALL KNOW OF THE POSSIBILITY OF THE FOREGOING.

12.5 Insurance. During the Term and a period of three (3) years thereafter, each Party shall have and maintain, at its own expense, with a reputable and financially secure insurance carrier or carriers, (a) general liability insurance coverage for the manufacture, supply, use and sale of the Product and such Party's activities related to this Agreement as is reasonable, normal and customary in the pharmaceutical industry generally for parties similarly situated and as is appropriate to such activities, and (b) product liability insurance coverage as is reasonable, normal and customary in the pharmaceutical industry generally for the manufacture, supply, use and sale of pharmaceutical products of similar risk profile to the Product. Subject to the foregoing, each Party shall have in place prior to the Initial Commercial Sale product liability insurance coverage in an amount of not less than *** US dollars ($***) per occurrence, and Alfacell shall have a maximum self-insured retention or deductible of *** US dollars ($***) with respect thereto. Upon the request of the other Party, each Party shall provide a certificate of insurance evidencing such coverage to the other Party.

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ARTICLE XIII

TERM AND TERMINATION

13.1 Term. The term of this Agreement (the “Term”) shall commence on the Effective Date and shall expire, unless earlier terminated as provided under Sections 13.2, 13.3, 13.4 or 13.5, on the earlier to occur of

(a) January 1, 2015, if no Full Approval has been obtained for the Product for the Primary UMM Indication or Secondary UMM Indication in the Territory by such date; provided, however, that if Par agrees to waive the precondition in respect thereof pursuant to Section 6.2 and becomes obligated to make a payment to Alfacell of $*** upon the administration of the first dose of the Product to the first patient in a first Phase III Clinical Trial for any Future Indication, then the Term shall automatically be extended until the seventh (7th) anniversary of such payment; or

(b) the latest to occur of the following: (i) in respect of any Indication, the twelfth (12th) anniversary of the initial commercial sale for the Product with such Indication, (ii) the date of expiration of the last Valid Claim within the Alfacell Patents; and (iii) a date later than the foregoing (i) or (ii), which shall be mutually agreed by the Parties in writing, if the Parties agree that Product sales in the Field in the Territory should be continued; provided, however, that if Par becomes obligated to make a payment to Alfacell of $*** upon the administration of the first dose of the Product to the first patient in a first Phase III Clinical Trial for any Future Indication, then the Term shall automatically be extended until the seventh (7th) anniversary of such payment.

13.2 Termination for Breach. If either Party commits a material breach or material default in the performance or observance of any of its obligations under this Agreement, and such breach or default continues for a period of sixty (60) days after delivery by the other Party of written notice reasonably detailing such breach or default and demanding its cure, then the non-breaching or non-defaulting Party shall have the right to terminate this Agreement, with immediate effect, by giving written notice to the breaching or defaulting Party. The Parties shall retain all rights and remedies (at law or in equity) in respect of any breach hereof. In the event that Par reasonably believes that Alfacell has materially breached or materially defaulted under this Agreement and failed to cure such breach or default as provided above, and Par does not wish to terminate its license hereunder, then Par may, in its discretion, retain its license and seek to have a court or an arbitrator (a) determine whether Alfacell has materially breached or defaulted under this Agreement and failed to timely cure such material breach or default, and (b) if such court or arbitrator determines that Alfacell has so materially breached or defaulted and has failed to timely cure such material breach or default, and that Par has suffered Losses arising, directly or indirectly, out of or in connection with or relating to or based on such uncured material breach or default, then such court or arbitrator may either (i) award monetary damages or (ii) prospectively reduce royalty rates and/or other payments hereunder (including reduction in milestone payments), where (i) or (ii) would be objectively determined by such court or arbitrator to be a fair and reasonable remedy for any actual damages determined to have been suffered by Par by such material breach or default by Alfacell.

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13.3 Termination for Bankruptcy. Each Party (the “Insolvent Party”) shall promptly notify the other Party (the “Solvent Party”) in writing upon the initiation of any proceeding in bankruptcy, reorganization, dissolution, liquidation or arrangement for the appointment of a receiver or trustee to take possession of the assets of the Insolvent Party or similar proceeding under the law for release of creditors by or against the Insolvent Party or if the Insolvent Party shall make a general assignment for the benefit of its creditors. If the applicable circumstance described above shall have continued for sixty (60) days undismissed, unstayed, unbonded and undischarged, the Solvent Party may terminate this Agreement upon written notice to the Insolvent Party within ninety (90) days of the Insolvent Party providing the notice referenced above; provided, however, if the Insolvent Party provides for the cure of all of its defaults under this Agreement (if any) and provides adequate assurance of its future performance of its obligations to the Solvent Party’s reasonable satisfaction, then the Solvent Party shall not have the right to terminate this Agreement pursuant to this Section 13.3. All licenses and rights to licenses granted under or pursuant to this Agreement and the Supply Agreement are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the United States Bankruptcy Code (the “Code”), licenses of rights to “intellectual property” as defined under Section 101(35A) of the Code. Par, as the licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the Code. The foregoing provisions of this Section 13.3 are without prejudice to any rights Par may have arising under the Code or other applicable law.

13.4 Termination for Failure to Meet UMM Milestones. Par shall have the right to terminate this Agreement on ninety days’ written notice to Alfacell if (a) the Product for the Primary UMM Indication shall not obtain Full Approval on or before January 1, 2012, or (b) the Product for the Primary UMM Indication receives a Not Approvable communication from the FDA.

13.5 Other Grounds for Termination. A Party may terminate this Agreement pursuant to the terms and conditions of Sections 4.1(e) and/or 4.4(b).

13.6 Effects of Termination.

(a) If Par elects to terminate this Agreement in accordance with Section 13.2, all rights and licenses granted to Par shall automatically and immediately terminate and shall revert to Alfacell (unless otherwise expressly set forth herein).

(b) If Alfacell elects to terminate this Agreement in accordance with Section 13.2, (i) all rights and licenses granted to Par pursuant to this Agreement shall automatically and immediately terminate and Par immediately shall discontinue Commercialization of Product and all use of the Product Trademarks, Trade Names and the Alfacell Technology (without any right to sell inventory pursuant to subsection (d) below); and (ii) Par shall pay within thirty (30) days after such termination: (x) all accrued and unpaid amounts due to Alfacell in accordance with the terms of this Agreement (including, if such termination shall occur following the grant of Regulatory Approval, any payments under Section 6.2 that have been achieved but not yet paid by Par, any unpaid Royalties and the Transfer Price for Product manufactured or in process pursuant to Par’s binding sales forecast but not yet delivered to Par, as well as raw materials purchased therefor, but only to the extent that Alfacell is unable to sell such Product); and (y) any other amounts that will become due to Alfacell through or after the effective date of such termination in accordance with the terms hereof. The remedies set forth in this Section 13.6(b) are in addition to any rights and remedies otherwise available to Alfacell at law or in equity.

CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY

WITH SECURITIES AND EXCHANGE COMMISSION

ASTERISKS DENOTE SUCH OMISSION

(c) Upon the termination or expiration of this Agreement each Party shall return to the other Party, or destroy, all Confidential Information of the other Party.

(d) Except in the case of termination of this Agreement by Alfacell under Section 13.2, Par may continue to sell inventory of Product then on hand for an additional period not to exceed six (6) months, and the sale of such Product shall be subject to the terms and conditions of this Agreement.

13.7 Surviving Rights. The expiration or termination of this Agreement shall not affect the obligations and rights of the Parties which from their context are intended to survive such expiration or termination. Without limiting the foregoing sentence, the provisions of Section 6.5; Section 10.1 (with respect to Par’s obligation to forward all ADE reports); Sections 12.1 through 12.4; Sections 13.3 (with respect to Par’s rights under the Code) and 13.6; this Section 13.7; and Section 13.8; and Articles I, VIII and XIV, shall survive termination or expiration of this Agreement.

13.8 Accrued Rights and Surviving Obligations. The termination or expiration of this Agreement for any reason shall be without prejudice to any rights which shall have accrued to the benefit of either Party prior to such termination or expiration, including any damages arising from any breach hereunder. Such termination or expiration shall not relieve either Party from obligations which are expressly indicated to survive termination or expiration of this Agreement.

ARTICLE XIV

MISCELLANEOUS

14.1 Entire Agreement; Modification. This Agreement, together with the Schedules attached hereto and incorporated herein, constitutes the entire understanding and agreement of the Parties with respect to the subject matter hereof and cancels and supersedes any and all prior negotiations, correspondence, understandings and agreements, whether verbal or written, between the Parties with respect to the subject matter hereof. No modification or amendment of any provision of this Agreement shall be valid or effective unless made in writing and signed by a duly authorized officer of each Party.

14.2 Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their successors and permitted assigns; provided, however, that neither Party shall assign any of its rights and obligations hereunder without the prior written consent of the other Party except to an Affiliate or as incident to the merger, consolidation, reorganization or acquisition of stock or assets affecting substantially all of the assets or actual voting control of the assigning Party. Any assignment or attempted assignment by either Party in violation of the terms of this Section 14.2 shall be null and void. In the event of a Change of Control of Par or Alfacell, the surviving entity shall promptly confirm to Alfacell or Par, as applicable, in writing its obligation to abide by the terms and conditions of this Agreement, and shall meet with Alfacell or Par, as applicable, within thirty (30) days of such Change of Control to discuss and review continued performance under this Agreement.

CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY

WITH SECURITIES AND EXCHANGE COMMISSION

ASTERISKS DENOTE SUCH OMISSION

14.3 Performance by Sub-distributors. The Parties recognize that, subject to Section 4.3, Par may perform some or all of its obligations under this Agreement through one (1) or more of its Sub-distributors, which may or may not be Affiliates of Par; provided, however, that Par shall remain responsible for and shall guarantee such performance by its Sub-distributors (whether or not Affiliates), and shall cause its Sub-distributors (whether or not Affiliates) to comply with the provisions of this Agreement in connection with such performance.

14.4 Notices. Any notices given under this Agreement shall be in writing, addressed to the Parties at the following addresses, and delivered by person, by facsimile followed by U.S. Mail, return receipt requested, or by FedEx or other reputable national courier service. Any such notice shall be deemed to have been given as of the day of personal delivery, one (1) business day after the date sent by facsimile service or on the day of delivery to the other Party confirmed by the courier service.

In the case of Alfacell:	Alfacell Corporation 300 Atrium Drive Somerset, NJ 08873 Attention: Chief Executive Officer Facsimile: (732) 652-4575

with a copy (which shall not constitute notice) to:	Heller Ehrman LLP Times Square Tower 7 Times Square New York, New York 10036 Attention: Kevin T. Collins Facsimile: (212) 763-7600

In the case of Par:	Par Pharmaceutical, Inc. 300 Tice Boulevard Woodcliff Lake, NJ 07677 Attn: General Counsel’s Office Fax: (201) 802-4223

CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY

WITH SECURITIES AND EXCHANGE COMMISSION

ASTERISKS DENOTE SUCH OMISSION

with a copy (which shall not

constitute notice) to:

Orrick, Herrington & Sutcliffe LLP

666 Fifth Avenue

New York, NY 10103-0001

Attn: R. King Milling, Jr., Esq.

Fax: (212) 506-5151

Either Party may change its address for communications by a notice to the other Party in accordance with this Section 14.4.

14.5 Dispute Resolution. The Parties recognize that a bona fide dispute as to certain matters may, from time to time, arise during the Term that relates to a Party’s rights and/or obligations hereunder. In the event of the occurrence of such a dispute, either Party may, by written notice to the other Party, have such dispute referred to the respective officers designated below, or their successors, for attempted resolution by good faith negotiation within thirty (30) days after such notice is received. Such designated officers are as follows:

For Alfacell:	Kuslima Shogen, CEO

For Par:	John MacPhee, President, Strativa Pharmaceuticals (a division of Par Pharmaceutical, Inc.)

In the event that the designated officers are not able to resolve the dispute within such thirty (30)-day period, or such other period of time as the Parties may mutually agree to in writing, the Parties shall attempt in good faith to resolve such dispute in a voluntary, amicable and expeditious manner through non-binding mediation in New York, New York under the International Institute for Conflict Prevention and Resolution (“CPR”) Mediation Procedure then currently in effect. Unless the Parties agree otherwise, the mediator will be selected from the JAMS panel of neutrals and each Party shall bear its own costs. If the dispute is not resolved within sixty (60) days of a Party’s written request for mediation, there is no further obligation to mediate. If the Parties are unable to resolve any dispute through mediation as set forth in this Section 14.5, each Party shall have the right to pursue any and all remedies available at law or in equity.

14.6 Governing Law; Waiver of Jury Trial. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without reference to any rules of conflicts of laws. The Parties hereby consent to the exclusive jurisdiction of the Federal and State courts of New York and hereby waive any objection to venue or forum laid therein. The Parties hereby agree that service of process by certified mail, return receipt requested, shall constitute personal service for all purposes hereof. The Parties expressly reject the application of the United Nations Convention on Contracts for the International Sale of Goods and all implementing legislation thereunder. EACH PARTY HEREBY WAIVES ITS RIGHT TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON, ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY PARTY AGAINST THE OTHER, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR OTHERWISE. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.

CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY

WITH SECURITIES AND EXCHANGE COMMISSION

ASTERISKS DENOTE SUCH OMISSION

14.7 Force Majeure. A Party hereto shall be excused and shall not be held liable or responsible for failure or delay in fulfilling or performing any of its obligations under this Agreement if such failure or delay is caused by acts of God, acts of the public enemy, fire, explosion, flood, drought, war, terrorists, riot, unavailability of raw material, sabotage, embargo, strikes or other labor disputes, intervention of governmental authority, or by any other event or circumstance of like or different character to the foregoing beyond the reasonable control and without the fault or negligence of the affected Party (each, a “Force Majeure Event”). Such excuse shall continue as long as the Force Majeure Event continues. Upon cessation of such Force Majeure Event, such Party shall promptly resume performance hereunder. Each Party agrees to give the other Party prompt written notice of the occurrence of any Force Majeure Event, the nature thereof and the extent to which the affected Party will be unable to perform its obligations hereunder. Each affected Party further agrees to use reasonable efforts to correct or otherwise address the Force Majeure Event as soon as practicable and to give the other Party prompt written notice when it is again fully able to perform such obligations.

14.8 Independent Contractors. In making and performing this Agreement, Par and Alfacell act and shall act at all times as independent contractors and nothing contained in this Agreement shall be construed or implied to create an agency, partnership or employer and employee relationship between Alfacell and Par. At no time shall one Party make commitments or incur any charges or expenses for or in the name of the other Party.

14.9 Severability; Waiver. If one (1) or more of the provisions of this Agreement are held by any court or authority having jurisdiction over this Agreement or either of the Parties to be invalid, illegal or unenforceable, such provision or provisions shall be validly reformed to as nearly as possible approximate the intent of the Parties and, if unreformable, shall be divisible and deleted in such jurisdiction; elsewhere, this Agreement shall not be affected so long as the Parties are still able to realize the principal benefits bargained for in this Agreement. The failure of a Party to insist upon strict performance of any provision of this Agreement or to exercise any right arising out of this Agreement shall neither impair that provision or right nor constitute a waiver of that provision or right, in whole or in part, in that instance or in any other instance. Any waiver by a Party of a particular provision or right shall be in writing, shall be as to a particular matter and, if applicable, for a particular period of time and shall be signed by such Party.

14.10 Further Actions. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

14.11 Cumulative Rights. The rights, powers and remedies hereunder shall be in addition to, and not in limitation of, all rights, powers and remedies provided at law or in equity, or under any other agreement between the Parties. All of such rights, powers and remedies shall be cumulative, and may be exercised successively or cumulatively.

CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY

WITH SECURITIES AND EXCHANGE COMMISSION

ASTERISKS DENOTE SUCH OMISSION

14.12 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be an original and all of which shall constitute together the same document. Counterparts may be signed and delivered by facsimile, each of which shall be binding when sent.

14.13 Publicity and Press Releases. Neither Party shall (a) originate any publicity, news release or other public announcement, written or oral, whether to the public press, stockholders or otherwise, relating to this Agreement, any amendment hereto or performance hereunder, or (b) use the name of the other Party in any publicity, news release or other public announcement, except (i) with the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed, or (ii) as required by applicable law or regulation, in which case the originating Party shall submit to the other Party (for review and any proposed modifications, as well as the Parties’ coordination, prior to such disclosure or use) each such required disclosure, and shall comply with the terms of Article VIII; provided, however, that if a Party determines in good faith that it is required to make a public disclosure with respect to the subject matter of this Agreement pursuant to any applicable securities laws or the rules of any securities exchange on which its securities are traded, it shall not be required to obtain the prior written approval of the contents of such public disclosure from the other Party, but it shall use its reasonable best efforts to provide the other Party with a reasonable opportunity to review such public disclosure before it is made public and will consider in good faith changes to such public disclosure suggested by the other Party. Public disclosures with respect to the subject matter of this Agreement that contain only information that is consistent with the information contained in prior public disclosures made by one of the Parties in accordance with the terms of this Section 14.13 shall not require prior review or approval by the non-disclosing Party. Par acknowledges that Alfacell will be obligated to file a copy of this Agreement with the United States Securities and Exchange Commission (“SEC”). Alfacell will seek confidential treatment of those portions of this Agreement which it deems appropriate under applicable regulations of the SEC.

[Signature Page Follows]

CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY

WITH SECURITIES AND EXCHANGE COMMISSION

ASTERISKS DENOTE SUCH OMISSION

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the Effective Date.

	ALFACELL CORPORATION


	By:	/s/ Kuslima Shogen
	Name:	Kuslima Shogen
	Title:	Chairman & CEO


	PAR PHARMACEUTICAL, INC.


	By:	/s/ Patrick G. LePore
	Name:	Patrick G. LePore
	Title:	CEO & President

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

300 Tice Boulevard, Woodcliff Lake, New Jersey	07677
(Address of principal executive offices)	(Zip Code)

Title of Class:		Name of each exchange on which registered:
Common Stock, $0.01 par value		The New York Stock Exchange, Inc.
Preferred Share Purchase Rights		The New York Stock Exchange, Inc.

		PAGE

PART I

Forward-Looking Statements

Item 1.	Business	3

Item 1A.	Risk Factors	14

Item 2.	Properties	27

Item 3.	Legal Proceedings	27

Item 4.	Submission of Matters to a Vote of Security Holders	35

PART II

Item 5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	35

Item 6.	Selected Financial Data	37

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39

Item 7A	Quantitative and Qualitative Disclosures about Market Risk	53

Item 8.	Consolidated Financial Statements and Supplementary Data	54

Item 9	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	54

Item 9A.	Controls and Procedures	54

Item 9B.	Other Information	55

PART III

Item 10	Directors and Executive Officers of the Registrant	56

Item 11	Executive Compensation	56

Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	56

Item 13	Certain Relationships and Related Transactions	56

Item 14	Principal Accountant Fees and Services	56

PART IV

Item 15	Exhibits	56

SIGNATURES		63

Name		Competitive Brand Name Drug
Generic:

Acebutolol		Sectral
Acyclovir		Zovirax
Allopurinol		Zyloprim

Name		Competitive Brand Name Drug
Amiloride Hydrochloride		Midamor
Amiodarone Hydrochloride		Cordarone
Amoxicillin Oral Suspension		Amoxil
Amoxicillin Tabs		Amoxil
Amoxicillin/Clavalunate (Chew Tabs)		Amoxil
Amoxicillin/Clavalunate (Oral Susp.)		Amoxil
Amoxicillin/Clavalunate (Tabs)		Amoxil
Aspirin (zero order release)		Zorprin
Benztropine Mesylate		Cogentin
Buspirone		BuSpar
Cabergoline		Dostinex
Captopril		Capoten
Captopril HCTZ		Capozide
Carisoprodol and Aspirin		Soma Compound
Chlordiazepoxide and Amitripylene		Librium DS
Chlordiazepoxide HCl		Librium
Cholestyramine & Light (Generic)		Questran & Light
Cholestyramine (Brand)		Questran
Cholestyramine Light (Brand)		Questran Light
Citalopram		Celexa
Clomiphene		Clomid
Clonazepam ODT		Klonopin
Clozapine		Clozaril
Cyproheptadine Hydrochloride		Periactin
Diphenoxylate Hydrochloride and Antropine Sulfate		Lomotil
Doxepin Hydrochloride		Sinequan, Adapin
Doxycycline Monohydrate		Adoxa, Monodox
Enalapril		Vasotec
Enalapril Maleate HCTZ		Vaseretic
Estazolam		Prosom
Famotidine		Pepcid
Flecainide		Tambocor
Fluoxetine		Prozac
Fluoxetine Syrup		Prozac
Fluphenazine Hydrochloride		Prolixin
Flutamide		Eulexin
Fluticasone Nasal Spray		Flonase
Glycopyrrolate		Robinul
Glycopyrrolate Forte		Robinul Forte
Guanfacine		Tenex
Hydralazine Hydrochloride		Apresoline
Hydra-Zide		Apresazide
Hydroquinone HCL		Eldoquin
Hydroxurea		Hydrea
Ibuprofen		Advil, Nuprin, Motrin
Imipramine Hydrochloride		Tofranil
Isosorbide Dinitrate		Isordil
Leflunomide		Arava
Lovastatin		Mevacor
Meclizine Hydrochloride		Antivert
Megestrol Acetate		Megace
Megestrol Acetate Oral Suspension		Megace Oral Suspension
Mercaptopurine		Purinethol
Metaproterenol Sulfate		Alupent
Methimazole		Tapazole
Metoprolol Succinate		Toprol-XL
Metronidazole		Flagyl

Name		Competitive Brand Name Drug
Minocycline		Minocin
Minoxidil		Loniten
Nabumetone		Relafen
Nizatidine		Axid
Nystatin Powder		Mycostatin
Ondansetron ODT		Zofran ODT
Paroxetine		Paxil
Pravastatin		Pravachol
Propoxyphene Hydrochloride		Darvon
Propranolol ER		Inderal LA
Quinapril		Accupril
Ranitidine Syrup		Zantac
Ranitidine		Zantac
Silver Sulfadiazine (SSD)		Silvadene
Sotalol		Betapace
Ticlopidine Hydrochloride		Ticlid
Tizanidine		Zanaflex
Torsemide		Demadex
Tranylcypromine Sulfate		Parnate

	December 31, 2007		December 31, 2006
Securities issued by government agencies	$	46,201	$	65,897
Debt securities issued by various state and local municipalities and agencies		24,223		13,755
Other debt securities		13,991		15,870
Marketable equity securities available for sale		2,650		-
Auction rate securities		5,000		4,250
Total	$	92,065	$	99,772

	Page Number
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2007 and 2006 (as restated)	F-3
Consolidated Statements of Operations for the years ended December 31, 2007, 2006 (as restated) and 2005 (as restated)	F-4
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2007, 2006 (as restated) and 2005 (as restated)	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 (as restated) and 2005 (as restated)	F-6
Notes to Consolidated Financial Statements	F-8

Dated: February 29, 2008	PAR PHARMACEUTICAL COMPANIES, INC.
	(Company)

	/s/ Patrick G. LePore
	Patrick G. LePore
	Chairman, President and Chief Executive Officer

Signature	Title	Date

/s/ Joseph E. Smith	Lead Director	February 29, 2008
Joseph E. Smith

/s/ Patrick G. LePore	President, Chief Executive Officer and	February 29, 2008
Patrick G. LePore	Chairman of the Board of Directors
	(Principal Executive Officer)

/s/ Gerard A. Martino	Executive Vice President and Chief Operating Officer	February 29, 2008
Gerard A. Martino

/s/ Veronica A. Lubatkin	Executive Vice President and Chief Financial Officer	February 29, 2008
Veronica A. Lubatkin	(Principal Accounting and Financial Officer)

/s/ Peter S. Knight	Director	February 29, 2008
Peter S. Knight

/s/ Ronald M. Nordmann	Director	February 29, 2008
Ronald M. Nordmann

/s/ L. William Seidman	Director	February 29, 2008
L. William Seidman

/s/ John D. Abernathy	Director	February 29, 2008
John D. Abernathy

/s/ Dr. Melvin Sharoky	Director	February 29, 2008
Dr. Melvin Sharoky

		Page

Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets as of December 31, 2007 and 2006 (as restated)		F-3

Consolidated Statements of Operations for the years ended December 31, 2007, 2006 (as restated) and 2005 (as restated)		F-4

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2007, 2006 (as restated) and 2005 (as restated)		F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 (as restated) and 2005 (as restated)		F-6

Notes to Consolidated Financial Statements		F-8

	December 31,			December 31,
	2007			2006
					(Restated see Note 1)
ASSETS
Current assets:
Cash and cash equivalents	$	200,132		$	120,991
Available for sale debt and marketable equity securities		85,375			92,120
Accounts receivable, net		64,182			99,043
Inventories		84,887			106,322
Prepaid expenses and other current assets		14,294			15,833
Deferred income tax assets		56,921			72,105
Income taxes receivable		17,516			12,422
Total current assets		523,307			518,836

Property, plant and equipment, at cost less accumulated depreciation and amortization		82,650			89,155
Available for sale debt and marketable equity securities		6,690			7,652
Investment in joint venture		6,314			5,292
Other investments		2,500			16,588
Intangible assets, net		36,059			47,880
Goodwill		63,729			63,729
Deferred financing costs and other assets		2,544			16,000
Non-current deferred income tax assets, net		57,730			49,545
Total assets	$	781,523		$	814,677

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term and current portion of long-term debt	$	200,000		$	204,469
Accounts payable		32,200			48,297
Payables due to distribution agreement partners		36,479			89,585
Accrued salaries and employee benefits		16,596			15,510
Accrued expenses and other current liabilities		27,518			18,833
Income taxes payable		-			36,933
Total current liabilities		312,793			413,627

Long-term debt, less current portion		-			-
Other long-term liabilities		30,975			-

Commitments and contingencies

Stockholders’ equity:
Preferred Stock, par value $0.0001 per share, authorized 6,000,000 shares; none issued and outstanding		-			-
Common Stock, par value $0.01 per share, authorized 90,000,000 shares, issued 36,460,461 and 35,901,276 shares		364			359
Additional paid-in-capital		274,963			254,013
Retained earnings		230,195			180,297
Accumulated other comprehensive loss		(1,362	)		(431	)
Treasury stock, at cost 2,604,977 and 889,245 shares		(66,405	)		(33,188	)
Total stockholders’ equity		437,755			401,050
Total liabilities and stockholders’ equity	$	781,523		$	814,677

	Common Stock						Additional paid-in capital			Retained earnings			Accumulated other comprehensive income/(loss)			Treasury stock			Total stockholders’ equity
	Shares			Amount						(Restated, see Note 1)									(Restated, see Note 1)
Balance, December 31, 2004		34,759		$	348		$	192,230		$	208,824		$	(604	)	$	(32,026	)	$	368,772
Comprehensive loss:
Net loss		-			-			-			(34,374	)		-			-			(34,374	)
Defined benefit pension plan, $218 net of tax of $84		-			-			-			-			(134	)		-			(134	)
Unrealized loss on available for sale securities, $1,926 net of tax of $761		-			-			-			-			(1,165	)		-			(1,165	)
Total comprehensive loss		-			-			-			-			-			-			(35,673	)
Exercise of stock options		114			1			2,203			-			-			-			2,204
Resolution of tax contingencies		-			-			16,819			-			-			-			16,819
Tax benefit from exercise of stock options		-			-			591			-			-			-			591
Employee stock purchase program		18			-			448			-			-			-			448
Purchase of treasury stock		-			-			-			-			-			(152	)		(152	)
Compensatory arrangements		-			-			4,791			-			-			-			4,791
Restricted stock grants		223			2			(2	)		-			-			-			-
Other		-			-			323			-			-			-			323
Balance, December 31, 2005		35,114		$	351		$	217,403		$	174,450		$	(1,903	)	$	(32,178	)	$	358,123

Comprehensive income:
Net income		-			-			-			5,847			-			-			5,847
Defined benefit pension plan, $435 net of tax of $168		-			-			-			-			267			-			267
Unrealized gain on available for sale securities, $1,994 net of tax of $789		-			-			-			-			1,205			-			1,205
Total comprehensive income		-			-			-			-			-			-			7,319
Exercise of stock options		402			4			8,568			-			-			-			8,572
Tax benefit from exercise of stock options		-			-			741			-			-			-			741
Resolution of tax contingencies		-			-			2,495			-			-			-			2,495
Employee stock purchase program		15			-			392			-			-			-			392
Purchase of treasury stock		-			-			-			-			-			(1,010	)		(1,010	)
Compensatory arrangements		-			-			24,001			-			-			-			24,001
Restricted stock grants		471			4			(4	)		-			-			-			-
Forfeiture of restricted stock		(101	)		-			-			-			-			-			-
Other		-			-			417			-			-			-			417
Balance, December 31, 2006		35,901		$	359		$	254,013		$	180,297		$	(431	)	$	(33,188	)	$	401,050
Comprehensive income:
Net income		-			-			-			49,898			-			-			49,898
Unrealized loss on available for sale securities, $1,500 net of tax of $569		-			-			-			-			(931	)		-			(931	)
Total comprehensive income		-			-			-			-			-			-			48,967
Exercise of stock options		68			-			379			-			-			-			379
Tax benefit from exercise of stock options		-			-			501			-			-			-			501
Tax deficiency related to the expiration of stock options		-			-			(708	)		-			-			-			(708	)
Tax deficiency related to the vesting of restricted stock		-			-			(739	)		-			-			-			(739	)
Purchase of treasury stock		-			-			-			-			-			(33,217	)		(33,217	)
Compensatory arrangements		-			-			23,503			-			-			-			23,503
Restricted stock grants		605			6			(6	)		-			-			-			-
Forfeiture of restricted stock		(132	)		(1	)		1			-			-			-			-
Cash settlement for certain unvested stock options		-			-			(872	)		-			-			-			(872	)
Tax effect on cash settlement for certain unvested options		-			-			(1,422	)		-			-			-			(1,422	)
Other		19			-			313			-			-			-			313
Balance, December 31, 2007		36,461		$	364		$	274,963		$	230,195		$	(1,362	)	$	(66,405	)	$	437,755

Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes, net	$	36,500		$	890	$	4,682
Interest	$	5,883		$	5,862	$	5,749

Non-cash transactions:
Increase (decrease) in fair value of available for sale debt and marketable equity securities	$	(1,444	)	$	1,994	$	(4,751	)
Capital expenditures incurred but not yet paid	$	1,394		$	922	$	4,564
Capital contribution to joint venture not yet paid	$	590		$	1,244	$	-
Acquired intangibles not yet paid	$	-		$	-	$	2,000

Brand:

Megace® ES

(Amounts in thousands)	As previously reported		Restatement Adjustments			As restated
Current assets:
Accounts receivable, net	$	94,784	$	4,259		$	99,043
Total current assets	$	514,577	$	4,259		$	518,836
Total assets	$	810,418	$	4,259		$	814,677

Liabilities and stockholders’ equity:
Current liabilities:
Accrued expenses and other current liabilities	$	14,574	$	4,259		$	18,833
Income taxes payable	$	16,974	$	19,959		$	36,933
Total current liabilities	$	389,409	$	24,218		$	413,627
Retained earnings	$	200,256	$	(19,959	)	$	180,297
Total stockholders’ equity	$	421,009	$	(19,959	)	$	401,050
Total liabilities and stockholders’ equity	$	810,418	$	4,259		$	814,677

Buildings	30 to 40 years
Machinery and equipment	4 to 10 years
Office equipment, furniture and fixtures	5 to 7 years
Computer software and hardware	3 to 7 years

	For the year ended December 31,
	2007			2006			2005
Risk-free interest rate		4.6	%		4.5	%		3.8	%
Expected life (in years)		6.2			6.2			5.0
Expected Volatility		52.5	%		57.9	%		58.6	%
Dividend		0	%		0	%		0	%

	Year Ended			Year Ended
	December 31, 2007			December 31, 2006

Cost of sales	$	1,137		$	886
Research and development		2,842			2,217
Selling, general and administrative		10,230			12,040
Total, pre-tax		14,209			15,143
Tax benefit of share-based compensation		(5,399	)		(5,906	)
Total, net of tax	$	8,810		$	9,237

				Weighted		Weighted		Aggregate
				Average		Average		Intrinsic
	Shares			Exercise Price		Remaining Life		Value

Balance at December 31, 2006		5,470		$	36.00
Granted		592			23.41
Exercised		(68	)		5.60
Forfeited		(1,468	)		36.16
Balance at December 31, 2007		4,526		$	34.76		5.9	$	5,358
Exercisable at December 31, 2007		3,399		$	37.68		4.9	$	3,412
Vested and expected to vest at December 31, 2007		4,372		$	34.95		5.7	$	5,187

	For the year ended
	December 31,			December 31,			December 31,
	2007			2006			2005

Cost of sales	$	626		$	342		$	185
Research and development		1,565			1,348			619
Selling, general and administrative		7,102			7,107			2,155
Total, pre-tax		9,293			8,797			2,959
Tax benefit of stock-based compensation		(3,531	)		(3,430	)		(1,120	)
Total, net of tax	$	5,762		$	5,367		$	1,839

								Estimated
			Unrealized					Fair
	Cost		Gain		(Loss)			Value
Securities issued by government agencies	$	46,177	$	24	$	-		$	46,201
Debt securities issued by various state and local municipalities and agencies		24,226		-		(3	)		24,223
Other debt securities		15,020		-		(1,029	)		13,991
Auction rate securities		5,000		-		-			5,000
Available for sale debt securities		90,423		24		(1,032	)		89,415

Marketable equity securities available for sale
Hana Biosciences, Inc.		3,850		-		(1,200	)		2,650

Total	$	94,273	$	24	$	(2,232	)	$	92,065

			Estimated
	Cost		Fair Value
Less than one year	$	40,195	$	40,179
Due between 1-2 years		32,078		32,110
Due between 2-5 years		13,083		13,086
Due after 5 years		5,067		4,040
Total	$	90,423	$	89,415


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


Balance at December 31, 2006		Carrying Value
Abrika Pharmaceuticals, LLLP	$	4,588
Optimer Pharmaceuticals, Inc.		12,000
Total other investments	$	16,588

Allowance for doubtful accounts	Year Ended
	December 31, 2007			December 31, 2006				December 31, 2005
Balance at beginning of period	$	(2,465	)	$	(1,847	)		$	(1,847	)
Additions – charge to expense		-			(10,458	)	(b)		-
Adjustments and/or deductions		2,445			9,840				-
Balance at end of period	$	(20	)	$	(2,465	)		$	(1,847	)

	For the Years Ended December 31,
	2007			2006			2005

Income from continuing operations	$	51,110		$	6,741		$	11,821

Loss from discontinued operations		-			-			(4,957	)
Loss from disposal		-			-			(38,018	)
Provision for income taxes		1,212			894			3,220
Loss from discontinued operations		(1,212	)		(894	)		(46,195	)
Net income (loss)	$	49,898		$	5,847		$	(34,374	)

Basic:
Weighted average number of common shares outstanding		34,494			34,422			34,191

Income from continuing operations	$	1.48		$	0.20		$	0.35
Loss from discontinued operations		(0.04	)		(0.03	)		(1.35	)
Net income (loss) per share of common stock	$	1.44		$	0.17		$	(1.00	)

Assuming dilution:
Weighted average number of common shares outstanding		34,494			34,422			34,191
Effect of dilutive securities		224			231			244
Weighted average number of common and common equivalent shares outstanding		34,718			34,653			34,435

Income from continuing operations	$	1.47		$	0.19		$	0.35
Loss from discontinued operations		(0.04	)		(0.03	)		(1.35	)
Net income (loss) per share of common stock	$	1.43		$	0.16		$	(1.00	)

	Unrealized (Loss) / Gain on Available for Sale Securities
	Before-Tax Amount			Tax Benefit (Expense)			Net-of-Tax Amount
Balance, December 31, 2005	$	(2,698	)	$	1,062		$	(1,636	)
Unrealized gain on available for sale securities		1,994			(789	)		1,205
Balance, December 31, 2006	$	(704	)	$	273		$	(431	)
Unrealized loss on available for sale securities		(1,500	)		569			(931	)
Balance, December 31, 2007	$	(2,204	)	$	842		$	(1,362	)

	Outstanding Options						Exercisable Options
Exercise	Number		Weighted Average		Weighted Average		Number		Weighted Average
Price Range	of Options		Exercise Price		Remaining Life		of Options		Exercise Price
$4.13 to $7.63		172	$	6.81		2.8 years		172	$	6.81
$15.10 to $19.70		295	$	17.61		8.8 years		71	$	17.63
$20.00 to $25.00		494	$	23.17		9.1 years		35	$	23.99
$25.85 to $29.90		462	$	26.93		6.6 years		272	$	26.68
$30.55 to $34.29		1,797	$	31.80		5.4 years		1,651	$	31.71
$36.06 to $53.40		608	$	42.95		6.7 years		513	$	43.10
$60.85 to $71.01		698	$	62.75		6.0 years		687	$	62.78

	(In thousands)

Gross balance at January 1, 2007	$	21,768
Additions based on tax positions related to the current year		1,558
Additions for tax positions of prior years		824
Reductions for tax positions of prior years		-
Reductions due to lapse of applicable statute of limitations		-
Audit settlements paid during 2007		-

Gross balance at December 31, 2007		24,150
Interest and penalties		6,825

Balance at December 31, 2007	$	30,975

	December 31,
	2005
Revenues	$	150
Pre-tax loss from operations		(4,957	)
Pre-tax loss on sale of discontinued operations		(38,018	)

Product	2007		2006		2005
Generic
Metoprolol (Toprol-XL®)	$	141,877	$	8,284	$	-
Fluticasone (Flonase®)		130,475		235,454		-
Propranolol HCL (Inderal LA®)		57,459		-		-
Cabergoline (Dostinex®)		34,252		34,824		2,347
Various amoxicillin products (Amoxil®)		27,714		59,257		-
Ibuprofen Rx (Advil®, Nuprin®, Motrin®)		17,248		17,224		18,308
Tramadol HCl and acetaminophen tablets (Ultracet®)		16,024		26,524		67,817
Megestrol oral suspension (Megace^®)		14,344		14,990		24,699
Fluoxetine (Prozac®)		13,229		19,315		23,463
Methimazole (Tapazole®)		12,343		10,999		10,362
Ranitidine syrup (Zantac®)		12,243		-		-
Mercatopurine (Purinethol®)		9,930		10,652		16,107
Ranitidine (Zantac®)		8,513		6,058		7,713
Lovastatin (Mevacor®)		7,360		16,314		16,650
Paroxetine (Paxil®)		2,773		11,034		37,449
Glyburide & Metformin HCl (Glucovance®)		2,313		7,613		8,023
Quinapril (Accupril®)		1,851		20,049		15,372
Metformin ER (Glucophage XR®)		1,776		6,347		4,751
Cefprozil (Cefzil®)		1,165		11,879		563
Other product related revenues (2)		21,214		17,290		20,130
Other (1)		150,810		141,831		143,630
Total generic revenues	$	684,917	$	675,938	$	417,384

Brand
Megace^®ES	$	75,317	$	43,379	$	13,908
Other		-		3,351		964
Other product related revenues (2)		9,432		2,500		-
Total brand revenues	$	84,749	$	49,230	$	14,872

	Fiscal Quarters Ended
	March 31, 2007		June 30, 2007		September 29, 2007		December 31, 2007
Total revenues	$	234,210	$	167,640	$	212,676	$	155,140
Gross margin		87,689		56,555		66,428		57,847
Total operating expenses		46,018		48,276		66,358		54,279
Operating income		61,671		8,279		70		3,568
Income from continuing operations	$	41,514	$	2,798	$	1,269	$	5,529
Loss from discontinued operations		-		-		-		(1,212	)
Net income	$	41,514	$	2,798	$	1,269	$	4,317
Net income (loss) per common share
Basic:
Income for continuing operations	$	1.20	$	0.08	$	0.04	$	0.16
Loss from discontinued operations		-		-		-		(0.04	)
Net income	$	1.20	$	0.08	$	0.04	$	0.12
Diluted:
Income for continuing operations	$	1.19	$	0.08	$	0.04	$	0.16
Loss from discontinued operations		-		-		-		(0.04	)
Net income	$	1.19	$	0.08	$	0.04	$	0.12

	Fiscal Quarters Ended
	April 1, 2006		July 1, 2006			September 30, 2006		December 31, 2006

Total revenues	$	172,318	$	195,238		$	173,979	$	183,633
Gross margin		49,168		54,767			55,060		58,953
Total operating expenses		42,194		61,748			49,573		56,711
Operating income (loss)		6,974		(6,981	)		5,487		2,242
Income (loss) from continuing operations	$	4,514	$	(7,205	)	$	4,387	$	5,045
Loss from discontinued operations		-		-			-		(894	)	(a)
Net income (loss)	$	4,514	$	(7,205	)	$	4,387	$	4,151		(a)
Net income (loss) per common share
Basic:
Income (loss) for continuing operations	$	0.13	$	(0.21	)	$	0.13	$	0.15
Loss from discontinued operations		-		-			-		(0.03	)	(a)
Net income (loss)	$	0.13	$	(0.21	)	$	0.13	$	0.12		(a)
Diluted:
Income (loss) for continuing operations	$	0.13	$	(0.21	)	$	0.13	$	0.15
Loss from discontinued operations		-		-			-		(0.03	)	(a)
Net income (loss)	$	0.13	$	(0.21	)	$	0.13	$	0.12		(a)

	If to Company:	Par Pharmaceutical Companies, Inc.
		300 Tice Boulevard Woodcliff Lake, NJ 07677 Attn: General Counsel

	If to Director:	Address of Director on file with the Company