UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2007

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

Barr Pharmaceuticals, Inc.

Delaware		42-1612474
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. — Employer Identification No.)
225 Summit Ave Montvale, New Jersey		07645-1523
(Address of principal executive offices)		(Zip Code)

Title of each class		Name of each exchange on which registered:
Common Stock, Par Value $0.01		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

     Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

     Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark if the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     The aggregate market value of the common equity held by non-affiliates of the Registrant computed by reference to the price at which the common equity was last sold on June 29, 2007, was approximately $5.6 billion. For purposes of this calculation, shares held by directors, executive officers and 10% shareholders of the Registrant have been excluded. Such exclusion should not be deemed a determination or an admission by the Registrant that these individuals are, in fact, affiliates of the Registrant.

     As of February 15, 2008, there were 107,907,427 shares of the Registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference from the registration’s definitive proxy statement relating to the annual meeting of shareholders to be held on May 15, 2008, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.

 

 

BARR PHARMACEUTICALS, INC.

INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007

						Page
PART I
Item 1:				Business			3
Item 1A:				Risk Factors			28
Item 1B:				Unresolved Staff Comments			36
Item 2:				Properties			37
Item 3:				Legal Proceedings			38
Item 4:				Submission of Matters to a Vote of Security Holders			44
PART II
Item 5:				Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			44
Item 6:				Selected Financial Data			45
Item 7:				Management’s Discussion and Analysis of Financial Condition and Results of Operations			46
Item 7A:				Quantitative and Qualitative Disclosure About Market Risk			77
Item 8:				Financial Statements and Supplementary Data			77
Item 9:				Changes in and Disagreements With Accountants on Accounting and Financial Disclosures			77
Item 9A:				Controls and Procedures			78
Item 9B:				Other Information			81
PART III
Item 10:				Directors, Executive Officers and Corporate Governance			82
Item 11:				Executive Compensation			82
Item 12:				Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			82
Item 13:				Certain Relationships and Related Transactions and Director Independence			82
Item 14:				Principal Accounting Fees and Services			82
PART IV
Item 15:				Exhibits and Financial Statement Schedules			83
				SIGNATURES			87
				Index to Financial Statements and Financial Statement Schedule			F-1
EX-10.4: AMENDED AND RESTATED NON-QUALIFIED DEFERRED COMPENSATION PLAN
EX-10.11: AMENDED AND RESTATED EXCESS SAVINGS AND RETIREMENT PLAN
EX-10.31: AMENDMENT TO EMPLOYMENT AGREEMENT
EX-21.0: SUBSIDIARIES
EX-23.1: CONSENT OF DELOITTE & TOUCHE LLP
EX-23.2: CONSENT OF KPMG HUNGARIA KFT.
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.0: CERTIFICATIONS

PART I

ITEM 1. BUSINESS

Safe Harbor Statement and Market Data

     This Annual Report on Form 10-K and the documents incorporated herein by reference contain forward-looking statements based on expectations, estimates and projections as of the date of this filing. Actual results may differ materially from those expressed in forward-looking statements. See Item 1A — “Risk Factors.”

     This report also contains market and industry data obtained from industry publications. We have not independently verified any of this information and its accuracy and completeness cannot be guaranteed.

Change in Fiscal Year

     Effective December 31, 2006, Barr Pharmaceuticals, Inc. (“Barr”, the “Company”, “we”, “us” or “our”) changed its fiscal year end from June 30 to December 31. This change was made to align our fiscal year end with that of our then recently acquired subsidiary, PLIVA d.d. (“PLIVA”), and with other companies within our industry. This Form 10-K covers the calendar year January 1, 2007 to December 31, 2007, which we refer to as “2007.” Comparative financial information to 2007 is provided in this Form 10-K with respect to the calendar year January 1, 2006 to December 31, 2006, which is unaudited and which we refer to as “2006.” Additional information is provided with respect to the transition period July 1, 2006 through December 31, 2006 (the “Transition Period”), which is audited. We refer to the period beginning July 1, 2005 and ending June 30, 2006 as “fiscal 2006”, and the period beginning July 1, 2004 and ending June 30, 2005 as “fiscal 2005.” All information, data and figures provided in this report for fiscal 2006 and 2005 relate solely to Barr’s financial results and do not include the results of PLIVA, the Croatian company we acquired in October 2006.

OVERVIEW

     We are a global specialty pharmaceutical company that operates in more than 30 countries. Our operations are based primarily in North America and Europe, with our key markets being the United States, Croatia, Germany, Poland and Russia. We are primarily engaged in the development, manufacture and marketing of generic and proprietary pharmaceuticals. We are one of the world’s leading generic drug companies. For 2007, which includes PLIVA’s results of operations for the entire period, we recorded $2.3 billion of product sales and $2.5 billion of total revenues worldwide. In addition, we are actively involved in the development of generic biologic products, an area that we believe provides significant prospects for long-term earnings and profitability.

     Generics

     We market and sell generic pharmaceutical products in the U.S., Europe and certain other countries in the rest of the world (which we refer to as “ROW”). During 2007, we recorded $1.9 billion of sales of generic pharmaceutical products. We conduct our generics business in North America principally through our Barr Laboratories subsidiary and in Europe and the ROW through PLIVA and its subsidiaries.

     Our generic product portfolio includes solid oral dosage forms, injectables, liquids and cream/ointment products. At December 31, 2007, we marketed for sale (a) in the U.S., approximately 245 different dosage forms and strengths of approximately 120 different generic pharmaceutical products, including 25 oral contraceptive products, and (b) in Europe and the ROW, approximately 255 different molecules, representing 1,025 generic pharmaceutical products in approximately 2,790 different presentations (where one molecule in one market represents a product, and each combination of a formulation and strength represents one presentation).

     Our generic product development efforts are focused primarily on high barrier-to-entry products for all our markets, utilizing our various drug delivery platforms. To more effectively compete in some European and ROW markets, we also develop and in-license certain commodity products where we can obtain market share based on the efforts of our sales forces in those markets.

     Proprietary Products

     We market and sell proprietary pharmaceutical products primarily in the United States. During 2007, we recorded $438.3 million of sales of proprietary pharmaceutical products. Our proprietary business is conducted through our Duramed Pharmaceuticals subsidiary.

     Our proprietary product portfolio and pipeline is largely concentrated in the area of female healthcare. At December 31, 2007, we marketed 26 proprietary pharmaceutical products. These products include, among others: SEASONIQUE^® (levonorgestrel/ethinyl estradiol tablets 0.15 mg/0.03 mg and ethinyl estradiol tablets 0.01 mg), our newest generation extended-cycle oral contraceptive product; PLAN B^TM (levonorgestrel), our dual-label, over-the-counter (OTC)/Rx emergency contraceptive; PARAGARD^® T 380A (intrauterine copper contraceptive), our IUC contraceptive product; MIRCETTE^® (Desogestrel and Ethinyl Estradiol), a traditional 28-day oral contraceptive; and our ENJUVIA^™ (synthetic conjugated estrogens, B) line of hormone therapy products.

     Biologics

     Biologic products represent a significant subset of pharmaceutical products and are manufactured with the use of live organisms as opposed to chemical (non-biological) compounds. At December 31, 2007, we had several generic biologics products in various stages of development for the U.S. and European markets, including granulocyte colony stimulating factor (“G-CSF”), a protein that stimulates the growth of certain white blood cells. We are optimistic about our prospects of becoming a leader in the generic biologics market worldwide, and are actively working with the Congress and the Food and Drug Administration (the “FDA”) to create a regulatory pathway for generic biologics in the United States.

     General Information

     To supplement our internal efforts in support of our business strategies, we continually evaluate business development opportunities that we believe will strengthen our product portfolio and help grow our generic, proprietary, and generic biologic businesses. A primary example of this activity is our acquisition of PLIVA, as discussed in greater detail below.

     We operate manufacturing, research and development and administrative facilities in five primary locations within the U.S. and three primary locations in Europe. Through our PLIVA acquisition, we also develop and manufacture active pharmaceutical ingredients to support our internal product development efforts. Our organizational structure reflects the global nature of our business and the sharing of resources between our generic and proprietary businesses. For example, our operating and corporate functions are managed on a global basis, supporting both generic and proprietary activities.

     Barr Pharmaceuticals, Inc. is a Delaware holding company that was formed through a reincorporation merger on December 31, 2003. Our predecessor entity, a New York corporation, was formed in 1970 and commenced active operations in 1972. Our corporate headquarters are located at 225 Summit Avenue, Montvale, New Jersey 07645, and our main telephone number is 201-930-3300.

     Our Internet address is www.barrlabs.com. We do not intend for this website address to be an active link or to otherwise incorporate by reference the contents of the website into this report. We post the following filings in the Investors section of our website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. All such filings on our Investors section of the website are available free of charge. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room or electronically through the SEC website (www.sec.gov). We also provide information concerning corporate governance, including our Corporate Governance Guidelines, Board committee charters and committee composition, Code of Conduct and other governance information within the Investors section of our website.

PLIVA Acquisition

     On October 24, 2006, we completed the acquisition of PLIVA, a generic pharmaceutical company headquartered in Zagreb, Croatia. Under the terms of the cash tender offer, we paid approximately $2.4 billion based

on an offer price of HRK 820 per share (in the Croatian currency) for all shares tendered during the offer period. Subsequent to the close of the offer period, we purchased an additional 390,809 shares on the Croatian stock market for $58.3 million, and own 98.1% of all shares of PLIVA as of December 31, 2007.

     Under Croatian law, our ownership of more than 95% of the voting shares in PLIVA permits us to undertake the necessary actions to acquire the remainder of PLIVA’s outstanding share capital though we are not obligated to do so. We are currently evaluating this option and, in the meantime, we may continue to purchase shares on the open market as deemed necessary.

     The PLIVA acquisition has been a transforming event for the Company. Prior to the acquisition, we marketed generic and proprietary pharmaceutical products almost exclusively in the United States. With our acquisition of PLIVA, we have significantly increased our global reach and now have access to additional internally developed drug delivery and development capabilities. We now operate in more than 30 countries worldwide. We have supplemented our historical solid oral dosage form product portfolio with PLIVA’s portfolio and capabilities for developing injectable products and cream/ointment products.

     We also have combined two companies that are at the forefront of the development of generic biologics, with Barr traditionally focusing on the U.S. market and PLIVA principally focusing on the European markets (where a regulatory pathway for generic biologics already exists).

     In addition, the PLIVA acquisition has increased our research and development capabilities. It also has given us access to low cost manufacturing capabilities in Croatia, Poland and the Czech Republic, and the opportunity to conduct product research and development in jurisdictions that offer favorable tax treatment for such activities.

     During 2007, we worked diligently on the integration of Barr and PLIVA. As a result, the integration is largely complete. Some of the milestones we have accomplished are highlighted below:

	•		all U.S. commercial operations have been consolidated under Barr Laboratories, Inc. or Duramed Pharmaceuticals, Inc.;
	•		we have moved all PLIVA proprietary products sold previously under the Odyssey label to our Duramed label;
	•		we have moved all U.S. PLIVA generic products sold previously under the PLIVA label to our Barr label;
	•		all U.S. sales and marketing and related administrative activities have been consolidated;
	•		we have transferred products between our European and U.S. manufacturing sites to optimize manufacturing efficiency and capacity utilization;
	•		we are on schedule to substantially shut down PLIVA’s U.S. manufacturing facilities by the end of 2008;
	•		we have successfully completed the divestiture of PLIVA’s Veterina animal health business and PLIVA’s operations in Italy and Spain;
	•		senior personnel from Barr and PLIVA have been transferred and relocated outside their home countries to work in functions including commercial operations, finance, quality control and human resources;
	•		we have established global product selection, product development and business development processes;
	•		we have established global operational departments and their integration has been substantially completed;

	•		our Forest, Virginia facility became the single point of distribution for all generic products in the United States; and
	•		we completed the FTC-ordered divestitures of four products.

GENERIC PHARMACEUTICALS

     We are a global leader in the generic pharmaceutical industry. Generic drugs are the chemical and therapeutic equivalents of brand-name drugs, typically sold at prices below those of their brand-name equivalents. In the U.S., our largest market, our generic products are marketed under the Barr label.

     Outside the U.S., our operations are primarily in Central and Eastern Europe, including Croatia, Germany, Poland and Russia (the “Key Non-U.S. Markets”), where the markets vary considerably from the U.S. market in that in many cases there is a market for branded generic products (i.e., generic products sold under a company name) for which there are only limited opportunities for generic substitution by the pharmacist. As a result, physician and pharmacist loyalty to a particular company’s generic product can be a significant driver in obtaining market share. In the recently expanded European Union (“EU”), as regulated by the European Medicine Agency (“EMEA”), the EU’s equivalent of the FDA, the generic pharmaceutical industry is becoming an increasingly important supplier of pharmaceuticals.

     We have the capability to develop, manufacture and market generic pharmaceuticals in various dosage forms, including tablets and capsules, creams and topicals, and liquids and injectables. Our relationships with third parties provide access to other drug delivery systems, such as nasal sprays, patches and sterile ophthalmics.

     In general, we focus our development activities on generic products that have one or more characteristics that we believe will make it difficult for others to develop competing generic products. The characteristics of the selected generic products we pursue may include one or more of the following:

	•		those with complex formulation or development characteristics;
	•		those requiring specialized manufacturing capabilities;
	•		those where sourcing the raw material may be difficult; and
	•		those that must overcome unusual regulatory or legal challenges, including patent challenges.

     We believe generic products with some or all of these characteristics may produce higher returns for a longer period of time than products without these characteristics. Examples of such products in our portfolio include generic oral contraceptives and injectables. We currently manufacture 25 generic oral contraceptive products and six generic injectable products. We expect our portfolio of injectable products to grow to over a dozen products within the next two years.

     We also develop and manufacture active pharmaceutical ingredients (“API”), primarily for use internally and, to a lesser extent, for sale to third parties. We manufacture 23 different APIs for use in pharmaceuticals through our facilities located in Croatia and the Czech Republic. We believe that our ability to produce API for internal use may provide us with a strategic advantage over competitors that lack this ability, particularly as to the timeliness of obtaining API for our products.

     For a description of the regulatory process that applies to developing generic pharmaceuticals, see “Government Regulation” below.

Filings and Approvals

     We file each of our regulatory submissions for generic products with the expectation that: (1) the applicable regulator will approve the marketing of the applicable product; (2) we will validate our process for manufacturing

that product within the specifications that have been or will be approved by the applicable regulator; and (3) the cost of producing the inventory relating to the applicable product will be recovered from the commercialization of the product.

     United States

     During 2007, in the U.S. market, we:

	•		filed 30 abbreviated new drug applications (“ANDAs”) with the FDA;
	•		received FDA approvals for 19 generic products, including tentative approvals; and
	•		launched 14 new generic products.

     At December 31, 2007, we had approximately 70 ANDAs, including tentatively approved applications, pending at the FDA, targeting branded pharmaceutical products with an estimated $29 billion in annual sales, based on industry source data.

     Europe and ROW

     During 2007, we submitted for registration 224 products in 584 different presentations (where one molecule in one market represents a product and each combination of a formulation and strength represents one presentation), representing 65 individual molecules. During this period, we also received approvals for 143 products in 310 different presentations, representing 54 different molecules. As of December 31, 2007, with regulatory bodies in Europe and ROW, we had a total of 287 product registrations pending, representing 90 molecules in 735 different presentations.

Operations in our Key Non-US Markets

     Germany. The German market is the largest pharmaceutical market in Europe and is our largest European market in terms of revenues. In Germany, we market our products through our subsidiary, AWD.pharma, and our largest selling product is Katadolon (flupirtine). Like the markets of Central and Eastern Europe, the German market is predominantly a branded generics one with doctors prescribing international nonproprietary name (“INN”) products and corporate brands. Substitution is possible at the pharmacy level, but only with one of the three lowest priced generic alternatives available. All prescription drugs are reimbursed up to the respective reference price. In March 2007, Germany’s largest health insurance company, Allgemeinen Ortskrankenkassen (AOK), representing more than 25 million of the approximately 79 million publicly-insured people in Germany, announced that for 2007 it had selected 43 products from 11 pharmaceutical companies — including several from our German subsidiary — as a result of a competitive bidding process. Our selection in this tender process significantly increased our sales as compared to a year earlier. AOK also conducted a competitive bidding (or “tender”) process for an increased number of products for 2008-2009, in which we also participated. This tender process was completed in September 2007, but the results have not been publicly announced or implemented because the legality of this tender process is currently being litigated.

     In 2006, the government introduced a number of new measures that have had a significant impact on the generic pharmaceutical market. First, it has introduced a price moratorium which eliminates the possibility of increasing prices through March 2008. Second, it has imposed a mandatory producer rebate of 10% and banned any further discounts or rebates in kind to pharmacists. Third, it has allowed health insurers to waive the patient co-pay in cases where the generic is priced at least 30% below the reference level. At this time, prices for products have been somewhat reduced, but higher volumes have mostly offset the lower pricing.

     In September 2007, we acquired O.R.C.A.pharm GmbH, a specialty pharmaceutical company focused on the oncology market in Germany, for an initial payment of EUR 21 million in September, a EUR 2.2 million payment in the quarter ended December 31, 2007 for working capital assumed in the transaction, and additional payments of up to EUR 12.1 million based on the achievement of profitability milestones. This acquisition strengthens our position in

the oncology market in Germany and will also allow us to add existing Barr and PLIVA products to the O.R.C.A.pharm portfolio.

     Croatia. Croatia is the site of our European headquarters, where we have manufacturing, R&D, biologic and API facilities. Croatia is our second largest European market in terms of revenues. As of the end of 2007, we were the leader in the Croatian generic market with approximately 37% market share. Currently, we market some of the top products for the Croatian pharmaceutical market including Sumamed (azithromycin), Klavocin (amoxicillin clavulanic acid), Voltaren (diclofenac) and Peptoran (ranitidine). The Croatian market is a strong branded generic market where substitution at the pharmacy level is generally not allowed. Physicians represent the key decision makers in this market, making product detailing of great importance. Croatia currently has a reimbursement system based on two independent product lists, one where essential drugs are fully reimbursed, and a second where other select drugs are partially reimbursed.

     Poland. We have both manufacturing and R&D facilities in Poland. The Polish pharmaceuticals market is the second largest in Central and Eastern Europe and relies heavily on generic drugs, though it remains a branded market with emphasis on product promotion. Sumamed is our largest selling product in Poland, where we also have a strong portfolio of over-the-counter drugs. We currently rank fourth in this generic market. As a result of high patient co-payments, competition among pharmacies and general economic growth, the market is highly competitive and is expected to grow.

     Russia. The Russian market is the largest in Central and Eastern Europe and is also one of the fastest growing. The market is fragmented and no one company dominates. State involvement in the market is limited and most expenditures on drugs are made directly by individuals to pharmacists. Our largest selling product in Russia is Sumamed, which retains its leading position despite over 15 generic competitors. In 2005, the government created the first federal healthcare program, known as the “DLO”, providing reimbursement for drugs that are on the DLO list. In November 2006, the government published a revised DLO list with significant changes that have affected participating companies to differing degrees. In addition, the budget for the DLO was significantly overspent in 2006, which has created large delays in payment to producers. As a result, we have decreased our participation in the DLO market and in 2007 nearly 95% of our sales in Russia were in the commercial market. We believe that the Russian market offers significant growth potential because of the overall robust economy and the relatively untapped market. We continue to seek to expand our operations in this market.

Generic Product Portfolio

     Set forth below are descriptions of certain generic products that contributed significantly to our revenues in 2007.

     Oral Contraceptives. In the U.S., we currently manufacture and market 25 generic oral contraceptive products under trade names including Aviane^®, Kariva^® and Tri-Sprintec^®. We also market two generic oral contraceptives in Canada with a partner. Our oral contraceptives compete with the branded versions of the products and, in most instances, with other generic products and/or “authorized” generic versions of the branded product. “Authorized” generics are generic products that are manufactured under the brand pharmaceutical company’s New Drug Application (“NDA”) and sold either by the brand company itself or through a licensee. Oral contraceptives are the most common method of reversible birth control, used by approximately 82% of women in the U.S. at some time during their reproductive years. Oral contraceptives have a long history with widespread use attributed to many factors, including efficacy in preventing pregnancy, safety and simplicity in initiation and discontinuation, medical benefits and relatively low incidence of side effects. According to industry sources, the oral contraceptive market in the U.S. had sales of approximately $3.4 billion during 2007.

     Our most significant competitor in this category is Watson Pharmaceuticals (“Watson”), a large generic pharmaceutical company that markets and distributes a sizeable portfolio of generic oral contraceptive products. Additional generic competitors include Teva Pharmaceuticals, a global pharmaceutical company that currently markets two generic oral contraceptive products, and is expected to launch additional products, the timing of which is not known. There is also a small, privately held pharmaceutical company that distributes authorized generic versions of two oral contraceptive products.

     Fentanyl Citrate. In the U.S., we market an oral transmucosal fentanyl citrate product that is the generic version of Cephalon’s ACTIQ (oral transmucosal fentanyl citrate) [C-II], 200 mcg, 400 mcg, 600 mcg, 800 mcg, 1200 mcg, and 1600 mcg cancer pain-management product. We launched this product in September 2006 under a license agreement previously granted to us by Cephalon in August 2004, pursuant to a Federal Trade Commission order. The license grants us a non-exclusive right to sell a generic version of ACTIQ. Under the licensing agreement, Cephalon is currently supplying us with fentanyl citrate manufactured under Cephalon’s NDA, which we have the right to market. Our ANDA is currently under active review at the FDA. Our product competes with Cephalon’s authorized generic, which Cephalon has licensed to a third party.

     Sumamed/Azithromycin. Azithromycin was developed by PLIVA and licensed to Pfizer for sale in certain territories. In the U.S. our azithromycin product is the generic equivalent of Pfizer’s Zithromax^® antibacterial treatment product, available in tablet, oral suspension and injectable formulations. Following the expiry of the azithromycin compound patent in the U.S., in November 2005, we launched the generic tablet version in the U.S. and are currently one of eight generic competitors in the U.S. In July 2006, we launched the first generic oral suspension version in the U.S. and are currently one of four generic competitors in that market. In January 2007, we also received approval from the FDA to market our injectable form and launched that product in the U.S. in the quarter ended September 30, 2007. In Europe and ROW, we sell azithromycin under the trade name Sumamed and detail it to physicians and pharmacists.

     Katadolon (flupirtine). Katadolon is a centrally acting non-opioid analgesic with muscle-tone normalization effect and the ability to prevent pain chronification by inhibiting the development of “pain memory.” Due to the unique structure and mode of action as a selective neuronal potassium channel opener, Katadolon is the prototype of a new class of analgesic substances. It has been in clinical use since 1984 and is marketed and actively promoted in Germany, Russia, other Central and Eastern European countries, and China. Katadolon S-long, the slow release formulation of flupirtine maleate, is registered and has been available on the German market since April 2006.

     The table below sets forth those products, or classes of products, within our generics segment that accounted for 10% or more of that segment’s total product sales during 2007, the Transition Period, fiscal 2006 or fiscal 2005:

										Fiscal
						Transition
		2007				Period				2006				2005
Oral contraceptives			24	%			53	%			48	%			53	%
Desmopressin			*				*				13	%			*

Sales and Marketing

     We market our generic products to customers in the U.S. and Puerto Rico through an integrated sales and marketing team that includes a four-person national accounts sales force. The activities of the sales force are supported by our marketing and customer service organization in our Montvale, New Jersey offices. The U.S. customer base for our generic products includes drug store chains, supermarket chains, mass merchandisers, wholesalers, distributors, managed care organizations, mail order accounts, group purchasing organizations, government/military and repackagers.

     We promote our generic products in Europe and the ROW through over 1,300 sales representatives, including contract sales representatives and marketing employees. While products may be promoted to different audiences in different countries, the sales representatives generally promote branded generic products to physicians and pharmacists. While we have very few dedicated sales representatives for our generics business in the U.S., the significant number of sales representatives in Europe is attributable to Europe being largely a “branded generics” market, as compared with the substitution-based generics market in the U.S., where bioequivalent generic products can be easily substituted for the brand product and other generics.

     Net sales to customers who accounted for 10% or more of our generic product sales during 2007, the Transition Period, fiscal 2006 or fiscal 2005 were as follows:

										Fiscal
						Transition
		2007				Period				2006				2005
McKesson Drug Company			15	%			17	%			22	%			15	%
Cardinal Health			*				*				10	%			13	%
AmeriSource Bergen			*				*				*				10	%
Walgreens			*				11	%			13	%			15	%
CVS			*				*				12	%			12	%

Patent Challenges

     As part of our generic development activities for the U.S. market, we develop generic versions of select brand products where we believe the patents relating to the brand products are invalid, unenforceable or not infringed by our competing generic products. Utilizing the patent challenge process under the Hatch-Waxman Act (discussed below), we seek to invalidate patents or to obtain a declaration that our generic version does not infringe the patent. Our development activities in this area, including sourcing raw materials and developing equivalent products, are designed to obtain FDA approval for our product. Our legal activities in this area, performed by outside counsel, work toward eliminating the barrier to market entry created by the patents.

     Our Patent Challenge History

     Our efforts in the area of challenging patents on branded pharmaceutical products have resulted in the successful conclusion of 19 out of 22 cases that have been finally resolved as of December 31, 2007. Successful outcomes have included: court rulings in our favor invalidating patents or finding that our product does not infringe an existing patent; situations in which we have not been sued for patent infringement; situations where we launched our generic product at risk; and settlements with the patent holder. Unfavorable outcomes, including court rulings in favor of the patent holder and cases that are dismissed, result in our not being able to launch a generic product until the patent on the brand pharmaceutical product expires. Recent examples of successful outcomes to our patent challenges include:

	•		ADDERALL XR. ADDERALL XR is a once-daily, extended-release, mixed salt amphetamine product that is indicated for the treatment of ADHD. In August 2006, we entered into a product acquisition agreement, a product development agreement, and settlement and license agreements with Shire plc to settle our pending patent infringement dispute. Under the terms of the agreements, we (1) purchased Shire’s ADDERALL® (immediate-release mixed amphetamine salts) tablets for $63.0 million; (2) granted Shire a license to obtain regulatory approval for and market in certain specified territories our SEASONIQUE extended-cycle oral contraceptive product, along with five products in various stages of development, for an initial $25.0 million payment for previously incurred product development expenses, and for reimbursement of development expenses incurred going forward, up to a maximum of $140.0 million over an eight-year period, not to exceed $30.0 million per year; and (3) are able to launch a generic version of ADDERALL XR on April 1, 2009, more than nine years earlier than the last-to-expire Shire listed patent.
	•		Desmopressin. Desmopressin is the generic equivalent of Ferring B.V.’s DDAVP® Tablets. DDAVP Tablets are indicated as antidiuretic replacement therapy in the management of central diabetes insipidus and for the management of the temporary polyuria and polydipsia following head trauma or surgery in the pituitary region. DDAVP is also indicated for the management of primary nocturnal enuresis. Following the February 2005 summary judgment ruling by the U.S. District Court for the Southern District of New York that the patent alleged to cover DDAVP is unenforceable and not infringed by our product, we launched Desmopressin Acetate tablets, 0.1 mg and 0.2 mg, on July 5, 2005. In February 2006, the Federal Circuit Court affirmed the District Court’s ruling that the patent at issue is unenforceable. In October 2006, the U.S. Supreme Court denied Ferring’s petition for a writ of certiorari.

	•		Modafinil. Modafinil is the generic equivalent of Cephalon’s Provigil®. In February 2006, we entered into an agreement with Cephalon to settle our pending patent infringement dispute in the U.S. related to Provigil. Under the terms of the settlement, Cephalon granted us a non-exclusive, royalty-bearing right to market and sell a generic version of Provigil in the U.S. Our license will become effective in October 2011, unless Cephalon obtains a pediatric extension for Provigil, in which case we would be permitted entry in April 2012. Cephalon has announced that it has been granted a pediatric extension for Provigil. We may be allowed to enter at an earlier date based upon the entry of another generic version of Provigil.
	•		Niacin. Niacin is the generic equivalent of Abbott Laboratories’ (formerly Kos Pharmaceuticals’) NIASPAN® product. In April 2005, we entered into co-promotion, licensing and manufacturing, and settlement and license agreements relating to the resolution of the patent litigation involving NIASPAN. Under the terms of the agreements, we: (1) co-promote the current NIASPAN and ADVICOR® products (the “Kos Products”) to obstetricians, gynecologists and other practitioners with a focus on women’s healthcare in the U.S. using our 93-person specialty sales force, and in return we receive a royalty based upon overall sales of the Kos Products, whether by Kos or our sales force; (2) serve as a stand-by, alternate supply source for the Kos Products; and (3) will be allowed to launch generic versions of the Kos Products on September 20, 2013, about four years before the last of the applicable Kos patents is set to expire.

     Pending Patent Challenges

     During 2007, 11 patent litigation suits were initiated against Barr in response to ANDAs we had filed, representing the largest number of cases initiated against us in any 12 month period. At December 31, 2007, we had publicly disclosed the following patent challenges that are in various stages of litigation:

($ millions as of December 31, 2007)

		MARKET
ANDA NAME(Brand Product)		VALUE
Alendronate Sodium (Fosamax®)		$	1,836.3
Alfuzosin Hydrochloride Extended Release (Uroxatral®)			154.0
Argatroban Injection (Argatroban®)			114.6
Aripiprazole (Abilify® and ABILIFY® Discmelt)			2,347.4
Aspirin/Extended-Release Dipyridamole (Aggrenox®)			297.4
Dexmethylphenidate Hydrochloride (Focalin® XR)			268.8
Drospirenone and Ethinyl Estradiol (YASMIN®)			572.0
Fexofenadine (Allegra® Tablets, Allegra® Capsules and Allegra® D)			1,153.9
Galantamine Hydrobromide (RAZADYNE®)			116.0
Galantamine Hydrobromide (RAZADYNE® ER)			109.3
Levalbuterol Hydrochloride (Xopenex®)			633.2
Methylphenidate Hydrochloride (Ritalin® LA)			105.4
Norethindrone/Ethjnyl Estradiol (Femcon® FE)			46.1
Norgestimate/Ethjnyl Estradiol (TRI-CYCLEN LO®)			407.9
Olopatadine Hydrochloride (Patanol®)			301.0
Pramipexole Dihydrochloride (MIRAPEX®)			350.2
Raloxifene Hydrochloride (EVISTA®)			690.8
Temozolomide (TEMODAR®)			286.0
Thalidomide (Thalomid®)			400.1
Tramadol HCl & Acetaminophen (ULTRACET®)			101.9
Triamcinolone Acetonide (NASACORT® AQ)			369.1
Zolpidem Tartrate (AMBIEN® CR)			932.8
TOTAL		$	11,594.2

     Set forth below is a discussion of a patent-challenge matter listed in the above table.

     Fexofenadine (Allegra Tablets). Several patents related to fexofenadine hydrochloride, 30 mg, 60 mg and 180 mg tablets, the generic versions of Sanofi-Aventis’ Allegra^® tablets, are subject to litigation. Through an arrangement with Teva, we launched a limited quantity of our generic fexofenadine hydrochloride tablet product in order to enable Teva to market its generic fexofenadine hydrochloride tablet product during our 180-day generic exclusivity period. We participate in the profits Teva earns from the ongoing sales of its product. We and Teva launched this product “at risk,” meaning prior to the rendering of a final decision in the patent challenge litigation. If we are unsuccessful in the litigation, we and Teva could be liable for substantial damages that could have material adverse effect on the results of our operations. See “Item 3 — Legal Proceedings —Pending Litigation Matters — Patent Matters — Fexofenadine Hydrochloride Suit” below for additional information on the status of this litigation.

     We will continue to pursue patent challenges and will evaluate future “at risk” launches based on the strength of our case.

     PROPRIETARY PHARMACEUTICALS

     We manufacture and market proprietary pharmaceutical products under the Duramed label in the United States and Canada. These products include both products that we develop internally and products that we acquire, whether through licensing or acquisition. Proprietary products often are patent-protected or benefit from other non-patent market exclusivities. Although the proprietary products that we develop involve substantially higher risk to bring to market and require more extensive research and development activities on our part when compared with our generic products, they offer the potential for a longer period of market or product exclusivity and may generate greater returns than our generic products. The same is true for the proprietary products that we acquire, although they often involve less development risk. Actively promoted proprietary products require greater sales and marketing expenses than generic products because we need to promote them directly to healthcare providers using our sales representatives and, in some cases, directly to consumers through direct-to-consumer advertising.

     In the U.S., FDA approval is required before any new drug can be marketed. An NDA contains complete pre-clinical and clinical safety and efficacy data (or a right of reference to such data), and must be submitted to the FDA to obtain approval of a new drug. Before dosing of a new drug may begin in healthy human subjects or patients, stringent government requirements for pre-clinical data must be satisfied. The pre-clinical data, derived primarily from laboratory studies, is submitted in an Investigational New Drug (“IND”) application, or its equivalent in countries outside the U.S. where clinical trials are to be conducted. The pre-clinical data must provide an adequate basis for evaluating both the safety and the scientific rationale for the initiation of clinical trials.

     The regulatory process for approval of an NDA is discussed in greater detail below under “Government Regulation — New Drug Application Process.”

     Our proprietary development activities are focused primarily on expanding our portfolio of women’s healthcare products, which includes oral contraceptives, intrauterine contraception, hormone therapy treatments for menopause/perimenopause and treatment for endometriosis and labor and delivery. An important part of our product development strategy is to develop a broad line of products, to be prescribed primarily by OB/GYNs, that are designed to meet the unmet medical needs of women. Our focus in the area of extended-cycle oral contraception, which we established with the launch of SEASONALE^® in 2003 and subsequent launch of the next-generation SEASONIQUE in July 2006, is providing women with the option of four periods per year. In addition, and in response to current contraception trends of altering the hormone interval, we also provide women with the option of low-dose estrogen instead of a hormonal-free interval, through our SEASONIQUE and MIRCETTE products. We are also pursuing several products that utilize our transvaginal ring technology to treat urinary incontinence, endometriosis and infertility.

     In areas other than women’s healthcare, we are pursuing a second urology product targeted at the symptoms associated with the treatment of prostate cancer. In addition, we are developing two oral vaccine products to prevent Adenovirus (Types 4 & 7) infections in U.S. military personnel under contract with the Department of Defense. We continue to identify other proprietary product candidates that further expand our product offerings in women’s healthcare and are actively evaluating additional therapeutic categories to add to our proprietary portfolio.

     As a result of internal development and business development activities, at December 31, 2007 we had a broad pipeline of short-, mid- and long-term opportunities that include several proprietary products in clinical development, two of which are starting Phase III studies, another four of which are in Phase III studies, and three NDAs pending at the FDA. See “Products in Development.”

     Our proprietary research and development team has experience in managing clinical development programs and regulatory matters. This team works closely with our generic formulation, manufacturing and regulatory groups to maximize the efficiency and effectiveness of our development process.

Proprietary Product Portfolio

     The following is a list of the proprietary products that we are actively promoting:

	•		SEASONIQUE® (Levonorgestrel/Ethinyl Estradiol and Ethinyl Estradiol) extended-cycle oral contraceptive
	•		PLAN B™ OTC/Rx (Levonorgestrel) emergency oral contraceptive
	•		PARAGARD® T 380A (Intrauterine Copper Contraceptive) IUD
	•		ENJUVIA™ (Synthetic Conjugated Estrogens, B) hormone therapy
	•		MIRCETTE® (Desogestrel and Ethinyl Estradiol) oral contraceptive
	•		NIASPAN® (Niacin Extended-Release Tablets) for high cholesterol (marketed under agreement with Kos Pharmaceuticals, Inc., a wholly owned subsidiary of Abbott)
	•		ADVICOR® (Niacin Extended-Release/Lovastatin Tablets) for high cholesterol (also marketed under agreement with Kos Pharmaceuticals, Inc.)

     Set forth below are descriptions of certain of the proprietary products listed above.

     SEASONIQUE^®. SEASONIQUE (levonorgestrel/ethinyl estradiol tablets 0.15 mg/0.03 mg and ethinyl estradiol tablets 0.01 mg) is our next generation extended-cycle oral contraceptive product. SEASONIQUE provides continuous hormonal support in the form of a low-dose of estrogen in place of the seven placebo pills. Under the SEASONIQUE extended-cycle regimen, women take active tablets of 0.15 mg levonorgestrel/0.03 mg of ethinyl estradiol for 84 consecutive days, followed by seven days of low-dose estrogen (0.01 mg of ethinyl estradiol). We launched SEASONIQUE in July 2006. In August 2006, we initiated full-scale detailing for SEASONIQUE utilizing our Women’s Healthcare and Specialty Sales Forces to approximately 40,000 healthcare providers. We have also initiated a fully integrated marketing campaign aimed at healthcare providers and patients which includes professional education materials, medical education initiatives, published data from our clinical studies demonstrating the safety and efficacy of the extended-cycle SEASONIQUE regimen, and product sampling kits that contain extensive information for patients. We are reinforcing our detailing activities with medical journal advertising and a direct-to-consumer advertising campaign, including television, print and web-based advertising.

     On January 22, 2008, the U.S. Patent and Trademark Office issued U.S. Patent No. 7,320,969 for SEASONIQUE. The patent will expire on January 30, 2024. The Company immediately submitted the patent to the FDA for listing in the Orange Book. On January 23, 2008, Watson Pharmaceuticals, Inc. notified the Company pursuant to the Hatch-Waxman Act, that Watson had filed an ANDA with the FDA for SEASONIQUE and that Watson had amended its application to include a paragraph IV certification asserting that the SEASONIQUE patent is invalid. The Company believes that the SEASONIQUE patent is valid and enforceable and intends to file a legal action against Watson to enforce the patent and to prevent Watson from marketing a competing product prior to patent expiry in 2024. If we are unsuccessful in this litigation, we may face generic competition for SEASONIQUE as early as May 25, 2009, the date of expiration of our existing new product regulatory exclusivity for SEASONIQUE.

     PLAN B^™ Emergency Contraceptive. PLAN B, which contains the synthetic progestin levonorgestrel, is an emergency oral contraceptive that is intended to prevent pregnancy when taken as soon as possible within 72 hours following unprotected intercourse or contraceptive failure. In August 2006, the FDA approved our application to market PLAN B as an over-the-counter (OTC) product for consumers 18 years of age and older, while maintaining the prescription status for women 17 and younger. Our Women’s Healthcare Sales Force promotes the dual-label PLAN B OTC/Rx to a professional audience that includes pharmacists, physicians and other healthcare providers.

     We implemented and support a CARE^(SM) program (Convenient Access, Responsible Education) that provides information to pharmacists, physicians and other healthcare providers, as well as consumers, regarding the appropriate distribution, use and monitoring for compliance with prescription age requirements of PLAN B OTC/Rx. The program also includes a comprehensive education program for healthcare professionals and consumers. In addition, we support various continuing education programs for pharmacists and other healthcare practitioners, a publication plan and journal advertising. We continue to work closely with retail pharmacies and drug wholesalers to ensure that they understand and follow the FDA’s prescription age requirement for the dispensing of the product.

     PARAGARD^® IUC. Our PARAGARD T 380A (Intrauterine Copper Contraceptive) provides women with a long-term, reversible, non-hormonal contraceptive option. It is the only IUC approved for up to 10 years of continuous use and is more than 99% effective at preventing pregnancy. We believe that IUCs represent an under-utilized contraceptive option for women in the United States, and we are well positioned to grow this category through professional education and marketing. PARAGARD was approved in 1984 and has been marketed in the United States since 1988. Duramed acquired FEI Women’s Health, LLC and the PARAGARD IUC in November 2005 and promotes the product to physicians and health care practitioners using its Specialty Sales Force.

     ENJUVIA^™. In May 2006, we launched our ENJUVIA (synthetic conjugated estrogens, B) tablets and immediately initiated physician detailing using our Women’s Healthcare Sales Force. ENJUVIA is approved for the

treatment of moderate-to-severe vasomotor symptoms associated with menopause. ENJUVIA tablets are available in a variety of dosage strengths, including 0.3 mg, 0.45 mg, 0.625 mg and 1.25 mg. ENJUVIA uses a unique delivery system, consisting of Surelease^® technology with a cellulose-based polymer tablet design, to provide slow release of estrogens over several hours. In April 2007, we received two FDA approvals related to our ENJUVIA product. First, our supplemental New Drug Application (sNDA) for ENJUVIA 0.9 mg tablet strength was approved. Second, ENJUVIA became the first and only oral estrogen to be approved by FDA to treat moderate-to-severe vaginal dryness and pain with intercourse, symptoms of vulvar and vaginal atrophy associated with menopause. We launched the ENJUVIA 0.9 mg tablet and the new indication for the ENJUVIA product line in October 2007 at the North American Menopausal Society Annual Meeting.

     Our hormone therapy products, ENJUVIA and Cenestin^®, compete in the $1.8 billion hormone therapy market with products such as Wyeth’s Premarin^®, which is a conjugated equine estrogens product. The hormone therapy market has declined since the findings by the National Institutes of Health were publicized in July 2002 and created uncertainty in the minds of many healthcare providers and consumers regarding the risks and rewards of long-term hormone therapy. However, we believe that a number of women and their healthcare providers will continue using ENJUVIA and Cenestin products for the short-term treatment of moderate-to-severe vasomotor symptoms associated with menopause.

     As an on-going part of our product acquisition strategy, we have acquired more mature branded products, through litigation settlements, licensing agreements or direct acquisitions. We currently have 19 branded products that we do not directly promote to physicians but may undertake some limited marketing initiatives in an effort to maintain sales levels. These products include ADDERALL IR, which we acquired from Shire plc during August 2006, and five proprietary products that we acquired through PLIVA that were formerly marketed under the Odyssey label and are now being sold under the Duramed label, which are Antabuse^® (for Alcohol Dependency), Nystatin^® (Anti-fungal), Surmontil^® (Anti-Depression), Urecholine^® (Urinary Tract and Bladder Treatment), and Vivactil^® (Anti-Depression).

     The table below sets forth those products, or classes of products, within our proprietary segment that accounted for 10% or more of that segment’s total product sales during 2007, the Transition Period, fiscal 2006 or fiscal 2005:

						Transition				Fiscal
		2007				Period				2006				2005
PLAN B			21	%			14	%			*				*
PARAGARD			16	%			16	%			11	%			*
SEASONALE			*				14	%			30	%			31	%
CENESTIN			*				*				11	%			16	%
LOESTRIN			*				*				*				15	%

Products in Development

     We have several proprietary products in clinical development in multiple product categories. Examples of these products are discussed in detail below.

     Bijuva^™ (Synthetic Conjugated Estrogens, A) Cream. In June 2004, we filed an NDA for our Bijuva (Synthetic Conjugated Estrogens, A) vaginal cream product. In April 2005, the FDA issued a “not approvable” letter for our application pending submission of additional data. We have completed Phase III clinical work that we believe will provide the additional information needed to support the Bijuva application. If approved, we intend to market Bijuva for the treatment of moderate-to-severe symptoms of vulvar and vaginal atrophy associated with menopause.

     Transvaginal Ring (TVR) Products. We have three products that utilize our proprietary, novel, TVR drug delivery system, which have completed Phase II studies and for which we are designing Phase III studies. One of these products is a urinary incontinence product that offers the potential to deliver higher doses of oxybutynin to the

bladder neck with lower systemic exposure. The second product offers the potential to treat infertility. The third product offers the potential to treat endometriosis. We have several other products in early stages of development that are focused on treating endometriosis, infertility, fibroids, labor and delivery, and urinary incontinence based on this TVR drug delivery system.

     Vaccines. We are developing Adenovirus Vaccines Type 4 and 7 under a $68.9 million, six-year contract awarded in September 2001 by the U.S. Department of Defense (“DOD”). The Adenovirus Vaccines are intended to be dispensed to armed forces recruits to prevent epidemics of an acute respiratory disease that has been a leading cause of hospitalizations of military trainees. In July 2003, we completed construction of a 20,000 square foot manufacturing and packaging facility designed specifically to produce these vaccines. The facility is located on our Virginia manufacturing and distribution campus. We completed the Phase I study in April 2006. In September 2006, we began our Phase II/III clinical program, which completed enrollment in late 2007. The results from the study, if positive, would support the filing of a Biologics License Application (“BLA”) in 2008. In addition to supplying the vaccine to the armed forces, we have the right to market the product to other populations, such as immunosuppressed patients, and foreign markets where the same needs exist as those of the DOD.

Sales and Marketing

     We market our proprietary products through three sales teams: our Women’s Healthcare Sales Force, our Specialty Sales Force and our Institutional Sales Force.

	•		Our Women’s Healthcare Sales Force, which has approximately 200 sales representatives, currently promotes SEASONIQUE extended-cycle oral contraceptive, our ENJUVIA hormone therapy products and our PLAN B OTC/Rx emergency contraceptive product to women’s healthcare practitioners. This sales force may market additional women’s healthcare products we develop or acquire.
	•		Our Specialty Sales Force, which has 90 sales representatives, promotes the PARAGARD IUD product and MIRCETTE to obstetricians, gynecologists and other practitioners with a focus on women’s healthcare. This sales force also promotes NIASPAN and ADVICOR cholesterol treatments under a co-promotion agreement with Kos Pharmaceuticals, Inc. that we entered into in April 2005.
	•		Our Institutional Sales Force, which has approximately 40 sales representatives, promotes the Company’s proprietary products at teaching hospitals and other institutions, targeting attending physicians and OB/GYN residents. In addition, this sales force promotes our generic injectable products to various hospitals.

     The customer base for our proprietary products includes drug store chains, supermarket chains, mass merchandisers, wholesalers, distributors, managed care organizations, mail order accounts, and the government/military. Net sales to customers who accounted for 10% or more of our proprietary sales during 2007, the Transition Period, fiscal 2006 or fiscal 2005 were as follows:

						Transition				Fiscal
		2007				Period				2006				2005
McKesson Drug Company			32	%			36	%			30	%			26	%
Cardinal Health			25	%			16	%			15	%			20	%
Integrated Commercialization Services			16	%			15	%			11	%			*
AmeriSource Bergen			*				*				*				11	%

BIOLOGICS

     Biologics involve the use of live organisms, as opposed to chemical (non-biological) compounds, for their production. Biologics worldwide represent one of the fastest-growing segments of the global pharmaceutical industry. Biologic products provide treatment for diseases like cancer, arthritis, and rare genetic disorders. Spending on biologics in the United States increased 127% from 2001 to 2005. In 2006, biologic sales increased 20% to $40.3 billion, compared to 8% sales growth for traditional drugs. Eighteen of the 101 drugs that brought in more than $1.0 billion in worldwide sales in 2006 were biologics. Biologics are a major driver of increasing prescription drug costs. We believe this area represents a major growth opportunity for us and the generic pharmaceutical industry as a whole. We also believe that we are among a few companies uniquely qualified to research, characterize, formulate, manufacture, address complex biologics-related issues and commercialize generic biologics in-house.

     In the U.S., the FDA has not recognized an abbreviated regulatory pathway for the timely and cost-efficient approval of generic versions of biologic products under the Public Health Service Act (“PHSA”). We are working with Congress, the Department of Health and Human Services (“HHS”), including the FDA, and the generic industry’s trade association, the Generic Pharmaceutical Association (“GPhA”), to help define the regulatory pathway for approval of these products. We have been developing these products in anticipation of Congress and the FDA creating a regulatory pathway for generic biologics in the United States. In Europe, the EMEA has developed a regulatory pathway for generic biologics, which also are known as “similar biological medicinal products.” As a result, generic biologics are at a more advanced stage in Europe than they are in the United States.

     We are actively pursuing business development initiatives and internal development activities that we believe will enable us to bring generic versions of biologic products to market, both in the U.S. and in Europe, and we intend to build a leadership position in the development and marketing of such products. We currently have a biologics development portfolio that includes recombinant human G-CSF, a protein that stimulates the growth of certain white blood cells. Our recombinant human G-CSF is intended to be a generic version of Amgen’s Neupogen^®, and is intended for submission in both the European Union (via a partner) and the U.S. We are also developing an Adenovirus vaccine for the U.S. Department of Defense, and several additional biologic products that are in various stages of development.

     There are, however, three major challenges in pursuing generic biologics: regulatory challenges, intellectual property challenges and scientific/manufacturing challenges. The key regulatory challenge facing us in the U.S. is that the FDA has not recognized an abbreviated regulatory pathway that would enable the timely and cost-efficient approval of generic versions of biologics approved under the PHSA. We are working with Congress and the FDA to overcome this barrier.

     Brand manufacturers of biologic products have sought and obtained intellectual property protection of many aspects of biologic development and manufacturing, including processes, characterization, naturally occurring by-products of biologic raw material production and processes related to scale-up, manufacturing and analysis of the purity, quality and efficacy of the finished product. We believe that we are well situated, in terms of our experience with complex intellectual property issues, to overcome patent and other barriers to the introduction of these products.

     There have been significant recent developments in the generic biologic arena. Both Houses of the U.S. Congress debated generic biologics legislation in 2007. Several Committees, including the Senate Health, Education, Labor and Pensions Committee (“HELP”), the House Oversight and Government Reform Committee, and the House Energy & Commerce Committee held hearings on a generic biologics pathway. Several advocacy groups have also released economic reports on generic biologics, such as that issued by Citizens Against Government Waste (“CAGW”), which estimated savings of $43.2 billion between 2011 and 2020 if an approval pathway is established.

     On February 14, 2007, Representative Waxman introduced House Bill 1038 (“Access to Life Saving Medicine Act”) in the U.S. House of Representatives seeking to provide a regulatory pathway for generic biologics. The Access to Life Saving Medicine Act, as currently written, would allow the FDA to approve abbreviated applications for generic versions of biologic products licensed under the PHSA, without necessarily having to repeat expensive and duplicative clinical trials. The bill establishes a scientifically rigorous process for approval of generic versions

of biologic products, authorizing the FDA to determine, on a product-by-product basis, what studies will be necessary to show that a new product is clinically comparable to the brand name product. The bill would also create an improved process for ensuring that patent disputes are resolved early to avoid delays in competition. On February 15, 2007, Senators Clinton and Schumer, among others, introduced a companion bill in the Senate, Senate Bill 623. In April 2007, Representative Inslee introduced House Bill 1956 the “Patient Protection and Innovative Biologic Medicines Act of 2007.” That bill would create significant barriers to timely and expedited approval of generic biologic products. Senator Greg introduced a similar bill in the U.S. Senate in May 2007, Senate Bill 1505. On June 26, 2007, a bipartisan group of Senators, including Senators Clinton, Kennedy, Hatch, and Enzi, introduced Senate Bill 1695, “Biologics Price Competition and Innovation Act of 2007.” That bill would allow the FDA to approve abbreviated applications for generic versions of biologic products licensed under the PHSA and would give the FDA the discretion to decide what data and tests would be necessary for approval. The bill also includes a complex patent dispute resolution mechanism. Barr continues to work in support of passage of a workable bill.

RESEARCH AND DEVELOPMENT

     Our commitment to research and development, which includes generics, proprietary products and biologics, resulted in investments of $248 million in 2007, $107 million in the Transition Period, $140 million in fiscal 2006 and $128 million in fiscal 2005. We have consistently made substantial investments in research and development because of our belief that a significant portfolio of products in development is critical to our long-term success. Research and development expenditures for generic development activities typically include those related to internal personnel, third-party bioequivalence studies, clinical studies related to biologic product development, costs paid to third-party development partners and raw materials used in developing products. Proprietary product development costs typically include those related to internal personnel, clinical studies, third-party toxicology studies, clinical trials conducted by third-party clinical research organizations, raw materials and acquired in-process research and development charges. We expect to continue to invest aggressively in research and development projects in generic, proprietary and generic biologics categories.

RAW MATERIALS

     We purchase certain bulk pharmaceutical chemicals and raw materials that are essential to our business from numerous suppliers. We also purchase certain finished dosage form products, such as our PLAN B emergency contraceptive and our ViaSpan^® transplant preservation agent, from third-party suppliers.

     Arrangements with non-U.S. suppliers are subject to certain risks, including obtaining governmental clearances, export duties, political instability, currency fluctuations and restrictions on the transfer of funds. In addition, in the U.S., the Drug Enforcement Agency (“DEA”) regulates the allocation to us of raw materials used in the production of controlled substances based on historical sales data. Any inability to obtain raw materials or finished products on a timely basis, or any significant price increases that cannot be passed on to customers, could adversely affect us. Because prior FDA approval of raw material suppliers or product manufacturers may be required, if raw materials or finished products from an approved supplier or manufacturer were to become unavailable, the required FDA approval of a new supplier could cause a significant delay in the manufacture or supply of the affected drug product.

PATENTS AND PROPRIETARY RIGHTS

     We file patent applications and obtain patents to protect our products, technologies, inventions and improvements that we consider important to the development of our business. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position. Preserving our trade secrets and protecting our proprietary rights are important to our long-term success.

     From time-to-time, we may find it necessary to initiate litigation to enforce our patent rights, to protect our trade secrets or know-how or to determine the scope and validity of the proprietary rights of others. Litigation concerning patents, trademarks, copyrights and proprietary technologies can often be protracted and expensive and, as with litigation generally, the outcome is often uncertain. See Item 3 — “Legal Proceedings.”

     GOVERNMENT REGULATION

United States

     We are subject to extensive regulation by the FDA, the DEA and state governments, among others. The Federal Food, Drug, and Cosmetic Act, the Controlled Substances Act, the Prescription Drug Marketing Act and other federal statutes and regulations govern or influence the testing, manufacturing, safety, labeling, storage, record keeping, approval, marketing, advertising and promotion of our products. Non-compliance with applicable requirements can result in fines, recalls and seizure of products.

     Abbreviated New Drug Application Process

     In the U.S., generic pharmaceutical products are the chemical and therapeutic equivalent of branded drug products listed in the FDA publication entitled “Approved Drug Products with Therapeutic Equivalence Evaluations,” popularly known in the industry as the “Orange Book.” The Drug Price Competition and Patent Term Restoration Act of 1984, as amended, which is known as the “Hatch-Waxman Act,” has been largely credited with launching the generic drug industry in the United States. Generic drugs are bioequivalent to their brand-name counterparts, meaning they deliver the equivalent amount of active ingredient at the same rate as the brand-name drug. Accordingly, generic products provide safe and effective alternatives to branded products, typically at a significantly lower price than the branded equivalent.

     FDA approval is required before a generic equivalent can be marketed. We seek approval for such products by submitting an Abbreviated New Drug Application (“ANDA”) to the FDA. ANDAs are abbreviated versions of NDAs that must be filed with the FDA for a branded product. The Hatch-Waxman Act provides that generic drugs may enter the market upon approval of an ANDA. When processing an ANDA, the FDA waives the requirement of conducting complete clinical studies, although it normally requires bioavailability and/or bioequivalence studies. “Bioavailability” indicates the rate and extent of which the active ingredient is absorbed from a drug product and becomes available at the site of action. “Bioequivalence” compares the bioavailability of one drug product with another, and when established, indicates that the rate of absorption and levels of concentration of the active drug substance in the body are equivalent for the generic drug and the previously approved drug. An ANDA may be submitted for a drug on the basis that it is the equivalent of a previously approved drug or, in the case of a new dosage form, is suitable for use for the indications specified.

     Before approving a product, the FDA also requires that our procedures and operations conform to Current Good Manufacturing Practice (“cGMP”) regulations, relating to good manufacturing practices as defined in the U.S. Code of Federal Regulations. We must follow the cGMP regulations at all times during the manufacture of our products. We continue to spend significant time, money and effort in the areas of production and quality testing to help ensure full compliance with cGMP regulations.

     If the FDA believes a company is not in compliance with cGMP, sanctions may be imposed upon that company including: withholding from the company new drug approvals as well as approvals for supplemental changes to existing applications; preventing the company from receiving the necessary export licenses to export its products; and classifying the company as an “unacceptable supplier” and thereby disqualifying the company from selling products to federal agencies. We believe we are currently in compliance with cGMP regulations.

     The timing of final FDA approval of an ANDA depends on a variety of factors, including whether the applicant challenges any listed patents for the drug and whether the brand-name manufacturer is entitled to one or more statutory exclusivity periods, during which the FDA may be prohibited from accepting applications for, or approving, generic products. In certain circumstances, a regulatory period can extend beyond the life of a patent, and thus block ANDAs from being approved on the patent expiration date. For example, in certain circumstances the FDA may extend the exclusivity of a product by six months past the date of patent expiry if the manufacturer undertakes studies on the effect of their product in children, a so-called pediatric extension. The pediatric extension results from a 1997 law designed to reward branded pharmaceutical companies for conducting research on the effects of pharmaceutical products in the pediatric population. As a result, under certain circumstances, a branded company can obtain an additional six months of market exclusivity by performing pediatric research.

     In May 1992, Congress enacted the Generic Drug Enforcement Act of 1992, which allows the FDA to impose debarment and other penalties on individuals and companies that commit certain illegal acts relating to the generic drug approval process. In some situations, the Generic Drug Enforcement Act requires the FDA to not accept or review ANDAs for a period of time from a company or an individual that has committed certain violations. It also provides for temporary denial of approval of applications during the investigation of certain violations that could lead to debarment and also, in more limited circumstances, provides for the suspension of the marketing of approved drugs by the affected company. Lastly, the Generic Drug Enforcement Act allows for civil penalties and withdrawal of previously approved applications. Neither we nor any of our employees have ever been subject to debarment.

     Patent Challenges

     We actively challenge patents on branded pharmaceutical products where we believe such patents are invalid, unenforceable, or not infringed by our competing generic products. Our development activities in this area, including sourcing raw materials and developing equivalent products, are designed to obtain FDA approval for our product. Our legal activities in this area, performed primarily by outside counsel, are designed to eliminate the barriers to market entry created by the patents. Under the Hatch-Waxman Act, the first generic ANDA applicant whose filing includes a certification that a listed patent on the brand name drug is invalid, unenforceable, or not infringed (a so-called “paragraph IV certification”), may be eligible to receive a 180-day period of generic market exclusivity. This period of market exclusivity may provide the patent challenger with the opportunity to earn a significant return on the risks taken and its legal and development costs. Patent challenge product candidates typically must have several years of remaining patent protection to ensure that the legal process can be completed prior to patent expiry. Because of the potential value of being the only generic in the market for the 180-day generic exclusivity period, we typically seek to be the first company to file an ANDA containing a paragraph IV certification for a targeted product.

     The process for initiating a patent challenge begins with the identification of a drug candidate and evaluation by qualified legal counsel of the patents purportedly protecting that product. We have reviewed a number of potential challenges and have pursued only those that we believe have merit. Our general practice is to disclose patent challenges after the patent holder has sued us. Thus, at any time, we could have several undisclosed patent challenges in various stages of development.

     Patent challenges are complex, costly, and can take three to six years to complete. As a result, we have in the past and may elect in the future to have partners on selected patent challenges. These arrangements typically provide for a sharing of the costs and risks, and generally provide for a sharing of the benefits of a successful outcome. In addition, our patent challenges may result in settlements that we believe are reasonable, lawful, and in our shareholders’ best interests.

     Over the past few years the use of so-called “authorized” generics has increased significantly in response to generic pharmaceutical patent challenges. Authorized generics involve the brand pharmaceutical maker either marketing a “generic” version of its brand product or licensing its brand drug to another company, which is then marketed in competition with the true generic during the 180-day generic exclusivity period. Because the “authorized” generic is not sold under an ANDA, but rather is sold under the brand pharmaceutical maker’s NDA, courts have held to date that the authorized generic can compete against the patent challenger’s generic product during the 180-day exclusivity period.

     We believe that the marketing of “authorized” generics during a generic company’s 180-day exclusivity period undermines the original intent of the Hatch-Waxman Act and devalues the incentives the Hatch-Waxman Act provided for pursuing paragraph IV certifications. In addition, “authorized” generics may have a chilling effect on investment in future patent challenges by some generic pharmaceutical companies. We continue to work with Congress to seek legislation that would restore the full value of the incentive period. In January 2007, Senators Rockefeller, Schumer, Leahy and Kohl introduced Senate Bill 438 seeking to prohibit the entry of an authorized generic drug into the market during a generic company’s 180-day exclusivity period.

     Sales of several of our products have been impacted by the brand company’s authorized generic product launch during our 180-day exclusivity period and we anticipate that certain future products may also face competition from authorized generics.

     In January 2007, Senators Kohl, Leahy, Grassley, Schumer, and Feingold introduced Senate Bill 316 which would significantly limit the ability of companies to settle Hatch-Waxman patent litigation. In March and April 2007, similar legislation was introduced in the U.S. House. We believe that such potential legislation undermines the original intent of the Hatch-Waxman Act and devalues the 180-day generic exclusivity incentive. We continue to work with Congress to seek legislation that would not so limit the ability of brand and generic companies to enter into pro-consumer settlements.

     In 2006, patent reform legislation was introduced in both the House and Senate. Those bills would make certain changes to the Patent Act. In 2007, new patent reform legislation was introduced in the House and Senate, House Bill 1908 and Senate Bill 1145. The House passed House Bill 1908 in September 2007. The full Senate has not voted on Senate Bill 1145. If adopted, the proposals set forth in these bills could significantly change the way that patent laws currently operate. We continue to work with Congress to seek legislation that would not negatively impact a company’s ability to challenge the validity, enforceability, or infringement of patents.

     Patent Challenge Process

     The Hatch-Waxman Act offers an incentive to generic pharmaceutical companies that challenge suspect patents on branded pharmaceutical products. The legislation recognizes that there is a potential for non-infringement of an existing patent or the improper issuance of patents by the U.S. Patent and Trademark Office, or PTO, resulting from a variety of technical, legal or scientific factors. The Hatch-Waxman legislation places significant burdens on the challenger to ensure that such suits are not frivolous, but also may offer the opportunity for significant financial reward if successful.

     At the time an ANDA is filed with the FDA, a generic company that wishes to challenge the patent files a paragraph IV certification. After receiving notice from the FDA that its application is accepted for filing, the generic company sends the patent holder and NDA owner a notice explaining why it believes that the patent(s) in question are invalid, unenforceable, or not infringed. If the patent holder and NDA owner bring suit in federal district court against the generic company to enforce the challenged patent within 45 days of the receipt of the notice from the generic company, the Hatch-Waxman Act provides for an automatic stay of the FDA’s authority to grant the approval that would otherwise give the patent challenger the right to market its generic product. This stay is set at 30 months, or such shorter or longer period as may be ordered by the court. The 30 months often does not coincide with the timing of a trial or the expiration of a patent. The discovery, trial, and appeals process can take several years.

     Under the Hatch-Waxman Act, the developer of a generic drug that files the first ANDA containing a paragraph IV certification may be eligible to receive a 180-day period of generic market exclusivity. This period of market exclusivity may provide the patent challenger with the opportunity to earn a significant return on the risks taken and its legal and development costs.

     The FDA adopted regulations implementing the 180-day generic marketing exclusivity provision of the Hatch-Waxman Act. However, over the years, courts have found various provisions of the regulations to be in conflict with the statute. For example, in Mova Pharmaceutical Corp. v. Shalala, 140 F.3d 1060 (D.C. Cir. 1998), the court of appeals held that the Hatch-Waxman Act required generic exclusivity to be awarded to the first generic company to file an ANDA containing a paragraph IV certification, regardless of whether that company prevailed in a court challenge to the relevant patent(s) before another company was ready for approval. In contrast, the FDA’s regulations had required the first patent challenger to successfully defend its challenge to the patent(s) before another generic company was ready to receive approval. In Mylan Pharmaceuticals v. Shalala, 81 F. Supp. 2d 30 (D.D.C. 2000), the court found that the statute requires the 180-day generic period to commence on the date of the first court decision in favor of the generic applicant, even if the first successful decision was a district court decision finding the challenged patent invalid, unenforceable, or not infringed and the innovator company appealed the court’s decision. The decision was in contrast to the FDA’s regulation under which the exclusivity period would not commence until the appellate court affirmed the district court’s invalidity, unenforceability, or non-infringement ruling.

     In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act (“MMA”) was signed into law. The MMA included provisions modifying the Hatch-Waxman Act and generic exclusivity related to patent challenges. The MMA includes several provisions regarding the patent challenge process designed to level the playing field for generic companies. Generally speaking, the MMA provisions apply when the first ANDA containing a paragraph IV certification was filed after December 8, 2003. These reforms included:

	•		Only one 30-month stay allowed per drug;
	•		Product-by-product exclusivity;
	•		Shared 180-day exclusivity in limited circumstances;
	•		Counterclaim for an Orange Book delisting allowed; and
	•		180-day exclusivity cannot be triggered by a district court decision.

     First, under the MMA, only patents submitted to the FDA before an ANDA is filed can result in a 30-month stay. No additional 30-month stay can be obtained on patents listed in the Orange Book after the ANDA has been filed. Second, exclusivity is expressly on a product-by-product basis, meaning that there will only be one 180-day exclusivity period per listed drug. Third, because exclusivity is product-by-product, shared exclusivity will result only when multiple companies submit the first ANDA containing a paragraph IV certification on the same day. Fourth, ANDA applicants now have the ability to challenge the propriety of a patent listing. If an ANDA applicant is sued, the company can now bring a counterclaim seeking to have a patent removed from the Orange Book. Finally, for ANDAs where the first paragraph IV certification was filed before December 8, 2003, Congress reinstated FDA’s prior interpretation of “court decision,” meaning that exclusivity for such applications can be triggered by first commercial marketing or by the appellate court’s affirmance of an appealed district court’s ruling. Thus, for such applications, the 180-day exclusivity period cannot be triggered by a district court decision that is on appeal.

     Where the first paragraph IV ANDA was submitted after the enactment of the MMA, the MMA made changes to the generic exclusivity provision. Under the MMA, the start of the 180-day exclusivity period can only be triggered by the first ANDA filer’s marketing of its own generic product or a product made by the brand company. The MMA also includes a series of provisions under which the 180-day exclusivity period can be “forfeited.” While exclusivity could be forfeited as a result of a court decision, that court decision must either be an unappealed district court decision or an appellate court decision.

     New Drug Application Process

     FDA approval is required before any new drug can be marketed in the U.S. A New Drug Application (“NDA”) is a filing submitted to the FDA to obtain approval of a new drug and must contain complete pre-clinical and clinical safety and efficacy data or a right of reference to such data. Before dosing a new drug in healthy human subjects or patients may begin, stringent government requirements for pre-clinical data must be satisfied. The pre-clinical data, typically obtained from studies in animal species as well as from laboratory studies, are submitted in an Investigational New Drug, or IND, application, or its equivalent in countries outside the U.S. where clinical trials are to be conducted. The pre-clinical data must provide an adequate basis for evaluating both the safety and the scientific rationale for the initiation of clinical trials.

     Clinical trials are typically conducted in three sequential phases, although the phases may overlap.

	•		In Phase I, which frequently begins with the initial introduction of the compound into healthy human subjects prior to introduction into patients, the product is tested for safety, adverse effects, dosage, tolerance absorption, metabolism, excretion and other elements of clinical pharmacology.
	•		Phase II typically involves studies in a small sample of the intended patient population to assess the efficacy of the compound for a specific indication, to determine dose tolerance and

			the optimal dose range, and to gather additional information relating to safety and potential adverse effects.
	•		Phase III trials are undertaken to further evaluate clinical safety and efficacy in an expanded patient population at typically dispersed study sites, in order to determine the overall risk-benefit ratio of the compound and to provide an adequate basis for product labeling.

     Each trial is conducted in accordance with certain standards under protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. In some cases, the FDA allows a company to rely on data developed in foreign countries, or previously published data, which eliminates the need to independently repeat some or all of the studies.

     Data from pre-clinical testing and clinical trials are submitted to the FDA as an NDA for marketing approval and to other health authorities as a marketing authorization application. The process of completing clinical trials for a new drug may take several years and require the expenditure of substantial resources. Preparing an NDA or marketing authorization application involves considerable data collection, verification, analysis and expense, and there can be no assurance that approval from the FDA or any other health authority will be granted on a timely basis, if at all. The approval process is affected by a number of factors, primarily the risks and benefits demonstrated in clinical trials as well as the severity of the disease and the availability of alternative treatments. The FDA or other health authorities may deny an NDA or marketing authorization application if the regulatory criteria are not satisfied, or such authorities may require additional testing or information.

     Even after initial FDA or other health authority approval has been obtained, further studies, including Phase IV post-marketing studies, may be required to provide additional data on safety. The post-marketing studies could be used to gain approval for the use of a product as a treatment for clinical indications other than those for which the product was initially tested.

     Also, the FDA or other regulatory authorities require post-marketing reporting to monitor the adverse effects of the drug. Results of post-marketing programs may limit or expand the further marketing of the products. Further, if there are any modifications to the drug, including changes in indication, manufacturing process or labeling or a change in the manufacturing facility, an application seeking approval of such changes must be submitted to the FDA or other regulatory authority. Additionally, the FDA regulates post-approval promotional labeling and advertising activities to assure that such activities are being conducted in conformity with statutory and regulatory requirements. Failure to adhere to such requirements can result in regulatory actions that could have an adverse effect on our business, results of operations and financial condition.

     United States Drug Enforcement Agency (“DEA”)

     Because we sell and are currently developing several other products that contain controlled substances, we must meet the requirements and regulations of the Controlled Substances Act, which are administered by the DEA. These regulations include stringent requirements for manufacturing controls and security to prevent diversion of or unauthorized access to the drugs in each stage of the production and distribution process. The DEA regulates allocation to us of raw materials used in the production of controlled substances based on historical sales data. We believe we are currently in compliance with all applicable DEA requirements.

     Medicaid

     In November 1990, a law regarding reimbursement for prescribed Medicaid drugs was passed as part of the Congressional Omnibus Budget Reconciliation Act of 1990. All generic pharmaceutical manufacturers whose products are covered by the Medicaid program are required to rebate to each state a percentage of their Average Manufacturer Price (“AMP”) for the products in question. For 2007, these percentages were 11% in the case of products sold by us which are covered by an ANDA and the greater of 15% or the difference between AMP minus the lowest non-government price, or Best Price, for products sold by us which are covered by an NDA. For products covered by an NDA, rebates may include an additional penalty if prices increased faster than the Consumer Price Index-Urban over time.

     The Deficit Reduction Act required changes to our methods of calculating the AMP and Best Price effective October 1, 2007. It is too early to determine the financial effect of these changes. We believe that federal and/or state governments may continue to enact measures in the future aimed at reducing the cost of providing prescription drug benefits to the public, particularly senior citizens. We cannot predict the nature of such measures or their impact on our profitability.

     Medicare

     In January 2006, the Medicare Part D prescription drug benefit, which provides for comprehensive prescription drug coverage to seniors, took effect with the implementation of the Medicare Prescription Drug and Modernization Act (“MMA”). During 2006 and 2007, we finalized negotiated rebate agreements involving Cenestin, ENJUVIA and Trexall with numerous Part D Sponsors. We also calculated and reported our quarterly Average Sales Price (ASP) for products covered under Medicare Part B, as required by the MMA.

Other Countries

     In Europe and ROW, the manufacture and sale of pharmaceutical products is regulated in a manner substantially similar to that in the United States. Legal requirements generally prohibit the handling, manufacture, marketing and importation of any pharmaceutical product unless it is properly registered in accordance with applicable law. The registration file relating to any particular product must contain medical data related to product efficacy and safety, including results of clinical testing and/or references to medical publications, as well as detailed information regarding production methods and quality control. Health ministries are authorized to cancel or suspend the registration of a product if it is found to be harmful or ineffective or manufactured and marketed other than in accordance with registration conditions.

     A directive of the European Union requires that medicinal products shall have a valid marketing authorization before they are sold or supplied in the European Union. Marketing authorizations are granted after the assessment of quality, safety and efficacy. In order to control expenditures on pharmaceuticals, most member states of the European Union regulate the pricing of such products and in some cases limit the range of different forms of a drug available for prescription by national health services. These controls can result in considerable price differences among member states. As part of the mutual recognition and decentralization registration procedures established by the European Union, an attempt was made to simplify the registration process and achieve harmonization for a given product within the community. The centralized registration procedure is mandatory for biosimilar products but is optional for generic versions of centrally approved products. To date, only a few generic products have been approved using this procedure.

     The duration of certain pharmaceutical patents may be extended in Europe and the ROW by up to five years in order to extend effective patent life to fifteen years. Additionally, data exclusivity provisions in Europe (as discussed below) may prevent the submission of a marketing authorization application for a generic product by six or ten years from the date of grant of the first marketing authorization for the originator product in the European Union. New legislation, effective as of November 2005, lengthens the exclusivity period for new products to 10 years for all members of the EU, with a possibility of extending the period up to 11 years under certain circumstances. As this legislation is not retrospective, the old periods of data exclusivity continue to apply to products submitted prior to implementation of the new law. This new legislation also enables the submission of a marketing authorization application for a generic product to the health authorities eight years after the first marketing authorization for the originator product was approved in the EU, and allows for research and development work during the patent term for the purpose of submitting registration dossiers.

     Data exclusivity provisions exist in many countries worldwide, including in the European Union, although their application is not uniform. Similar provisions may be adopted by additional countries or otherwise strengthened. In general, these exclusivity provisions prevent the approval and/or submission of generic drug applications to the health authorities for a fixed period of time following the first approval of a novel brand-name product in that country. As these exclusivity provisions operate independently of patent protection, they may prevent the approval and/or submission of generic drug applications for some products even after the patent protection has expired.

Government Relations Activities

     Because we believe a balanced and fair legislative and regulatory arena is critical to the pharmaceutical industry, we have and will continue to place a major emphasis in terms of management time and financial resources on government affairs activities. We currently maintain an office and staff a full-time government affairs department in Washington, D.C., which is responsible for coordinating state and federal legislative activities and coordinating with the generic industry trade association and other associations, such as the Consumer Health Product Association and National Association of Manufacturers, whose interests and goals are aligned with ours. Outside the U.S., we participate in the European Generic Association, and local government affairs matters are handled by country managers on a local level, subject to overall coordination by our government affairs department.

     COMPETITION

     We face intense competition from numerous branded and generic pharmaceutical companies in nearly every country where our pharmaceutical products are marketed. Our competitors include:

	•		the generic divisions and subsidiaries of brand pharmaceutical companies, including Sandoz US, a subsidiary of Novartis AG;
	•		large independent domestic and international generic manufacturers including Mylan Inc., Watson Pharmaceuticals, Inc., Teva Pharmaceuticals and distributors with large product lines where there is competition with some of our products;
	•		generic manufacturers in Europe such as Ratiopharm, Gedeon Richter Ltd, Actavis and Krka d.d.;
	•		generic manufacturers in India that have certain cost advantages over U.S. generic manufacturers, such as Ranbaxy and Dr. Reddy’s; and
	•		brand pharmaceutical companies whose therapies compete with our generic and proprietary products, including Johnson & Johnson, Wyeth, Bayer and Warner Chilcott.

     The expiration of patents and other market exclusivities on branded products results in generic competitors entering the marketplace. In most cases, there is significant unit price decline as additional generic competitors enter the market and we may lose market share as well. The timing of price decreases is often unpredictable and can result in a significantly curtailed period of profitability for a particular generic product. In addition, brand-name manufacturers frequently take actions in the U.S. to prevent or discourage the use of a competitor’s generic equivalents. These actions may include:

	•		filing new patents on drugs whose original patent protection is about to expire;
	•		obtaining patents on “next-generation” products reflecting, for example changes in formulation, means of delivery or other product improvement modifications;
	•		increasing marketing initiatives;
	•		launching authorized generic versions of their branded products;
	•		using the Citizen’s Petition process to request amendments to FDA standards;
	•		pricing the brand product below the already reduced price of the generic product in certain formularies in order to maintain a favored reimbursement status; and
	•		commencing litigation.

     Generic pharmaceutical market conditions have also been affected by industry consolidation and a fundamental shift in industry distribution, purchasing and stocking patterns resulting in the increased importance of sales to major chain drug stores and major wholesalers and a concurrent reduction in sales to private label generic distributors.

     In the generic oral contraceptive market, which represents the largest category of our generics segment, our most significant competitor is Watson Pharmaceuticals, which markets and distributes a sizeable portfolio of generic oral contraceptive products. Teva Pharmaceuticals, which currently markets two generic oral contraceptive products manufactured by Andrx Corporation, now a subsidiary of Watson Pharmaceuticals, is also a competitor. As a result of Watson’s acquisition of Andrx, Teva has gained the rights to Andrx’s oral contraceptive products and pending applications. In addition, a small, privately held pharmaceutical company distributes authorized generic versions of two oral contraceptive products that we manufacture and market. Although we expect competition in the generic oral contraceptive field to intensify, we believe that our large portfolio of generic oral contraceptives will remain a significant component of our total revenues in 2008.

     In Europe, we compete with other generic companies (several major multinational generic drug companies and various local generic drug companies) and branded drug companies that continue to sell or license branded pharmaceutical products after patent expirations and other statutory expirations. As in the U.S., the generic market in Europe is very competitive, with the main competitive factors being prices, time to market, reputation, customer service and breadth of product line.

     Our proprietary pharmaceutical products compete with products manufactured by branded pharmaceutical companies in competitive markets throughout the U.S. and Canada. The competitive factors that impact this part of our business include product efficacy, safety, market acceptance, price, marketing effectiveness, patent protection, and research and development of new products. Our proprietary products often must compete with other products that already have an established position in the market. If competitors introduce new products, delivery systems or processes with therapeutic or cost advantages, our products could be subject to price reductions or decreased volume of sales, or both. Our proprietary products may also face competition from manufacturers of generic pharmaceuticals, following the expiration of non-patent product exclusivities or a successful challenge to our patents.

     To ensure our ability to compete effectively, we:

	•		focus our proprietary and generic product development in areas of historical strength or competitive advantage;
	•		target generic products for development that have unique characteristics, including difficulty in sourcing raw materials, difficulty in formulation or establishing bioequivalence, and manufacturing that requires unique facilities, processes or expertise;
	•		develop innovative, cost-effective proprietary products that serve unmet medical needs; and
	•		make significant investments in plant and equipment to improve our efficiency.

     These strategies provide the basis for our belief that we will continue to remain a leading independent specialty pharmaceutical company.

     EMPLOYEES

     Our success depends on our ability to recruit and retain highly qualified scientific and management personnel. We face competition for personnel from other companies (including other pharmaceutical companies), academic institutions, government entities and other organizations. As of December 31, 2007, we had approximately 8,900 full-time employees. In the U.S., approximately 80 of our employees are represented by unions. Outside of the U.S., approximately 2,650 of our employees are represented by unions, and approximately 5,100 employees are covered by collective bargaining agreements in Croatia, the Czech Republic, Germany and Poland.

     We believe that our relations with our employees are good.

INSURANCE

     Our insurance coverage at any given time reflects market conditions, including cost and availability, existing at the time it is written, and the decision to obtain insurance coverage or to self-insure varies accordingly. If we were to incur substantial liabilities that are not covered by insurance or that substantially exceed coverage levels or accruals for probable losses, there could be a material adverse effect on our financial statements in a particular period.

     We maintain third-party insurance that provides coverage, a portion of which is subject to specified co-insurance requirements, for the cost of product liability claims arising during the current policy period, which began on October 1, 2007 and ends on September 30, 2008, up to an aggregate amount of $75.0 million. For claims related to products distributed in North America, we have retained liability for the first $25.0 million of costs incurred while claims related to products distributed outside of North America are subject to per claim and aggregate retentions of $1.0 million and $5.0 million, respectively.

     In addition to the above programs, we also have obtained extended reporting periods under previous policies for certain claims asserted during the current policy period where those claims relate to remote and prior occurrences. The applicable retentions and dates of occurrence under the previous policies vary by policy.

     ENVIRONMENTAL

     We believe that our operations comply in all material respects with applicable laws and regulations concerning the environment. While it is impossible to predict accurately the future costs associated with environmental compliance and potential remediation activities, we do not expect compliance with environmental laws to require significant capital expenditures nor do we expect such compliance to have a material adverse effect on our consolidated financial statements.

     ITEM 1A. RISK FACTORS

     The statements in this section describe the major risks to our business and should be considered carefully. In addition, these statements constitute our cautionary statements under the Private Securities Litigation Reform Act of 1995.

     Our disclosure and analysis in this Form 10-K contain some forward-looking statements that set forth anticipated results based on management’s plans and assumptions. From time to time, we also provide forward-looking statements in other materials we release to the public as well as oral forward-looking statements. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “forecast” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective products or product approvals, potential acquisitions, future performance or results of current and anticipated products, sales efforts, expenses, foreign exchange rates, the outcome of contingencies, such as legal proceedings, and financial results.

     We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements.

     We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our reports on forms 10-Q and 8-K filed with the SEC. Also note that we provide the following cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our businesses. These are factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties.

Our success depends on our ability to successfully develop and commercialize additional pharmaceutical products

     Our future results of operations depend, to a significant degree, upon our ability to successfully commercialize additional generic and proprietary pharmaceutical products. With respect to our generic products, we must develop, test and manufacture these products, as well as prove that our generic products are bioequivalent to their branded counterparts. With respect to our proprietary products, we must complete typically lengthy clinical studies that prove the safety and efficacy of our proprietary products. All of our products must meet and continue to comply with regulatory and safety standards and receive regulatory approvals. We may be forced to withdraw a product from the market if health or safety concerns arise with respect to the product. The development and commercialization process, particularly with respect to proprietary products, is both time-consuming and costly and involves a high degree of business risk. Our products currently under development, if and when fully developed and tested, may not perform as we expect, necessary regulatory approvals may not be obtained in a timely manner, if at all, and we may not be able to successfully and profitably produce and market such products. Delays in any part of the process or our inability to obtain regulatory approval of our products could adversely affect our operating results by restricting or delaying our introduction of new products. Our ability to introduce and benefit from new generic products may depend upon our ability to successfully challenge patent rights held by branded companies. The continuous introduction of new products is critical to our business.

Impact on our revenues and profits as competition is introduced

     We attempt to select our generic products based on the prospects for limited competition from competing generic companies. We do so because we believe that the more generic competitors that market the same generic product, the lower the revenue and profitability we will record for our product. Therefore, if any of our currently marketed products or any newly launched generic product are subject to additional generic competition from one or more competing products, our price and market share for the affected generic product and our operating results as a whole could be dramatically reduced. As a consequence, unless we successfully replace generic products that are declining in profitability with new generic products with higher profitability, our business could be adversely affected.

     Upon the expiration or loss of patent protection or regulatory exclusivity periods for one of our branded products, or upon the “at risk” launch by a generic manufacturer of a generic version of one of our branded products, we can lose the major portion of sales of that product in a very short period, which can adversely affect our business. If we do not continue to successfully replace proprietary products through internal development or acquisition, our revenue and profits will decline.

Resolving Paragraph IV patent challenges

     Our operating results have historically included significant contributions from products that arise from the success we have had from our patent challenge activities. However, the success we have had in the past from challenging branded companies’ patents, whether through court decisions that permit us to launch our generic products or through settlements, may not be repeated in the future due to the following:

	•		legislation currently pending in Congress that, if passed as currently written, could significantly limit the ability of brand and generic companies to settle patent litigation under the Hatch-Waxman Act;
	•		“patent reform” legislation proposals that would make it more difficult to invalidate patents or render them unenforceable;
	•		an increase in the number of competitors who pursue patent challenges could make it more difficult for us to be the first to file a Paragraph IV certification on a patent protected product;
	•		a branded company’s decision to launch an authorized generic version of a product will reduce our market share and lower the revenues and gross profits we could have otherwise earned if an authorized generic were not launched;
	•		claims brought by third parties, including the FTC, various states’ Attorneys General and other third-party payers challenging the legality of our settlement agreements could affect the way in which we resolve our patent challenges with the brand pharmaceutical companies; and
	•		the efforts of brand companies to use legislative and regulatory tactics to delay the launch of generic products.

Impact of “At Risk” Launches

     There are situations in which we have used our business and legal judgment and decided to market and sell products, subject to claims of alleged patent infringement, prior to final resolution by the courts, based upon our belief that such patents are invalid, unenforceable or would not be infringed. This is referred to in the pharmaceutical industry as an “at risk” launch. One such example of this is our “at risk” launch of Fexofenadine hydrochloride 30 mg, 60 mg and 180 mg tablets, the generic versions of Sanofi-Aventis’ Allegra^® tablets, together with Teva, as discussed above. The risk involved in an “at risk” launch can be substantial because, if a patent holder ultimately prevails, the remedies available to such holder may include, among other things, damages measured by the profits lost by the holder, which are often significantly higher than the profits we make from selling the generic

version of the product. Should we elect to proceed in this manner we could face substantial damages if the final court decision is adverse to us. In the case where a patent holder is able to prove that our infringement was “willful”, the definition of which is subjective, such damages may be trebled.

Uncertainty associated with pharmaceutical pricing, reimbursement and related matters

     Increasing expenditures for health care have been the subject of considerable public attention in almost every jurisdiction where we conduct business. Both private and governmental entities are seeking ways to reduce or contain health care costs. In many countries in which we currently operate, pharmaceutical prices are subject to regulation. In the U.S., numerous proposals that would effect changes in the U.S. health care system have been introduced or proposed in Congress and in some state legislatures, including the enactment in December 2003 of expanded Medicare coverage for drugs, which became effective in January 2006. Similar activities are taking place throughout Europe. We cannot predict the nature of the measures that may be adopted or their impact on the marketing, pricing and demand for our products.

Managed Care Trends

     The trend toward managed healthcare in the U.S., the growth of organizations such as HMOs and MCOs, and legislative proposals to reform healthcare and government insurance programs could significantly influence the purchase of pharmaceutical products, resulting in lower prices and a reduction in product demand. Such cost containment measures and healthcare reform could affect our ability to sell our products and may have a material adverse effect on us. Additionally, reimbursements to patients may not be maintained and third-party payers, which place limits on levels of reimbursement, may reduce the demand for, or negatively affect the price of, those products and could significantly harm our business. We may also be subject to lawsuits relating to reimbursement programs that could be costly to defend, divert management’s attention and could have a material adverse effect on our business.

Government Regulation

     We are dependent on obtaining timely approvals before marketing most of our products. Any manufacturer failing to comply with FDA or other applicable regulatory agency requirements may be unable to obtain approvals for the introduction of new products and, even after approval, initial product shipments may be delayed. For example, on May 8, 2006, prior to the acquisition, PLIVA received a warning letter from the FDA that raised numerous concerns regarding our manufacturing facility in Zagreb, Croatia, and in connection with that letter, the FDA imposed a temporary hold on approvals of ANDAs for products produced at this facility which has since been lifted. The FDA also has the authority, in certain circumstances, to revoke drug approvals previously granted and remove from the market previously approved drug products containing ingredients no longer approved by the FDA. Our major facilities, both in the U.S. and outside the U.S., and our products are periodically inspected by the FDA, which has extensive enforcement powers over the activities of pharmaceutical manufacturers, including the power to seize, force to recall and prohibit the sale or import of non-complying products, and to halt operations of and criminally prosecute non-complying manufacturers.

     In Europe, the manufacture and sale of pharmaceutical products is regulated in a manner substantially similar to that in the United States. Legal requirements generally prohibit the handling, manufacture, marketing and importation of any pharmaceutical product unless it is properly registered in accordance with applicable law. The registration file relating to any particular product must contain medical data related to product efficacy and safety, including results of clinical testing and references to medical publications, as well as detailed information regarding production methods and quality control. Health ministries are authorized to cancel the registration of a product if it is found to be harmful or ineffective or manufactured and marketed other than in accordance with registration conditions.

     Data exclusivity provisions exist in many countries worldwide, including in the European Union, although their application is not uniform. Similar provisions may be adopted by additional countries or otherwise strengthened. In general, these exclusivity provisions prevent the approval and/or submission of generic drug applications to the health authorities for a fixed period of time following the first approval of a novel brand-name product in that

country. As these exclusivity provisions operate independently of patent exclusivity, they may prevent the approval and/or submission of generic drug applications for some products even after the patent protection has expired.

Product Manufacturing

     Difficulties or delays in product manufacturing, including, but not limited to, the inability to increase production capacity commensurate with demand, or the failure to predict market demand for, or to gain market acceptance of approved products, could adversely affect future results.

Dependence on Third Parties

     We rely on numerous third parties to supply us with most of our raw materials, inactive ingredients and other components for our manufactured products and for certain of our finished goods. In many instances there is only a single supplier. In addition, we rely on third-party distributors and alliance partners to provide services for our business, including product development, manufacturing, warehousing, distribution, customer service support, medical affairs services, clinical studies, sales and other technical and financial services for certain of our products. Also, in Europe we often in-license products that are manufactured by others for us. Nearly all third-party suppliers and contractors are subject to governmental regulation and, accordingly, we are dependent on the regulatory compliance of these third parties. We also depend on the strength, validity and terms of our various contracts with these third-party manufacturers, distributors and collaboration partners. Any interruption or failure by these suppliers, distributors and collaboration partners to meet their obligations pursuant to various agreements or obligations with us could have a material adverse effect on our business.

     In addition, our revenues include amounts we earn based on sales generated and recorded by Teva Pharmaceuticals for generic Allegra, and Kos Pharmaceuticals for NIASPAN and ADVICOR. Any factors that negatively impact the sales of these products could adversely impact our revenues and profits.

Customer Consolidation

     Our principal customers in the United States are wholesale drug distributors and major retail drug store chains. These customers comprise a significant part of the distribution network for pharmaceutical products in the U.S. This distribution network is continuing to undergo significant consolidation as a result of mergers and acquisitions among wholesale distributors and the growth of large retail drug store chains. This consolidation may result in these groups gaining additional purchasing leverage and consequently increasing the product pricing pressures facing our business. Additionally, the emergence of large buying groups representing independent retail pharmacies and the prevalence and influence of managed care organizations and similar institutions potentially enable those groups to extract price discounts on our products. Our net sales and quarterly growth comparisons may be affected by fluctuations in the buying patterns of major distributors, retail chains and other trade buyers. These fluctuations may result from seasonality, pricing, wholesaler buying decisions or other factors.

Acquisitions

     We regularly review potential acquisitions of products and companies complementary to our business. Acquisitions typically entail many risks including difficulties in integrating operations, personnel, technologies and products. If we are not able to successfully integrate our acquisitions, we may not obtain the advantages that the acquisitions were intended to create, which may adversely affect our business, results of operations, financial condition and cash flows, and our ability to develop and introduce new products.

Integration of PLIVA

     We acquired PLIVA in October 2006. The acquisition involved the integration of two companies that had previously operated independently. There continues to be a number of operational and financial risks associated with this acquisition and related integration. The operational risks include, but are not limited to, the following:

	•		the necessity of coordinating and consolidating geographically separated organizations, systems and facilities, including as they relate to disclosure controls and internal controls for purposes of regulations promulgated under the Sarbanes-Oxley Act;
	•		the successful integration of our management and personnel with that of PLIVA and retaining key employees; and
	•		changes in intellectual property legal protections and remedies, trade regulations and procedures and actions affecting approval, production, pricing, reimbursement and marketing of products.

     The financial risks include, but are not limited to, the following:

	•		our ability to satisfy obligations with respect to the $1.8 billion of debt outstanding as of December 31, 2007 that we incurred to help finance this transaction, a significant portion of which is at a variable rate of interest based upon LIBOR;
	•		charges associated with this transaction, including additional depreciation and amortization of acquired assets and interest expense which have impacted, and will continue to negatively impact, our net income;
	•		our ability to accurately forecast financial results is affected by a significant increase in the scope and complexity of our business;
	•		our international-based revenues and expenses are subject to foreign currency exchange rate fluctuations; and
	•		to the extent goodwill or intangible assets associated with the acquisition become impaired, we may be required to incur material charges to our earnings for those impairments.

     If management is unable to successfully integrate the operations and manage the financial risks, the anticipated benefits of this acquisition may not be realized and it could result in a material adverse effect on our operations and cash flow.

We have substantial indebtedness which requires us to apply a substantial portion of our cash flows from operation to service our indebtedness.

     In connection with our acquisition of PLIVA, we incurred significant debt. As of December 31, 2007 our total outstanding debt was $2.1 billion. Our current indebtedness requires us to apply a significant portion of our operating cash flows to service our indebtedness which may prevent us from:

	•		making additional product acquisitions;
	•		completing additional business combinations;
	•		investing in all contemplated capital projects;
	•		securing additional debt;
	•		having a competitive advantage over our competitors that have less debt; and

•

having the ability to invest larger portions of our excess cash flow from operations in marketable securities.

Volatility in interest rates, commodity prices and credit markets may adversely affect our financial condition, result of operations or cash flows

     The current volatility in interest rates, commodity prices and credit markets could affect the following items:

	•		our ability to invest in higher earning marketable securities in both the short-term and long-term markets;
	•		our ability to raise additional liquidity due to credit concerns in the capital markets;
	•		our ability to liquidate certain investments under our marketable securities portfolio (including auction-rate securities) due to credit concerns in the capital markets; and
	•		our exposure to the volatile interest rate market and the inability to secure favorable interest rates.

We are subject to risks associated with doing business outside of the United States

     Our operations outside of the U.S. are subject to risks that are inherent in conducting business under non-U.S. laws, regulations and customs. The risks associated with our operations outside the U.S. include:

	•		changes in non-U.S. medical reimbursement policies and programs;
	•		multiple non-U.S. regulatory requirements that are subject to change and that could restrict our ability to manufacture and sell our products;
	•		compliance with anti-bribery laws such as the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions, as discussed in further detail below;
	•		different local product preferences and product requirements;
	•		trade protection measures and import or export licensing requirements;
	•		difficulty in establishing, staffing and managing non-U.S. operations;
	•		different labor regulations;
	•		changes in environmental, health and safety laws;
	•		potentially negative consequences from changes in or interpretations of tax laws;
	•		political instability and actual or anticipated military or political conflicts;
	•		economic instability, inflation, recession, and interest rate or foreign currency fluctuations; and
	•		minimal or diminished protection of intellectual property in some countries.

     These risks, individually or in the aggregate, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are subject to the restrictions imposed by the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws

     The U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that have experienced governmental corruption to some degree, and in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We cannot assure you that our internal control policies and procedures always will protect us from reckless or criminal acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our financial condition, results of operations and cash flows.

Changes in foreign currency exchange rates may adversely affect our results

     We are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates and interest rates. As a result of our PLIVA acquisition, sales in non-U.S. markets now represent a significant portion of our net sales. Therefore, when the U.S. dollar strengthens in relation to the currencies of the countries where we sell our products, such as the Euro or Croatian Kuna, our U.S. dollar reported revenue and income will decrease. Changes in the relative values of currencies occur from time to time and, in some instances, may have a significant effect on our operating results.

Cost and Expense Control/Unusual Events

     Growth in costs and expenses, changes in product mix and the impact of acquisitions, divestitures, restructurings, product withdrawals and other unusual events that could result from evolving business strategies, evaluation of asset realization and organizational restructuring could create volatility in our results. Such risks and uncertainties include, in particular, the potentially significant charges to our operating results for items like in-process research and development charges and transaction costs.

Legal Proceedings

     As described in “Legal Proceedings” in Part I, Item 3 of this report, we and certain of our subsidiaries are involved in various patent, product liability, consumer and commercial litigations and claims; government investigations; and other legal proceedings that arise from time to time in the ordinary course of our business. Litigation is inherently unpredictable, and unfavorable rulings do occur. An unfavorable ruling could include money damages or, in some rare cases, for which injunctive relief is sought, an injunction prohibiting the Company from manufacturing or selling one or more products. Although we believe we have substantial defenses in these matters, we could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on our results of operations in any particular period.

Availability of Product Liability Insurance

     Our business inherently exposes us to claims relating to the use of our products. We sell, and will continue to sell, pharmaceutical products for which product liability insurance coverage may not be available, and, accordingly, if we are sued and if adverse judgments are rendered, we may be subject to claims that are not covered by insurance, as well as claims that exceed our policy limits. Additional products for which we currently have coverage may be excluded in the future. In addition, product liability coverage for pharmaceutical companies is becoming more expensive and increasingly difficult to obtain. As a result, we may not be able to obtain the type and amount of coverage we desire on commercially reasonable terms.

Exposure to Environmental Laws and Regulations

     We are subject to numerous environmental protection and health and safety laws in the countries where we manufacture and sell our products or otherwise operate our business. Such laws and regulations govern, among other things:

	•		the generation, storage, use and transportation of hazardous materials;
	•		emissions or discharges of substances into the environment;
	•		investigation and remediation of hazardous substances or materials at various sites; and
	•		the health and safety of our employees.

     We may not have been, or we may not at all times be, in compliance with environmental and health and safety laws. If we violate these laws, we could be fined, criminally charged or otherwise sanctioned by regulators. Environmental laws outside of the U.S. are becoming more stringent and resulting in increased costs and compliance burdens.

     Certain environmental laws assess liability on current or previous owners or operators of real property for the costs of investigation, removal or remediation of hazardous substances or materials at their properties or at properties at which they have disposed of hazardous substances. Liability for investigative, removal and remedial costs under certain federal and state laws is retroactive, strict and joint and several. In addition to clean-up actions brought by governmental authorities, private parties could bring personal injury or other claims due to the presence of, or exposure to, hazardous substances. We have received notification from the U.S. Environmental Protection Agency and similar state environmental agencies that conditions at a number of formerly owned sites where we and others have disposed of hazardous substances require investigation, clean-up and other possible remedial action and may require that we reimburse the government or otherwise pay for the costs of investigation and remediation and for natural resource damage claims from such sites.

     There can be no assurance that the costs of complying with current or future environmental protection and health and safety laws, or our liabilities arising from past or future releases of, or exposures to, hazardous substances will not exceed our estimates or adversely affect our business, financial condition, results of operations and cash flows or that we will not be subject to additional environmental claims for personal injury or clean-up in the future based on our past, present or future business activities.

Managing Rapidly Growing Operations

     We have grown significantly over the past several years, extending our processes, systems and people. In particular, our acquisition of PLIVA has significantly added to the scope and complexity of our operations. We have made and continue to make significant investments in global enterprise resource systems and our internal control processes to help manage the increased scope and complexity of our business. We must also attract, retain and motivate executives and other key employees, including those in managerial, technical, sales and marketing and support positions to support our growth. As a result, hiring and retaining qualified executives, scientists, technical staff, manufacturing personnel, qualified quality and regulatory professionals and sales representatives are critical to our business and competition for these people can be intense. If we are unable to hire and retain qualified employees and if we do not continue to invest in systems and processes to manage our growth, our operations could be adversely impacted.

Changes in Laws and Accounting Standards

     Our future results could be adversely affected by changes in laws and regulations, including changes in accounting standards, taxation requirements (including tax-rate changes, new tax laws and revised tax law interpretations), competition laws and environmental laws in countries that we operate.

Terrorist Activity

     Our future results could be adversely affected by changes in business, political and economic conditions, including the cost and availability of insurance, due to the threat of future terrorist activity in the U.S. and other parts of the world and related U.S. military action overseas.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     Not applicable.

ITEM 2. PROPERTIES

     The following table lists the principal facilities owned or leased by us as of December 31, 2007 and indicates the location and principal use of each of these facilities:

						Owned/
Location		Sq. Feet				Leased		Principal Usage(s)
Montvale, NJ			142,500			Leased		Administrative
Woodcliff Lake, NJ			90,000			Leased		Administrative
East Hanover, NJ			280,000			Leased/Owned		Manufacturing; Warehousing; Administrative. (18,500 sqft owned)
Pomona, NY			181,000			Owned		R&D; Laboratories; Administrative; Manufacturing; Warehousing
North Tonawanda, NY			23,500			Leased		Manufacturing
Cincinnati, OH			305,000			Owned		Manufacturing; Laboratories; Packaging; Warehousing; Administrative
Bala Cynwyd, PA			39,000			Leased		Proprietary R&D; Administrative
Forest, VA			20,000			Owned		Adenovirus Facility
Forest, VA			407,000			Owned		Administrative; Warehousing; Packaging; Distribution
Washington, D.C.			8,700			Leased		Government Affairs
Brno, Czech Republic			453,200			Owned		Manufacturing; API; Warehousing; Engineering; R&D; Administrative
Zagreb, Croatia, PbF			1,277,900			Owned		Administrative, Manufacturing, Packaging, R&D, API, Warehousing
Zagreb, Croatia, Vukovarska			175,500			Owned		Administrative Headquarters
Zagreb, Croatia, SM			579,300			Owned		API; Biologics; Warehousing
Zagreb, Croatia, HL			96,700			Owned		Manufacturing; Packaging, Warehousing
Zagreb, Croatia, Jagićeva			18,000			Owned		Administrative
Radebeul, Germany			8,300			Owned		Administrative
Krakow, Poland			948,500			Owned		Manufacturing; Warehousing; Engineering; Administrative

     We have invested significantly over the last few years to increase our respective production, laboratory, warehouse, distribution, manufacturing and R&D capacity. We believe that our current facilities are in good condition and are being used productively. We constantly assess our ongoing investments in property, plant and equipment to ensure that our facilities are adequate for us to meet the expected demand of our pipeline products and to handle increases in current product sales.

ITEM 3. LEGAL PROCEEDINGS

Litigation Settlement

     On October 22, 1999, we entered into a settlement agreement with Schein Pharmaceutical, Inc. (now part of Watson Pharmaceuticals, Inc.) relating to a 1992 agreement regarding the pursuit of a generic conjugated estrogens product. Under the terms of the settlement, Schein relinquished any claim to rights in CENESTIN in exchange for a payment of $15.0 million made to Schein in 1999. An additional $15.0 million payment is required under the terms of the settlement if CENESTIN achieves total profits, as defined, of greater than $100.0 million over any rolling five-year period prior to October 22, 2014. We believe that it is probable that this payment will be earned at some point during the next two years, most likely during 2008. As a result, we have recorded a contingent liability as of December 31, 2007 in the amount of $13.7 million, representing an estimated pro-rata amount of the liability incurred as of December 31, 2007.

Pending Litigation Matters

     We are involved in various legal proceedings incidental to our business, including product liability, intellectual property and other commercial litigation and antitrust actions. We record accruals for such contingencies to the extent that we conclude a loss is probable and the amount can be reasonably estimated. Additionally, we record insurance receivable amounts from third party insurers when appropriate.

     Many claims involve highly complex issues relating to patent rights, causation, label warnings, scientific evidence and other matters. Often these issues are subject to substantial uncertainties and therefore, the probability of loss and an estimate of the amount of the loss are difficult to determine. Our assessments are based on estimates that we, in consultation with outside advisors, believe are reasonable. Although we believe we have substantial defenses in these matters, litigation is inherently unpredictable. Consequently, we could in the future incur judgments or enter into settlements that could have a material adverse effect on our results of operations, cash flows or financial condition in a particular period.

     Summarized below are the more significant matters pending to which we are a party. As of December 31, 2007, our reserve for the liability associated with claims or related defense costs for these matters is not material.

     Patent Matters

     Fexofenadine Hydrochloride Suit

     In June 2001, we filed an ANDA seeking approval from the FDA to market fexofenadine hydrochloride tablets in 30 mg, 60 mg and 180 mg strengths, the generic equivalent of Sanofi-Aventis’ Allegra tablet products for allergy relief. We notified Sanofi-Aventis pursuant to the provisions of the Hatch-Waxman Act and, in September 2001, Sanofi-Aventis filed a patent infringement action in the U.S. District Court for the District of New Jersey — Newark Division, seeking to prevent us from marketing this product until after the expiration of various U.S. patents, the last of which is alleged to expire in 2017.

     After the filing of our ANDA, Sanofi-Aventis listed an additional patent on Allegra in the Orange Book. We filed appropriate amendments to our ANDAs to address the newly listed patent and, in November 2002, notified Merrell Pharmaceuticals, Inc., the patent holder, and Sanofi-Aventis pursuant to the provisions of the Hatch-Waxman Act. Sanofi-Aventis filed an amended complaint in November 2002 claiming that our ANDA infringes the newly listed patent.

     On March 5, 2004, Sanofi-Aventis and AMR Technology, Inc., the holder of certain patents licensed to Sanofi-Aventis, filed an additional patent infringement action in the U.S. District Court for the District of New Jersey — Newark Division, based on two patents that are not listed in the Orange Book.

     In June 2004, the court granted us summary judgment of non-infringement as to two patents. On March 31, 2005, the court granted us summary judgment of invalidity as to a third patent. Discovery is proceeding on the five remaining patents at issue in the case. No trial date has been scheduled.

     On August 31, 2005, we received final FDA approval for our fexofenadine tablet products. As referenced above, pursuant to the agreement between Teva and us, we selectively waived our 180 days of generic exclusivity in favor of Teva, and Teva launched its generic product on September 1, 2005.

     On September 21, 2005, Sanofi-Aventis filed a motion for a preliminary injunction or expedited trial. The motion asked the court to enjoin Teva and Barr from marketing their generic versions of Allegra tablets, 30 mg, 60 mg and 180 mg, or to expedite the trial in the case. The motion also asked the court to enjoin Ranbaxy Laboratories, Ltd. and Amino Chemicals, Ltd. from the commercial production of generic fexofenadine raw material. The preliminary injunction hearing concluded on November 3, 2005. On January 30, 2006, the Court denied the motion by Sanofi-Aventis for a preliminary injunction or expedited trial. Sanofi-Aventis appealed the Court’s denial of its motion to the United States Court of Appeals for the Federal Circuit. On November 8, 2006, the Federal Circuit affirmed the District Court’s denial of the motion for preliminary injunction.

     On May 8, 2006, Sanofi-Aventis and AMR Technology, Inc. served a Second Amended and Supplemental Complaint based on U.S. Patent Nos. 5,581,011 and 5,750,703 (collectively, “the API patents”), asserting claims against us for infringement of the API patents based on the sale of our fexofenadine product and for inducement of infringement of the API patents based on the sale of Teva’s fexofenadine product. On June 22, 2006, we answered the complaint, denied the allegations, and asserted counterclaims for declaratory judgment that the asserted patents are invalid and/or not infringed and for damages for violations of the Sherman Act, 15 U.S.C. §§ 1.2.

     On November 14, 2006, Sanofi-Aventis sued Barr and Teva in the U.S. District Court for the Eastern District of Texas, alleging that Teva’s fexofenadine hydrochloride tablets infringe a patent directed to a certain crystal form of fexofenadine hydrochloride, and that we induced Teva’s allegedly infringing sales. On November 21, 2006, Sanofi-Aventis filed an amended complaint in the same court, asserting that our fexofenadine hydrochloride tablets infringe a different patent directed to a different crystal form of fexofenadine hydrochloride. On January 12, 2007, we moved to dismiss the suit against Barr Pharmaceuticals, answered the complaint on behalf of Barr Laboratories, denied the allegations against it, and moved to transfer the action to the U.S. District Court for New Jersey. On September 27, 2007, the U.S. District Court for the Eastern District of Texas granted our motion to transfer the case to the U.S. District for New Jersey and denied Barr Pharmaceutical, Inc.’s motion to dismiss as moot.

     Sanofi-Aventis also has brought a patent infringement suit against Teva in Israel, seeking to have Teva enjoined from manufacturing generic versions of Allegra tablets and seeking damages.

     If Barr and/or Teva are unsuccessful in the Allegra litigation, Barr potentially could be liable for a portion of Sanofi-Aventis’ lost profits on the sale of Allegra, which could potentially exceed our profits earned from our arrangement with Teva on generic Allegra.

     Product Liability Matters

     Hormone Therapy Litigation

     We have been named as a defendant in approximately 5,080 personal injury product liability cases brought against us and other manufacturers by plaintiffs claiming that they suffered injuries resulting from the use of certain estrogen and progestin medications prescribed to treat the symptoms of menopause. The cases against us involve our CENESTIN products and/or the use of our medroxyprogesterone acetate product, which typically has been prescribed for use in conjunction with Premarin or other hormone therapy products. All of these products remain approved by the FDA and continue to be marketed and sold to customers. While we have been named as a defendant in these cases, fewer than a third of the complaints actually allege the plaintiffs took a product manufactured by us, and our experience to date suggests that, even in these cases, a high percentage of the plaintiffs will be unable to demonstrate actual use of our product. For that reason, approximately 4,624 of such cases have been dismissed (leaving approximately 456 pending) and, based on discussions with our outside counsel, more are expected to be dismissed.

     We believe we have viable defenses to the allegations in the complaints and are defending the actions vigorously.

     Antitrust Matters

     Ciprofloxacin (Cipro^®) Antitrust Class Actions

     We have been named as a co-defendant with Bayer Corporation, The Rugby Group, Inc. and others in approximately 38 class action complaints filed in state and federal courts by direct and indirect purchasers of Ciprofloxacin (Cipro) from 1997 to the present. The complaints allege that the 1997 Bayer-Barr patent litigation settlement agreement was anti-competitive and violated federal antitrust laws and/or state antitrust and consumer protection laws. A prior investigation of this agreement by the Texas Attorney General’s Office on behalf of a group of state Attorneys General was closed without further action in December 2001.

     The lawsuits include nine consolidated in California state court, one in Kansas state court, one in Wisconsin state court, one in Florida state court, and two consolidated in New York state court, with the remainder of the actions pending in the U.S. District Court for the Eastern District of New York for coordinated or consolidated pre-trial proceedings (the “MDL Case”). On March 31, 2005, the Court in the MDL Case granted summary judgment in the Company’s favor and dismissed all of the federal actions before it. On June 7, 2005, plaintiffs filed notices of appeal to the U.S. Court of Appeals for the Second Circuit. On November 2, 2007, the Company and the other defendants filed a motion for summary affirmance, based on the Second Circuit’s decision in the Company’s favor in the Tamoxifen antitrust case. On November 7, 2007, the Second Circuit transferred the appeal involving certain parties to the United States Court of Appeals for the Federal Circuit, while retaining jurisdiction over the appeals of the other parties in the case. Briefing on the merits is now proceeding in the Federal Circuit. Merits briefing has not been scheduled or commenced in the Second Circuit, pending a ruling on the defendants’ motion for summary affirmance.

     On September 19, 2003, the Circuit Court for the County of Milwaukee dismissed the Wisconsin state class action for failure to state a claim for relief under Wisconsin law. The Court of Appeals reinstated the complaint on May 9, 2006 and the Wisconsin Supreme Court affirmed that decision on July 13, 2007, while not addressing the underlying merits of the plaintiffs’ case. The matter was returned to the trial court for further proceedings, and the trial court has stayed the case.

     On October 17, 2003, the Supreme Court of the State of New York for New York County dismissed the consolidated New York state class action for failure to state a claim upon which relief could be granted and denied the plaintiffs’ motion for class certification. An intermediate appellate court affirmed that decision, and plaintiffs have sought leave to appeal to the New York Court of Appeals.

     On April 13, 2005, the Superior Court of San Diego, California ordered a stay of the California state class actions until after the resolution of any appeal in the MDL Case. Plaintiffs have moved to lift the stay. The court has not ruled on the motion but has scheduled a further status hearing for March 7, 2008.

     On April 22, 2005, the District Court of Johnson County, Kansas similarly stayed the action before it, until after any appeal in the MDL Case.

     The Florida state class action remains at a very early stage, with no status hearings, dispositive motions, pre-trial schedules, or a trial date set as of yet.

     We believe that our agreement with Bayer Corporation reflects a valid settlement to a patent suit and cannot form the basis of an antitrust claim. Based on this belief, we are vigorously defending Barr in these matters.

     Ovcon Antitrust Proceedings

      We have entered into settlements with the FTC, the State Attorneys General (as described below) and the class representatives of the indirect purchasers. Only the claims of the direct purchasers remain active in the litigation.

      Under the FTC settlement, the FTC agreed to dismiss its case against us, and we agreed to refrain from entering into exclusive supply agreements in certain non-patent challenge situations where we are an ANDA holder and the party being supplied is the NDA holder. The settlement was entered and the FTC's lawsuit against us was dismissed with prejudice on November 27, 2007.

      Under the State Attorneys General Settlement, the states agreed to dismiss their claims against us in exchange for a cash payment of $5.9 million and commitments by us not to engage in certain future conduct similar to the commitments contained in the FTC settlement. The State Attorneys General Settlement was finalized on February 25, 2008.

      In the actions brought on behalf of the indirect purchasers, we reached court-approved settlements with the class representatives of the certified class of indirect purchasers on behalf of the class. The settlements require us to pay $1.8 million to funds established by plaintiffs' counsel and to donate branded drug products to, among others, charitable organizations and university health centers.

      In the actions brought on behalf of the direct purchasers, on October 22, 2007, the Court granted plaintiffs' motion to certify a class on behalf of all entities that purchased Ovcon-35 directly from Warner Chilcott (or its affiliated companies) from April 22, 2004.

      In November 2007, we and the direct purchasers filed cross motions for summary judgment. No ruling has been made on the motions and no trial date has been set.

      During 2007, we recorded charges in the amount of $15.3 million related to these and other settlement offers in the Ovcon litigation.

     Provigil Antitrust Proceedings

     To date, we have been named as a co-defendant with Cephalon, Inc., Mylan Laboratories, Inc., Teva Pharmaceutical Industries, Ltd., Teva Pharmaceuticals USA, Inc., Ranbaxy Laboratories, Ltd., and Ranbaxy Pharmaceuticals, Inc. (the “Provigil Defendants”) in ten separate complaints filed in the U.S. District Court for the Eastern District of Pennsylvania. These actions allege, among other things, that the agreements between Cephalon and the other individual Provigil Defendants to settle patent litigation relating to Provigil^® constitute an unfair method of competition, are anticompetitive and restrain trade in the market for Provigil and its generic equivalents in violation of the antitrust laws. These cases remain at a very early stage and no trial dates have been set.

     We were also named as a co-defendant with the Provigil Defendants in an action filed in the U.S. District Court for the Eastern District of Pennsylvania by Apotex, Inc. The lawsuit alleges, among other things, that Apotex sought to market its own generic version of Provigil and that the settlement agreements entered into between Cephalon and

the other individual Provigil Defendants constituted an unfair method of competition, are anticompetitive and restrain trade in the market for Provigil and its generic equivalents in violation of the antitrust laws. The Provigil Defendants have filed motions to dismiss, and briefing has taken place with respect to these motions.

     We believe that we have not engaged in any improper conduct and are vigorously defending these matters.

     Medicaid Reimbursement Cases

     We, along with numerous other pharmaceutical companies, have been named as a defendant in separate actions brought by the states of Alabama, Alaska, Hawaii, Idaho, Illinois, Iowa, Kentucky, Massachusetts, Mississippi, South Carolina and Utah, the City of New York, and numerous counties in New York. In each of these matters, the plaintiffs seek to recover damages and other relief for alleged overcharges for prescription medications paid for or reimbursed by their respective Medicaid programs, with some states also pursuing similar allegations based on the reimbursement of drugs under Medicare Part B or the purchase of drugs by a state health plan (for example, South Carolina).

     In the Massachusetts case, the parties reached a settlement under which the Company denied any wrongdoing and the case was dismissed on October 9, 2007.

     The Iowa and New York cases, with the exception of the actions filed by Erie, Oswego, and Schenectady Counties in New York, are currently pending in the U.S. District Court for the District of Massachusetts. In the Iowa case, briefing on the defendants’ motions to dismiss is underway. In the consolidated New York cases, discovery is underway, but no trial dates have been set. The Erie, Oswego, and Schenectady County cases were filed in state courts in New York, again with no trial dates set.

     The Alabama, Illinois, and Kentucky cases were filed in state courts, removed to federal court, and then remanded back to their respective state courts. Discovery is underway. The Alabama trial court has completed the trial of a different defendant, with the remaining defendants to be tried thereafter but with the sequencing not yet known. The Kentucky trial court has scheduled the first trial to begin next year on May 19, 2009, but has not yet determined which defendant(s) will be tried.

     The State of Mississippi case was filed in Mississippi state court on October 25, 2005. Discovery was underway, but that case, along with the Illinois case and the actions brought by Erie, Oswego, and Schenectady Counties in New York, were removed to federal court on the motion of a co-defendant. Remand motions were granted on September 17, 2007, and thus the cases have returned to their respective state courts of origin, again with no trial dates set.

     The State of Hawaii case was filed in state court in Hawaii on April 26, 2007, removed to the United States District Court for the District of Hawaii, and remanded to state court. Discovery is underway. No trial date has been set.

     The State of Alaska case was filed in state court in Alaska on October 6, 2006. Discovery is underway. No trial date has been set.

     The State of South Carolina cases consist of two complaints, one brought on behalf of the South Carolina Medicaid Agency and the other brought on behalf of the South Carolina State Health Plan. Both cases were filed in state court in South Carolina on January 16, 2007. Briefing on the defendants’ motions to dismiss is underway. No trial date has been set.

     The State of Idaho case was filed in state court in Idaho on January 26, 2007. Discovery is underway. No trial date has been set.

     The State of Utah case was filed in state court in Utah on September 21, 2007. Defendants removed the case to federal court and moved to transfer the action to the U.S. District Court for the District of Massachusetts. The State has opposed both removal and transfer. No trial date has been set.

     We believe that we have not engaged in any improper conduct and are vigorously defending these matters.

     Breach of Contract Action

     On October 6, 2005, plaintiffs Agvar Chemicals Inc., Ranbaxy Laboratories, Inc. and Ranbaxy Pharmaceuticals, Inc. filed suit against us and Teva Pharmaceuticals USA, Inc. in the Superior Court of New Jersey. In their complaint, plaintiffs seek to recover damages and other relief, based on an alleged breach of an alleged contract requiring us to purchase raw material for our generic Allegra product from Ranbaxy, prohibiting us from launching our generic Allegra product without Ranbaxy’s consent and prohibiting us from entering into an agreement authorizing Teva to launch Teva’s generic Allegra product. In an amended complaint, plaintiffs further asserted claims for fraud and negligent misrepresentation. The court has entered a scheduling order providing for the completion of discovery by December 8, 2008, but has not yet set a date for trial. We believe there was no such contract, fraud or negligent misrepresentation and are vigorously defending this matter.

     Other Litigation

     As of December 31, 2007, we were involved with other lawsuits incidental to its business, including patent infringement actions, product liability, and personal injury claims. Management, based on the advice of legal counsel, believes that the ultimate outcome of these other matters will not have a material adverse effect on our consolidated financial statements.

  Government Inquiries

     On July 11, 2006, we received a request from the FTC for the voluntary submission of information regarding the settlement agreement reached in the matter of Cephalon, Inc. v. Mylan Pharmaceuticals, Inc., et al., U.S. District Court for the District of New Jersey. The FTC is investigating whether Barr and the other parties to the litigation have engaged in unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act by restricting the sale of Modafinil products. In its request letter, the FTC stated that neither the request nor the existence of an investigation indicated that Barr or any other company had violated the law.

      On February 13, 2008, the FTC filed an action against Cephalon in the U.S. District Court for the District of Columbia, claiming that Cephalon engaged in unfair methods of competition by entering into separate settlement agreements with us and three other generic companies concerning the Modafinil patent litigation. We were not named as a defendant in the litigation.

      We believe that our settlement agreement is in compliance with all applicable laws and intend to cooperate with the FTC’s investigation in this matter.

     On October 3, 2006, the FTC notified Barr it was investigating a patent litigation settlement reached in matters pending in the U.S. District Court for the Southern District of New York between Barr and Shire PLC concerning Shire’s ADDERALL XR product. On June 20, 2007, the Company received a Civil Investigative Demand, seeking documents and data. We are cooperating with the agency in its investigation.

ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There were no matters put to the vote of our stockholders during the quarter ended December 31, 2007.

     PART II

ITEM 5.		MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) Market for Barr’s Common Equity

     Our common stock is traded on the New York Stock Exchange under the symbol “BRL.” The following table sets forth the quarterly high and low share trading price information for the periods indicated:

		High				Low
Year Ended December 31, 2007:
First quarter		$	56.66			$	45.77
Second quarter			55.10				45.41
Third quarter			57.25				49.49
Fourth quarter			58.38				50.59
Transition Period
Three months ended September 30, 2006		$	59.25			$	44.60
Three months ended December 31, 2006			53.89				47.52
Fiscal year ended June 30, 2006:
First quarter		$	55.08			$	45.00
Second quarter			63.60				53.53
Third quarter			70.25				60.83
Fourth quarter			64.51				47.24

     As of February 15, 2008, we estimate that there were 1,467 holders of record of our common stock. We believe that a significant number of investors in our common stock hold their shares in street name. Therefore, the number of beneficial owners of our common stock is much greater than the number of record holders of our common stock.

     We have not paid any cash dividends on our common stock during 2007 or during the last two fiscal years and we do not anticipate paying any cash dividends in the foreseeable future.

(b) Recent Sales of Unregistered Securities

     In April 2005, holders of warrants to purchase an aggregate of 288,226 shares of our common stock, at $9.54 per share, exercised the warrants in full. As a result, we issued to the investors 288,226 unregistered shares of our common stock and received proceeds of $2,749,676. The issuance of the shares to the investors was based on the exemption from registration under Section 4(2) of the Securities Act.

ITEM 6. SELECTED FINANCIAL DATA

     In September 2006, we changed our fiscal year from June 30^th to December 31^st. We made this change to align our fiscal year end with that of our subsidiary, PLIVA, and with other companies within our industry. The following tables set forth selected consolidated financial data for the year ended December 31, 2007, the Transition Period, the six months ended December 31, 2005 (unaudited), and the four-year period ended June 30, 2006. The data for the year ended December 31, 2007, the Transition Period and the four fiscal years ended June 30, 2006 have been derived from our audited financial statements. The data for the six months ended December 31, 2005 is unaudited and is being provided for comparison purposes. The results of operations of our PLIVA subsidiary are included from October 25, 2006.

										Six months
		Year Ended								ended
(in thousands, except per share data)		December 31,				Transition				December 31,
Statements of Operations Data		2007				Period				2005
Total revenues		$	2,500,582			$	904,764			$	635,956
Earnings (loss) before income taxes and minority interest			207,835				(302,359	)			279,634
Income tax expense			64,546				34,630				101,507
Net earnings (loss)			128,350				(338,155	)			178,127
Earnings (loss) per common share — basic			1.20				(3.18	)			1.71
Earnings (loss) per common share — diluted			1.18				(3.18	)			1.66

		As of				As of
		December 31,				December 31,
Balance Sheet Data		2007				2006
Working capital		$	970,854			$	876,106
Total assets			4,761,627				4,961,862
Long-term debt (1)			1,781,692				1,935,477
Shareholders’ equity (3)			1,866,321				1,465,228

(in thousands, except per share data)		Fiscal Year Ended June 30,
Statements of Operations Data		2006				2005				2004				2003
Total revenues		$	1,314,465			$	1,047,399			$	1,309,088			$	902,864
Earnings (loss) before income taxes and minority interest			522,948				329,876				194,440				262,715
Income tax expense			186,471				114,888				71,337				95,149
Net earnings (loss)			336,477				214,988				123,103				167,566
Earnings (loss) per common share — basic			3.20				2.08				1.21				1.69	(2)
Earnings (loss) per common share — diluted			3.12				2.03				1.15				1.62	(2)

		As of June 30,
Balance Sheet Data		2006				2005				2004				2003
Working capital		$	921,663			$	780,386			$	670,601			$	582,183
Total assets			1,921,419				1,490,306				1,333,269				1,180,937
Long-term debt (1)			7,431				15,493				32,355				34,027
Shareholders’ equity (3)			1,690,956				1,233,970				1,042,046				867,995

	(1)		Includes capital leases and excludes current installments.
	(2)		Amounts have been adjusted for the March 16, 2004 3-for-2 stock split effected in the form of a 50% stock dividend.
	(3)		The Company has not paid a cash dividend in any of the above years.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Change in Fiscal Year

     On September 21, 2006, we changed our fiscal year end from June 30 to December 31. We made this change to align our fiscal year end with that of our subsidiary, PLIVA, and with other companies within our industry. We have defined various periods that are covered in the discussion below as follows:

	•		“2007” — January 1, 2007 through December 31, 2007
	•		“2006” — January 1, 2006 through December 31, 2006
	•		“Transition Period” — July 1, 2006 through December 31, 2006
	•		“comparable 2005 six months” — July 1, 2005 through December 31, 2005
	•		“fiscal 2006” — July 1, 2005 through June 30, 2006
	•		“fiscal 2005” — July 1, 2004 through June 30, 2005
	•		“PLIVA Stub Period” — October 25, 2006 through December 31, 2006

     All information, data and figures for “2006” were derived by combining the Transition Period along with the six-month period ended June 30, 2006. The six-month period ended June 30, 2006 relates solely to Barr’s financials. The Transition Period includes PLIVA’s results of operations from October 25, 2006 through December 31, 2006.

     All information, data and figures provided for the comparable 2005 six months, as well as fiscal 2006 and 2005, relate solely to Barr’s financial results and do not include the results of PLIVA, which we acquired on October 24, 2006. PLIVA’s results of operations are included from October 25, 2006 through December 31, 2006.

Executive Overview

     We are a global specialty pharmaceutical company that operates in more than 30 countries. Our operations are based primarily in North America and Europe, with our key markets being the United States, Croatia, Germany, Poland and Russia. We are primarily engaged in the development, manufacture and marketing of generic and proprietary pharmaceuticals. During 2007, we recorded $2.3 billion of product sales and $2.5 billion of total revenues.

     During 2007, sales of our generic products grew to $1.9 billion from $1.0 billion in 2006, accounting for 81% of our total product sales, while sales of our proprietary products grew to $438.3 million from $391.4 million in 2006, accounting for 19% of our total product sales. In addition, we recorded $121.9 million of alliance and development revenues during 2007 and $44.6 million of other revenues. Alliance and development revenues are derived mainly from profit-sharing arrangements, co-promotion agreements, and standby manufacturing fees and other reimbursements and fees we received from third parties, including marketing partners. Other revenues primarily are derived from our non-core operations which include our diagnostics, disinfectants, dialysis and infusions (“DDD&I”) business.

     During 2007, we generated $383.2 million of operating cash flows. Our operating cash flows are a significant source of liquidity, and we expect to utilize a significant portion of these operating cash flows to service our debt obligations as well as fund our capital needs during 2008.

  PLIVA Acquisition

     On October 24, 2006, we completed the acquisition of PLIVA d.d., headquartered in Zagreb, Croatia. Under the terms of our cash tender offer, we made a payment of approximately $2.4 billion based on an offer price of HRK 820 per share for all shares tendered during the offer period. The transaction closed with 17,056,977 shares being tendered as part of the process, representing 92% of PLIVA’s total share capital being tendered to us. Subsequent to

the close of the offer period, we purchased an additional 390,809 shares on the Croatian stock market for $58.3 million, and own 98.1% of all shares of PLIVA as of December 31, 2007.

     For a detailed discussion of our PLIVA acquisition, see Item 1, “Business — Overview — PLIVA Acquisition” above.

  Generic Products

     For many years, we have successfully utilized a strategy of developing the generic versions of branded products that possess a combination of unique factors that we believe have the effect of limiting competition for generics. Such factors include difficult formulation, complex and costly manufacturing requirements or limited raw material availability. By targeting products with some combination of these unique factors, we believe that our generic products will, in general, be less affected by the intense and rapid pricing pressure often associated with more commodity-type generic products. As a result of this focused strategy, we have been able to successfully identify, develop and market generic products that generally have few competitors or that are able to enjoy longer periods of limited competition, and thus generate profit margins higher than those often associated with commodity-type generic products. The development and launch of our generic oral contraceptive products is an example of our generic development strategy.

     Until our acquisition of PLIVA, the execution of this strategy was focused predominantly on developing solid oral dosage forms of products. While we believe there are more tablet and capsule products that may fit our “barrier-to-entry” criteria, we have recently expanded our development activities, both internally through our acquisition of PLIVA and through collaboration with third parties, to develop non-tablet and non-capsule products such as injectables, patches, creams, ointments, sterile ophthalmics and nasal sprays.

     We also develop and manufacture active pharmaceutical ingredients (“API”), primarily for use internally and, to a lesser extent, for sale to third parties. We manufacture 23 different APIs for use in pharmaceuticals through our facilities located in Croatia and the Czech Republic. We believe that our ability to produce API for internal use may provide us with a strategic advantage over competitors that lack such ability, particularly as to the timeliness of obtaining API for our products.

     Challenging the patents covering certain brand products continues to be an integral part of our generics business. For many products, the patent provides the unique barrier that we seek to identify in our product selection process. We try to be the first company to initiate a patent challenge because, in certain cases, we may be able to obtain 180 days of exclusivity for selling the generic version of the product. Upon receiving exclusivity for a product, we often experience significant revenues and profitability associated with that product for the 180-day exclusivity period, but, at the end of that period, we experience significant decreases in our revenues and market share associated with the product as other generic competitors enter the market. Our record of successfully resolving patent challenges has made a recurring contribution to our operating results, but has created periods of revenue and earnings volatility and will likely continue to do so in the future. While earnings and cash flow volatility may result from the launch of products subject to patent challenges, we remain committed to this part of our business.

  Proprietary Products

     To help diversify our generic product revenue base, we initiated a program in 2001 to develop and market proprietary pharmaceutical products. We formalized this program through our acquisition of Duramed Pharmaceuticals in October 2001, and thereafter by establishing Duramed Research as our proprietary research and development subsidiary. Today, Duramed is recognized as a leader in the area of women’s healthcare. We implement our women’s healthcare platform through a substantial number of employees dedicated to the development and marketing of our proprietary products, including approximately 335 sales representatives that promote directly to physicians five of our products — SEASONIQUE^®, Enjuvia™, Mircette^®, ParaGard^® and Plan B™— and two products under our co-promotion agreement with Kos Pharmaceuticals — Niaspan^® and Advicor^®. We have accomplished significant growth in proprietary product sales over the last several years through both internally-developed products, such as SEASONALE^®, the first and largest selling extended-cycle oral contraceptive in the U.S., and through product acquisitions, including ParaGard, the only non-drug loaded IUC currently on the market in the U.S., in November 2005; Mircette, a well established 28-day oral contraceptive, in

December 2005; and Adderall IR, an immediate-release, mixed salt amphetamine product that is indicated for the treatment of attention deficit hyperactivity disorder and narcolepsy, in October 2006.

  Foreign currency exchange rate fluctuations

     Our international revenues and expenses are subject to foreign currency exchange rate fluctuations. These results are first converted from local currencies into Croatian Kuna (“HRK”), and then converted from HRK into U.S. dollars (“USD”). In general, the HRK exchange rate follows the exchange rate fluctuations between the USD and the Euro. Depending on the direction of change relative to the USD, foreign currency values can increase or decrease the reported dollar value of our net assets and results of operations. While we cannot predict with certainty changes in foreign exchange rates or the effect they will have on us, we attempt to mitigate their impact through operational means and by using various foreign exchange financial instruments. We use foreign exchange financial instruments to hedge forecasted transactions even though none of the instruments are eligible for hedge accounting. Since our derivatives do not qualify for hedge accounting, the changes in fair value of these instruments are being measured each period and reported in other income (expense), which could lead to volatility of our reported net earnings. Despite the potential for increased earnings volatility, we still use such instruments to offset the economic risk from foreign exchange rate fluctuations.

  Discontinued Operations

     Since its acquisition of PLIVA on October 24, 2006, the Company has been evaluating PLIVA’s operations, and during the second half of 2007, has divested its non-core operations in Spain and Italy, and its animal health and veterinary business operated by Veterina d.d. As a result of these divestments, during 2007 we reclassified the combined amounts of these entities from continuing operations to discontinued operations. The total net loss from discontinued operations, including losses incurred on disposal, for the year ended December 31, 2007 and the Transition Period were $13.8 million and $1.8 million, respectively. These losses were higher in 2007, due to a full year of results incurred in 2007, as compared to 2006, which only included 68 days of activity subsequent to the Pliva acquisition.

Comparison of the Year ended December 31, 2007 and December 31, 2006

     The following table sets forth revenue data for 2007 and the comparable year 2006 (unaudited) (dollars in millions):

		Year Ended December 31,
										Change
		2007				2006				$				%
Generic products:
Oral contraceptives		$	459.1			$	444.0			$	15.1				3	%
Other generics			1,436.7				608.9				827.8				136	%
Total generic products			1,895.8				1,052.9				842.9				80	%
Proprietary products			438.3				391.4				46.9				12	%
Total product sales			2,334.1				1,444.3				889.8				62	%
Alliance and development revenue			121.9				131.3				(9.4	)			-7	%
Other revenue			44.6				7.5				37.1				495	%
Total revenues		$	2,500.6			$	1,583.1			$	917.5				58	%

Product Sales

Generic Products

     Sales of our generic products were $1.9 billion during 2007, up from $1.0 billion during 2006. Of this $842.9 million increase, the most significant increase was an increase of $774.7 million attributable to sales by our PLIVA subsidiary, as well as increases attributable to internal growth and acquisitions made during 2007. Our internal growth was largely due to ten new product launches during 2007 which contributed $22.1 million of product sales. In addition, contributions totaling $18.1 million were the result of our acquisition of four generic injectible products from Hospira, Inc., and our September 2007 acquisition of O.R.C.A. pharm GmbH (“ORCA”), a privately-owned specialty pharmaceutical company focused on the oncology market in Germany.

     During 2007, sales of our generic oral contraceptives (“Generic OCs”) were $459.1 million, an increase of $15.1 million over 2006. The increase included $6.1 million of sales of Trilegest, which was launched in October 2007, and an $18.9 million increase in sales of Kariva, our generic version of Mircette, due primarily to higher prices. In addition, we recorded approximately $3.5 million of higher sales of Jolessa during 2007, which was launched in late 2006. These increases were partially offset by a total decrease of $12.4 million in sales of Sprintec and Tri-Sprintec due to lower selling prices. We expect that sales of Kariva will decline significantly in the second half of 2008, as compared to the first half of 2008, as a result of potential competition when the patent on our Mircette product expires in October 2008. In addition, we expect that competition will continue to result in lower selling prices causing our Generic OC revenues to decrease.

     During 2007, sales of our other generic products (“Other Generics”) were $1.4 billion, an increase of $827.8 million over 2006. This increase was mainly due to $774.7 million of higher sales attributable to products acquired through our PLIVA subsidiary, including sales of Azithromycin of $128.1 million, in addition to $18.1 million from products acquired through acquisition, as noted above. Our 2007 results include a full year of Fentanyl Citrate, our generic version of Cephalon’s ACTIQ, versus only one quarter in 2006 which contributed $57.9 million of the total increase. These increases were partially offset by a decrease of $21.9 million in sales of Desmopressin due to lower pricing.

Proprietary Products

     During 2007, sales of our proprietary products were $438.3 million, up from $391.4 million during 2006. This total increase of $46.9 million was comprised of the following items that were included in our full year results in 2007 as compared to a partial period in 2006: (1) a $47.5 million increase in sales of our dual-label Plan B emergency contraceptive OTC/Rx (over the counter “OTC”), which was launched in November 2006; (2) a $19.4

million increase in sales of SEASONIQUE, our second generation extended cycle oral contraceptive, which was launched during the quarter ended September 30, 2006; (3) a $25.0 million increase of sales of Adderall IR, which we acquired from Shire and launched in October 2006; and (4) $25.7 million of incremental sales of products acquired as part of the PLIVA acquisition. Partially offsetting these increases were lower unit sales of SEASONALE, which was down $49.6 million, or 66% from 2006 due to a full year of competition from a competitor’s generic version that was launched during the quarter ended September 30, 2006. Additionally, other non-promoted products declined $25.6 million in 2007 as compared to 2006. We expect further increases in sales of SEASONIQUE, Plan B and ParaGard to drive proprietary product sales growth approximately 20% in 2008 over 2007.

Alliance and Development Revenue

     During 2007, we recorded $121.9 million of alliance and development revenue, as compared to $131.3 million during 2006. The decrease was caused by $19.2 million of lower revenues from our profit-sharing arrangement with Teva on generic Allegra, and $8.2 million of lower royalties we earn under our co-promotion agreement with Kos. These declines were partially offset by an increase of $11.3 million in royalties and other fees received under our agreements with Shire plc., and $4.2 million of higher reimbursements and fees we earn from development of the Adenovirus vaccine.

  Teva

     Teva’s 180-day exclusivity period on generic Allegra ended on February 28, 2006. By the end of December 2007, there were two additional competing generic Allegra products on the market. We are aware of other companies that have filed ANDAs with Paragraph IV certifications for generic Allegra. Competition for generic Allegra has and may continue to cause Teva’s Allegra revenues to decrease. Accordingly, our royalties may decline further in future periods.

  Kos

     Royalties we earn under our co-promotion agreement with Kos are based on the aggregate sales of Niaspan and Advicor in a given quarter and calendar year, up to quarterly and annual maximum amounts. The annual cap increases each year through 2009, then remains constant for the remaining term of our arrangement, which ends in July 2012 unless extended by either party for an additional year. The royalty rate and our promotion-related requirements declined in 2007 compared to 2006, and now remain fixed throughout the remaining term of the agreement. Due to sales realized by Kos during 2007, we achieved our maximum annual royalty of $37.0 million for 2007. We believe that sales of Niaspan and Advicor will remain strong in 2008 and that our royalties in 2008 will be substantially similar to those we earned in 2007.

  Shire

     In August 2006, we entered into a series of agreements with Shire plc. Under one of those agreements, we granted Shire a license to obtain regulatory approval and market in certain specified territories SEASONIQUE and five other products in various stages of development, in exchange for (1) an initial $25.0 million payment for previously incurred product development expenses and (2) reimbursement of future development expenses up to a maximum of $140.0 million over an eight-year period, not to exceed $30.0 million per year. During 2007, we recorded $14.1 million of revenues from this arrangement based on the percentage of research and development activities performed during 2007. We expect these revenues will increase in 2008 as we increase spending on the related development projects.

  Adenovirus Vaccine

     Alliance and development revenues also include reimbursements and fees we receive from the U.S. Department of Defense for the development of the Adenovirus vaccine. We have substantially completed the development and clinical trials related to the Adenovirus vaccine and, as a result, expect that the reimbursements and fees we earn from its development to decrease in 2008.

Other Revenue

     We recorded $44.6 million of other revenue during 2007 compared to $7.5 million for 2006. The increase compared to the prior year period is related to a full year reporting of other non-core revenues from our PLIVA subsidiary, primarily our DDD&I business.

Cost of Sales

     The following table sets forth cost of sales data, in dollars, as well as the resulting gross margins expressed as a percentage of product sales (except ‘‘other’’, which is expressed as a percentage of our other revenue line item), for 2007 and 2006 (dollars in millions):

		Year Ended December 31,
										Change
		2007				2006				$					%
Generic products		$	1,008.8			$	448.8			$	560.0				125	%
Gross margin			47	%			57	%
Proprietary products		$	138.2			$	114.3			$	23.9				21	%
Gross margin			68	%			71	%
Other revenue		$	24.1			$	12.0			$	12.1				100	%
Gross margin			46	%			-60	%
Total cost of sales		$	1,171.1			$	575.1			$	596.0				104	%
Gross margin			51	%			60	%

     Cost of sales components include the following:

	•		our manufacturing and packaging costs for products we manufacture;
	•		amortization expense (as discussed below);
	•		profit-sharing or royalty payments we make to third parties, including raw material suppliers;
	•		the cost of products we purchase from third parties;
	•		lower of cost or market adjustments to our inventories; and
	•		stock-based compensation expense relating to employees within certain departments that we allocate to cost of sales.

     Prior to December 31, 2006, we included amortization expenses related to acquired product intangibles in selling, general and administrative expenses (“SG&A”) rather than cost of sales. As discussed in our Transition Report for the six-month period ended December 31, 2006, we revised our presentation of amortization expense to include it within cost of sales rather than SG&A. We have adjusted our discussion regarding the year ended December 31, 2006 presented below to reflect this change.

     Generics: During 2007, our generics segment cost of sales increased by $560.0 million. This increase in generic products cost of sales was due to both increased total generics product sales of $843.0 million along with greater material and production costs associated with these increased product sales. Additionally, during 2007 there were higher amortization charges of $79.4 million offset by a $23.6 million reduction in expenses related to the stepped-up value of inventory acquired from PLIVA, as compared to 2006.

		Year Ended December 31,
										Change
		2007				2006				$				%
Interest income		$	33.4			$	25.7			$	7.7				30%

     The increase in interest income for the year ended December 31, 2007 is due to higher interest rates and higher average daily cash and marketable securities balances during these periods as compared to the prior year periods.

Interest Expense

     The following table sets forth interest expense for 2007 and 2006 (dollars in millions):

		Year Ended December 31,
										Change
		2007				2006				$				%
Interest expense		$	158.9			$	34.6			$	124.3				N/M

     The increase in interest expense for year ended December 31, 2007 as compared to 2006 is due to a full year of interest expense on the $2.6 billion of debt the Company incurred in connection with the PLIVA acquisition (both to finance the acquisition and pre-existing debt of PLIVA). During 2007, we repaid $615.7 million of the acquisition debt. As a result, we expect interest expense to decline in 2008 compared to 2007.

Other Income (Expense)

     The following table sets forth other expense for 2007 and 2006 (dollars in millions):

		Year Ended December 31,
										Change
		2007				2006				$				%
Other income (expense)		$	20.7				($55.2	)		$	75.9				138%

     Other income (expense) increased by $75.9 million for the year ended December 31, 2007 as compared to 2006. The increase was primarily a result of recording a $59.0 million reduction in the value of our foreign currency option related to the PLIVA acquisition during the year ended December 31, 2006. This reduction in fair value included the changes in the exchange rate between the Dollar and the Euro. Additionally, in the year ended December 31, 2007, we recorded (1) $13.7 million over the prior year period related to net foreign currency gains, including hedging activities, (2) the unwinding of treasury lock derivatives resulting in a reclassifying of a $3.5

million net gain from accumulated other comprehensive income to other income (expense) and (3) a gain of $3.2 million related to dissolving a captive insurance fund.

Income Taxes

     The following table sets forth income tax expense and the resulting effective tax rate stated as a percentage of pre-tax income for 2007 and 2006 (dollars in millions):

		Year Ended December 31,
										Change
		2007				2006				$				%
Income tax expense		$	64.6			$	119.6			$	(55.0	)			-46%
Effective tax rate			31.1	%			-202.5	%

     The Company’s effective tax rate for 2007 was 31.1%. The rate was positively impacted by new tax legislation in Germany enacted in September 2007 reducing the statutory corporate tax rate from 39% to 30% effective January 1, 2008. The change reduced our deferred tax liability and income tax provision by approximately $9.6 million during the September quarter. In addition, the rate was positively impacted by $4.2 million related to completion of certain state and foreign tax examinations. For 2008 we expect our effective tax rate to increase to the low 40% range.

     The Company’s effective tax rate for 2006 was negatively impacted due to the write-off of $380.7 million of acquired IPR&D arising from the PLIVA acquisition, which lowered earnings, and was non-deductible for tax purposes. This resulted in the Company having a tax expense during 2006 despite a pre-tax loss.

     Comparison of the six months ended December 31, 2006 and December 31, 2005

     The following table sets forth revenue data for the Transition Period and the comparable 2005 six months (dollars in millions):

						Six Months
						Ended
		Transition				December 31,				Change
		Period				2005				$				%
Generic products:
Oral contraceptives		$	235.8			$	191.2			$	44.6				23%
Other generic			394.6				225.1				169.5				75%
Total generic products			630.4				416.3				214.1				51%
Proprietary products			200.9				140.4				60.5				43%
Total product sales			831.3				556.7				274.6				49%
Alliance and development revenue			65.9				79.3				(13.4	)			-17%
Other revenue			7.5				—				7.5				100%
Total revenues		$	904.7			$	636.0			$	268.7				42%

Product Sales

Generic Products

     Sales of our generic products were $630.4 million during the Transition Period, up from $416.3 million during the comparable 2005 six months. Of this $214.1 million increase, the most significant increase was attributable to sales of approximately $183.1 million by our newly acquired subsidiary, PLIVA, as well as increases attributable to internal growth, largely due to new product launches. During the Transition Period, we had four significant product launches that contributed approximately $100 million of the total increase including Fentanyl Citrate (generic ACTIQ, for cancer pain management), Jolessa (generic SEASONALE, an extended-cycle oral contraceptive that we launched after a competitor launched its generic version of our proprietary SEASONALE product), Balziva (generic Ovcon 35, an oral contraceptive) and Ondansetron ODT (generic Zofran ODT, to prevent nausea and vomiting), a product acquired in the PLIVA acquisition. The increase from new product launches and from PLIVA product sales were partially offset by declines in our Other Generics discussed below.

     During the Transition Period, sales of our Generic OCs were $235.8 million, an increase of $44.6 million over the comparable 2005 six months. This 23% increase was positively impacted by strong sales from the launches of Balziva and Jolessa, which totaled $29.5 million, and a 22% or $7.3 million increase in sales of our Kariva product due to an increase in both volume and price.

     During the Transition Period, sales of our Other Generics were $394.6 million, up from $225.1 million during the comparable 2005 six months, an increase of $169.5 million. This 75% increase was mainly due to the incremental sales attributable to products acquired through the PLIVA acquisition, as discussed above, along with our launch in September 2006 of Fentanyl Citrate, our generic version of Cephalon’s ACTIQ, and the launch of Ondansetron ODT in December 2006. These two product launches accounted for approximately $70 million of the total increase in sales of other generics. Partially offsetting these increases were lower sales of our inline other generic products, principally a $44.7 decline in sales of Desmopressin. We launched Desmopressin in July 2005 with 180 days of exclusivity as a result of a successful paragraph IV patent challenge. In March 2006, following the expiration of the exclusivity period, sales of Desmopressin declined significantly due to the introduction of competing generic products.

Proprietary Products

     During the Transition Period, sales of our proprietary products increased 43% to $200.9 million, up from $140.4 million during the comparable 2005 six months. This total increase of $60.5 million over the comparable 2005 six months included: (1) the launch of our dual-label Plan B emergency contraceptive OTC/Rx (over the counter

“OTC”) in November 2006 which added approximately $11 million of incremental product sales during the quarter; (2) $14.6 million of sales recorded from the launch of SEASONIQUE, our second generation extended cycle oral contraceptive, during the quarter ended September 30, 2006; (3) a total of $34.1 million of incremental product sales from full period contributions from ParaGard and Mircette, which we acquired in November 2005 and December 2005, respectively; and (4) $12.2 million of sales of Adderall IR, which we acquired from Shire and launched in October 2006. Partially offsetting these increases were lower sales of SEASONALE, which were down 48% from the comparable 2005 six months due to Watson’s launch of a generic version during the quarter ended September 30, 2006, and our subsequent launch of Jolessa, our own generic version, resulting in lower SEASONALE unit sales.

Alliance and Development Revenue

     During the Transition Period, we recorded $65.9 million of alliance and development revenue, down from $79.3 million during the comparable 2005 six months. The decrease was caused by a $31.2 million decline in revenues from our profit-sharing arrangement with Teva on generic Allegra, which began in September 2005, partially offset by an increase of $9.9 million in royalties and other fees received under our agreements with Kos Pharmaceuticals relating to Niaspan and Advicor and an increase of $5.5 million in fees we receive for the development of the Adenovirus vaccine.

Other Revenue

     We recorded $7.5 million of other revenue during the Transition Period. This revenue is primarily attributable to non-core operations including our animal health and agrochemicals business, which predominantly consists of generics, feed additives, agro products and vaccines, as well as our DDD&I business. These are businesses acquired through the PLIVA acquisition, and as such, there are no comparable operations for the comparable 2005 six months.

Cost of Sales

     The following table sets forth cost of sales data, in dollars, as well as the resulting gross margins expressed as a percentage of product sales (except ‘‘other’’, which is expressed as a percentage of our other revenue line item), for the Transition Period and the comparable 2005 six months (dollars in millions):

						Six Months
						Ended
		Transition				December 31,				Change
		Period				2005				$				%
Generic products		$	306.6			$	138.3			$	168.3			122%
Gross margin			51	%			67	%
Proprietary products		$	56.2			$	33.8			$	22.4			66%
Gross margin			72	%			76	%
Other		$	6.5			$	—			$	6.5			100%
Gross margin			13	%			0	%
Total cost of sales		$	369.3			$	172.1			$	197.2			115%
Gross margin			56	%			69	%

     Cost of sales components include the following:

•

our manufacturing and packaging costs for products we manufacture;

	•		amortization expense (as discussed further below);
	•		the write-off of the step-up in inventory arising from acquisitions, including PLIVA;
	•		profit-sharing or royalty payments we make to third parties, including raw material suppliers;
	•		the cost of products we purchase from third parties;
	•		lower of cost or market adjustments to our inventories; and
	•		stock-based compensation expense relating to employees within certain departments that we allocate to cost of sales.

     In prior periods, we included amortization expense in selling, general and administrative expenses rather than cost of sales. During the Transition Period, we revised our presentation of amortization expense to include it within cost of sales rather than SG&A. We have adjusted all historical periods presented in this discussion to reflect this change.

     Cost of sales on an overall basis, increased 115% over the comparable 2005 six months primarily related to the $274.6 million of higher product sales, plus certain items arising from the acquisition of PLIVA. These items from the PLIVA acquisition included amortization expense of $17.9 million related to intangible assets and $56.8 million in cost of sales of the stepped-up value of inventory acquired from PLIVA and sold during the period. As part of purchase price allocation for the PLIVA acquisition, we stepped-up the book value of inventory acquired to fair value by $89.6 million as of October 24, 2006. The stepped-up value is recorded as a charge to cost of sales as acquired inventory is sold. As a result of these expenses and amortization charges, overall gross margins decreased from 69% for the comparable 2005 period to 56% in the Transition Period.

     In our generics segment, cost of sales increased in large part due to a 75% increase in total Other Generics sales, as described above, and $17.9 million of higher amortization expense arising primarily from product intangibles created as a result of the PLIVA acquisition. When combined with the charge related to the step-up in inventory described above, these increases in cost of sales resulted in a decrease in our generics margins from 67% to 52%. Partially offsetting this decrease in gross margins was the impact from higher sales of our Generic OCs and the launch of Fentanyl Citrate, as discussed above, during the Transition Period, which had above-average margins when compared to many of our other generic products.

     In our proprietary segment, cost of sales increased both due to a 43% increase in proprietary sales and an $11.0 million increase in product amortization expense, thereby reducing margins for our proprietary products from 76% to 72%. The increase in product amortization expense relates to a full six-month period of expense relating to our November 2005 acquisition of FEI Women’s Health, LLC. Product amortization expense and the inventory step-up charge related to the five proprietary products we acquired through the PLIVA acquisition were not material.

Selling, General and Administrative Expense

     The following table sets forth selling, general and administrative expense data for the Transition Period and the comparable 2005 six months (dollars in millions):

						Six Months
						Ended
		Transition				December 31,				Change
		Period				2005				$				%
Selling, general and administrative		$	259.0			$	126.4			$	132.6				105%

     Selling, general and administrative more than doubled in the Transition Period from the comparable 2005 six months. Of this $132.6 million increase, approximately $88.2 million was directly attributable to the PLIVA acquisition, including both operating and integration expenses. These expenses included, but were not limited to:

	•		PLIVA’s selling, general and administrative expenses for the PLIVA Stub Period of approximately $88.2 million, including the sales force costs associated with approximately 1,400 incremental global sales representatives and other general and administrative expenses associated our worldwide operations;
	•		professional fees of $6.8 million associated with the integration activities; and
	•		incremental legal and audit fees of $3.1 million related to the acquisition.

     Other increases in general and administrative expenses during the Transition Period included an increase in information technology costs of $9.3 million, reflecting higher depreciation costs and $2.4 million related to the integration of our SAP enterprise resource planning system, a $6.0 million payment to a raw material supplier during the Transition Period and an $8.4 million net benefit related to the Mircette transaction that reduced general and administrative expenses in the comparable 2005 six months. These net increases were partially offset by proceeds of $5.2 million received in connection with the FTC-ordered sale of two products in connection with the PLIVA acquisition.

     Other increases in selling and marketing expenses include incremental marketing activity totaling $28.4 million principally to support the launch of SEASONIQUE, the continued marketing of our ENJUVIA product and a full period of marketing and sales force costs related to our ParaGard product, which we acquired in November 2005.

Research and Development

     The following table sets forth research and development expenses for the Transition Period and the comparable 2005 six months (dollars in millions):

						Six Months
						Ended
		Transition				December 31,				Change
		Period				2005				$				%
Research and development		$	106.8			$	66.0			$	40.8			62%
Write-off of acquired IPR&D		$	380.7			$	—			$	380.7			n/a

     Research and development increased by $40.8 million in the Transition Period over the comparable 2005 six months primarily due to an increase of $16.0 million in costs associated with clinical trials and bio-studies and the inclusion in the comparable 2005 six months of a $5.0 million reimbursement of previously incurred costs under a third party development agreement which reduced expenses in that period.

     Write-off of acquired in-process research and development (“IPR&D”), which resulted from the PLIVA acquisition, was $380.7 million in the Transition Period.

Interest Income

     The following table sets forth interest income for the Transition Period and the comparable 2005 six months (dollars in millions):

						Six Months
						Ended
		Transition				December 31,				Change
		Period				2005				$				%
Interest income		$	15.7			$	8.9			$	6.8			76%

     The increase in interest income for the Transition Period was due to higher interest rates and cash and marketable securities balances during the period as compared to the comparable 2005 six months.

Interest Expense

     The following table sets forth interest expense for the Transition Period and the comparable 2005 six months (dollars in millions):

						Six Months
						Ended
		Transition				December 31,				Change
		Period				2005				$				%
Interest expense		$	34.1			$	0.3			$	33.8				11267	%

     The increase in interest expense for the Transition Period was primarily due to interest on borrowings outstanding under our new credit facilities that were drawn in connection with the acquisition of PLIVA.

Other (Expense) Income

     The following table sets forth other expense for the Transition Period and the comparable 2005 six months (dollars in millions):

						Six Months
						Ended
		Transition				December 31,				Change
		Period				2005				$				%
Other (expense) income			($73.0	)			($0.6	)			($72.4	)			12067	%

     Other expense increased to $73.0 million in the Transition Period primarily as a result of $69.3 million of losses we recorded upon the sale or settlement of foreign currency option and forward contracts entered into in connection with the acquisition of PLIVA. Since our offer was denominated in Kuna, the Croatian currency, these contracts were purchased in order to protect against fluctuations in the USD/Kuna exchange rate, effectively locking in the U.S. dollar value of our offer. Furthermore, these contracts helped guarantee our ability to deliver the required Kuna to tendering shareholders. Because these contracts were put in place to hedge a business combination, they did not qualify for hedge accounting and all associated gains or losses were required to be recognized in our statement of operations during the Transition Period.

Income Taxes

     The following table sets forth income tax expense and the resulting effective tax rate stated as a percentage of pre-tax income for the Transition Period and the comparable 2005 six months (dollars in millions):

						Six Months
						Ended
		Transition				December 31,				Change
		Period				2005				$				%
Income tax expense		$	34.6			$	101.5			$	(66.9	)		-66%
Effective tax rate			-11.5	%			36.3	%

     The effective tax rate for the Transition Period was -11.5%, as compared to 36.3% for the comparable 2005 six months, primarily due to the write-off of $380.7 million of acquired IPR&D arising from the PLIVA acquisition, which lowered reported earnings, and was non-deductible for tax purposes. This resulted in the Company having tax expense for the Transition Period despite a pre-tax loss.

     The federal research and development credit was suspended as of December 31, 2005. In December 2006 it was reinstated retroactively beginning after January 1, 2006. The effective rate for the Transition Period included a favorable effect of the reinstatement from the time the credit was suspended at December 31, 2005 through the end of the Transition Period.

     During the Transition Period the Company also recorded a favorable release of the tax reserve related to the expiration of the statute of limitations associated with certain acquisition costs for a prior domestic acquisition.

Comparison of the fiscal years ended June 30, 2006 and June 30, 2005

     The following table sets forth revenue data for the fiscal years ended June 30, 2006 and 2005 (dollars in millions):

		Twelve Months Ended June 30,
										Change
		2006				2005				$				%
Generic products:
Oral contraceptives		$	399.4			$	396.6			$	2.8			1%
Other generic			439.4				354.8				84.6			24%
Total generic products			838.8				751.4				87.4			12%
Proprietary products			331.0				279.3				51.7			19%
Total product sales			1,169.8				1,030.7				139.1			13%
Alliance and development revenue			144.7				16.7				128.0			766%
Total revenues		$	1,314.5			$	1,047.4			$	267.1			26%

Product Sales

     Product sales for the fiscal year ended June 30, 2006 (“fiscal 2006”) increased 13% over product sales for the fiscal year ended June 30, 2005 (“fiscal 2005”), resulting from increases in sales of both generic and proprietary products. Generic sales increased in large part due to contributions from Desmopressin, which was launched at the beginning of fiscal 2006, combined with continued strong sales of two of our generic oral contraceptive products, Tri-Sprintec and Kariva. Proprietary sales increased in part due to contributions of products acquired during fiscal 2006 as well as higher sales of promoted in-line products, including SEASONALE and Plan B.

Generic Products

     For fiscal 2006, sales of Generic OC products increased 1% to $399.4 million from sales of $396.6 million in fiscal 2005. Sales in this category benefited from strong performances from Tri-Sprintec and Kariva. Tri-Sprintec sales increased 20%, driven in part by market-share gains during the second half of fiscal 2006, while sales of Kariva were up 32% due both to an increase in market share and higher pricing. We believe that Tri-Sprintec’s market share gains were the result of supply shortages encountered by one of our competitors, which was remedied.

     Somewhat offsetting the strong performances by Tri-Sprintec and Kariva was the impact of increased pricing pressure from competition on certain of our other products, including Aviane and Apri, as well as the ongoing decline in consumer demand for several Generic OC products that occurs when brand companies cease promotional activities after a generic is launched. These factors more than offset continued increases in the generic substitution rates for nearly all of our Generic OC products.

     For fiscal 2006, sales of Other Generics increased 24% to $439.4 million from $354.8 million in fiscal 2005, driven by strong performances from Desmopressin and Didanosine. Desmopressin was launched in July 2005, and recorded approximately $107.7 million of sales during fiscal 2006. Didanosine was launched during the middle of fiscal 2005, and saw sales increase 47% year-over-year. Desmopressin sales, which were favorably impacted in the first half of fiscal 2006 by rapid generic substitution, declined sharply in the second half due to the launch of two competing generic products.

     These increases were partially offset by lower sales of Mirtazapine, Claravis and Warfarin Sodium, as well as the continued decline in both price and demand for certain of our other generic products. Mirtazapine sales were lower due to further price declines and a loss of market share. Claravis sales were lower throughout fiscal 2006 due in large part to the decline in the overall compound usage and lower prices. As discussed in previous filings, sales of Claravis and other isotrentinoin products indicated for the treatment of severe acne have been negatively affected by the implementation effective January 1, 2006 of iPledge, an enhanced risk management program that is designed to

minimize fetal exposure to isotrentinoin that has also led to reduced product use. Sales of Warfarin Sodium declined due to lower prices, more than offsetting higher unit volume due primarily to an increase in our market share.

Proprietary Products

     For fiscal 2006, proprietary product sales increased 19% to $331.0 million from $279.3 million in fiscal 2005. This increase was driven by (1) a 14% increase in sales of SEASONALE, (2) the inclusion of sales of the ParaGard IUD and of the Mircette oral contraceptive, which we acquired in November 2005 and December 2005, respectively, (3) the launch of ENJUVIA during the fourth quarter of fiscal 2006 and (4) higher volume and pricing for our Plan B emergency contraceptive product. Partially offsetting these increases were lower sales of our LOESTRIN/LOESTRIN FE oral contraceptive products and our Cenestin hormone therapy product, due in part to customer buying patterns.

     SEASONALE sales reached $100 million during fiscal 2006, up 14% from fiscal 2005 sales. Higher prices for SEASONALE during fiscal 2006 more than offset lower customer shipments, which were attributable to customer buying patterns during the fourth quarter of fiscal 2006. During fiscal 2006, consumer demand for SEASONALE grew, as prescriptions increased 30% compared to fiscal 2005.

Alliance, Development and Other Revenue

     During fiscal 2006, alliance, development and other revenue totaled $144.7 million compared to $16.7 million in the prior year. The substantial increase was driven by our profit sharing arrangement with Teva, which began in September 2005 and represented 65% of such revenues in fiscal 2006, and an increase in royalties under our agreements with Kos, under which we began earning royalties in the fourth quarter of fiscal 2005.

     Teva’s 180-day exclusivity period on generic Allegra ended on February 28, 2006. By the end of June 2006, there were two additional competing generic Allegra products on the market, resulting in a decrease to Teva’s revenues. Additionally, our royalty percentage decreased following the expiration of the exclusivity period on February 28, 2006, further reducing the amount we earned.

Cost of Sales

     The following table sets forth cost of sales data, in dollars, as well as the resulting gross margins expressed as a percentage of product sales, for fiscal 2006 and fiscal 2005 (dollars in millions):

										Change
		2006				2005				$				%
Generic products		$	286.0			$	264.8			$	21.2			8%
Gross margin			66	%			65	%
Proprietary products		$	91.9			$	52.6			$	39.3			75%
Gross margin			72	%			81	%
Total cost of sales		$	377.9			$	317.4			$	60.5			19%
Gross margin			68	%			69	%

     Cost of sales components include the following:

	•		the cost of products we purchase from third parties;
	•		our manufacturing and packaging costs for products we manufacture;
	•		profit-sharing or royalty payments we make to third parties, including raw material suppliers;
	•		lower of cost or market inventory provisions; and

•

stock-based compensation expense relating to employees within certain departments that we allocate to cost of sales.

     As discussed above, during the Transition Period, we revised our presentation of amortization expense to include it within cost of sales rather than SG&A. We have adjusted all historical periods presented in this discussion to reflect this change.

     Overall gross margins for fiscal 2006 declined to 67.7% from 69.2% in fiscal 2005. Cost of sales increased 19% year-over-year primarily due to (1) the inclusion of $8.1 million of stock-based compensation expense that was not present in fiscal 2005, (2) $20.7 million of charges to write off the step-up to fair value of ParaGard inventory acquired from FEI in November 2005 and (3) $12.4 million of higher product amortization expense. As of June 30, 2006, the entire amount of the step-up adjustment had been charged to cost of sales as the units acquired on the date of acquisition had been sold.

     Margins on our generic products increased slightly in fiscal 2006 due to strong sales of Desmopressin and Didanosine, both of which had higher margins than the average margin of our other generic products. The margin increase related to these products was slightly offset by the first-time inclusion of stock-based compensation expense in cost of sales.

     Proprietary margins for the year ended June 30, 2006 were negatively impacted by the $20.7 million inventory step-up charge described above, the inclusion of stock-based compensation expense and an increase in intangible amortization of $12.4 million.

Selling, General and Administrative Expense

     The following table sets forth selling, general and administrative expense data for fiscal 2006 and 2005 (dollars in millions):

										Change
		2006				2005				$				%
Selling, general and administrative		$	308.8			$	285.2			$	23.6			8%
Charges included in general and administrative		$	14.1			$	63.2			$	(49.1	)		-78%