UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2008

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

For the transition period from                      to                     

Commission file number 1-9860

BARR PHARMACEUTICALS, INC.

(Exact name of Registrant as specified in its charter)

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)

201-930-3300
(Registrant’s telephone number)

(Former name, former address, and former fiscal year, if changed since last report)

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

As of April 28, 2008, the registrant had 108,063,358 shares of $0.01 par value common stock outstanding.

 

 

BARR PHARMACEUTICALS, INC.

INDEX TO FORM 10-Q

				Page
				Number
Part I		Condensed Financial Information
Item 1.		Condensed Consolidated Financial Statements
		Condensed Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007 (unaudited)			3
		Condensed Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007 (unaudited)			4
		Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007 (unaudited)			5
		Notes to Condensed Consolidated Financial Statements (unaudited)			6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			38
Item 4.		Controls and Procedures			39
Part II		Other Information
Item 1.		Legal Proceedings			39
Item 1A.		Risk Factors			39
Item 6.		Exhibits.			39
		Signatures			40
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.0: CERTIFICATION

Part I. CONDENSED FINANCIAL INFORMATION

     Item 1. Condensed Consolidated Financial Statements

		March 31,				December 31,
		2008				2007
Assets
Current assets:
Cash and cash equivalents		$	484			$	246
Marketable securities			21				288
Accounts receivable, net			462				497
Other receivables			88				86
Inventories			481				454
Deferred income taxes			81				74
Prepaid expenses and other current assets			51				58
Total current assets			1,668				1,703
Property, plant and equipment, net			1,170				1,112
Deferred income taxes			41				40
Marketable securities			52				17
Other intangible assets, net			1,517				1,483
Goodwill			305				286
Other assets			129				117
Long-term assets held for sale			4				4
Total assets		$	4,886			$	4,762
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	138			$	152
Accrued liabilities			285				291
Current portion of long-term debt and capital lease obligations			299				298
Income taxes payable			34				37
Deferred tax liabilities			3				2
Total current liabilities			759				780
Long-term debt and capital lease obligations			1,743				1,782
Deferred tax liabilities			195				193
Other liabilities			104				103
Commitments & contingencies (Note 16)
Minority interest			32				38
Shareholders’ equity:
Preferred stock, $1 par value per share; authorized 2,000,000; none issued			—				—
Common stock, $.01 par value per share; authorized 200,000,000; issued 110,943,653 and 110,783,167 at March 31, 2008 and December 31, 2007			1				1
Additional paid-in capital			695				682
Retained earnings			1,029				1,006
Accumulated other comprehensive income			429				278
Treasury stock at cost: 2,972,997 shares at March 31, 2008 and December 31, 2007			(101	)			(101	)
Total shareholders’ equity			2,053				1,866
Total liabilities, minority interest and shareholders’ equity		$	4,886			$	4,762

SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BARR PHARMACEUTICALS, INC. AND SUBSIDIARIES

		Three Months Ended
		March 31,
		2008				2007
Revenues:
Product sales		$	565			$	560
Alliance and development revenue			32				25
Other revenue			11				12
Total revenues			608				597
Costs and expenses:
Cost of sales			275				300
Selling, general and administrative			194				179
Research and development			64				62
Write-off of acquired in-process research and development			—				2
Earnings from operations			75				54
Interest income			5				11
Interest expense			32				42
Other (expense) income, net			(8	)			1
Earnings before income taxes and minority interest			40				24
Income tax expense			17				10
Minority interest loss, net of taxes			—				(1	)
Net earnings from continuing operations			23				13
Net loss from discontinued operations, net of taxes			—				(1	)
Net earnings		$	23			$	12
Basic:
Earnings per common share — continuing operations		$	0.21			$	0.12
Loss per common share — discontinued operations			—				(0.01	)
Net earnings per common share — basic		$	0.21			$	0.11
Diluted:
Earnings per common share — continuing operations		$	0.21			$	0.12
Loss per common share — discontinued operations			—				(0.01	)
Net earnings per common share — diluted		$	0.21			$	0.11
Weighted average shares — basic			108				107
Weighted average shares — diluted			109				108

SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BARR PHARMACEUTICALS, INC. AND SUBSIDIARIES

		Three Months Ended
		March 31,
		2008				2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings		$	23			$	12
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			78				71
Deferred revenue			(1	)			—
Minority interest			—				1
Stock-based compensation expense			7				7
Excess tax benefits from stock-based compensation			(1	)			(3	)
Deferred income tax (benefit) expense			(13	)			2
Loss on derivative instruments, net			1				1
Other			5				(5	)
Write-off of in-process research and development associated with acquisitions			—				2
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable and other receivables, net			55				74
Inventories			(15	)			3
Prepaid expenses			8				(4	)
Other assets			1				—
Increase (decrease) in:
Accounts payable, accrued liabilities and other liabilities			(42	)			(14	)
Income taxes payable			(5	)			(15	)
Net cash provided by operating activities			101				132
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment			(29	)			(23	)
Proceeds from sales of property, plant and equipment			4				—
Proceeds from sale of discontinued operations			3				—
Acquisitions, net of cash acquired			(10	)			(33	)
Settlement of derivative instruments			(12	)			2
Purchases of marketable securities			(149	)			(600	)
Sales of marketable securities			379				626
Investment in debt securities			—				(2	)
Other			1				—
Net cash provided by (used in) investing activities			187				(30	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and capital leases			(57	)			(151	)
Excess tax benefits from stock based compensation			1				3
Dividends paid to minority interest shareholders			(6	)			—
Proceeds from exercise of stock options, employee stock purchases and warrants			6				5
Net cash used in financing activities			(56	)			(143	)
Effect of exchange-rate changes on cash and cash equivalents			6				4
Increase (decrease) in cash and cash equivalents			238				(37	)
Cash and cash equivalents at beginning of period			246				232
Cash and cash equivalents at end of period		$	484			$	195

SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BARR PHARMACEUTICALS, INC. AND SUBSIDIARIES

1. Basis of Presentation

     Barr Pharmaceuticals, Inc. (“Barr” or the “Company”) is a Delaware holding company whose principal subsidiaries are Barr Laboratories, Inc., Duramed Pharmaceuticals, Inc. (“Duramed”) and PLIVA d.d. (“PLIVA”). The accompanying unaudited interim condensed consolidated financial statements included in this Form 10-Q should be read in conjunction with the consolidated financial statements of Barr Pharmaceuticals, Inc. and its subsidiaries and the accompanying notes that are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. The Company prepared these condensed consolidated financial statements following the requirements of the Securities and Exchange Commission and generally accepted accounting principles in the United States (“GAAP”) for interim reporting. In management’s opinion, the unaudited condensed consolidated financial statements reflect all adjustments (consisting of those that are normal and recurring) that are necessary in the judgment of management for a fair presentation of such statements in conformity with GAAP.

     The condensed consolidated financial statements include all companies that Barr directly or indirectly controls (meaning it has more than 50% of voting rights in those companies). Investments in companies where Barr owns between 20% and 50% of a company’s voting rights are accounted for by using the equity method, with Barr recording its proportionate share of net income or loss for such investments in its results for that period. The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries, after elimination of inter-company accounts and transactions. Non-controlling interests in the Company’s subsidiaries are recorded net of tax as minority interest.

     In preparing the condensed consolidated financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from those estimates.

     Certain amounts in the Company’s prior-period condensed consolidated financial statements have been reclassified to conform to the presentation for the three months ended March 31, 2008. Such amounts include the Company’s reclassification of assets held for sale and discontinued operations. See Note 5.

2. Recent Accounting Pronouncements

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157 (“SFAS 157”), Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosure about fair value measurements. However, in February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2 (“FSP 157-2”) which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. FSP 157-2 defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for items within the scope of FSP 157-2. Effective for 2008, the Company has adopted SFAS 157 in accordance with FSP 157-2. The partial adoption of SFAS 157 did not have a material impact on its condensed consolidated financial statements but additional disclosures were required. See Note 7.

     In February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), The Fair Value Option for Financial Assets and Financial Liabilities, providing companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. GAAP has required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 requires companies to provide additional information that will help investors and other users of financial statements

to more easily understand the effect of a company’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which a company has chosen to use fair value on the face of the balance sheet. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company did not elect to adopt the fair value option under SFAS 159.

     In June 2007, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 07-3 (“EITF 07-3”), Accounting for Advance Payments for Goods or Services to be Received for Use in Future Research and Development Activities. EITF 07-3 provides clarification surrounding the accounting for nonrefundable research and development advance payments, whereby such payments should be recorded as an asset when the advance payment is made and recognized as an expense when the research and development activities are performed. EITF 07-3 is effective for interim and annual reporting periods beginning after December 15, 2007. The adoption of EITF 07-3 did not have a material effect on the Company’s condensed consolidated financial statements.

     In December 2007, the FASB issued SFAS No. 141(R) (“SFAS 141(R)”), Business Combinations (revised), replacing SFAS No. 141 (“SFAS 141”) Business Combinations. This new statement requires additional assets and assumed liabilities to be measured at fair value when acquired in a business combination as compared to the original pronouncement. SFAS 141(R) also requires liabilities related to contingent consideration to be re-measured to fair value each reporting period, acquisition-related costs to be expensed and not capitalized and acquired in-process research and development to be capitalized as an indefinite lived intangible asset until completion of project or abandonment of project. SFAS 141(R) requires prospective application for business combinations consummated in fiscal years beginning on or after December 15, 2008. This statement does not allow for early adoption. The Company is currently evaluating the impact of the adoption of this statement on its condensed consolidated financial statements.

     In December 2007, the FASB issued SFAS No. 160 (“SFAS 160”), Noncontrolling Interests in Consolidated Financial Statements – an amendment of Accounting Research Bulletin No. 51 ( “ARB No. 51”). This amendment of ARB No. 51 requires noncontrolling interest in subsidiaries initially to be measured at fair value and then to be classified as a separate component of equity. This statement is effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2008. This statement does not allow for early adoption, however, application of SFAS 160 disclosure and presentation requirements is retroactive. The Company is currently evaluating the impact of the adoption of this statement on its condensed consolidated financial statements.

     In December 2007, the EITF issued EITF Issue No. 07-1 (“EITF 07-1”), Accounting for Collaborative Arrangements. EITF 07-1 affects entities that participate in collaborative arrangements for the development and commercialization of intellectual property. The EITF affirmed the tentative conclusions reached on (1) what constitutes a collaborative arrangement, (2) how the parties should present costs and revenues in their respective income statements, (3) how the parties should present cost-sharing payments, profit-sharing payments, or both in their respective income statements, and (4) disclosure in the annual financial statements of the partners. EITF 07-1 should be applied as a change in accounting principle through retrospective application to all periods presented for collaborative arrangements existing as of the date of adoption. EITF 07-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact of the adoption of this statement on its condensed consolidated financial statements.

     On March 19, 2008, the FASB issued SFAS No. 161 (“SFAS 161”), Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement 133. SFAS 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities; and (c) derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Specifically, SFAS 161 requires: disclosure of the objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation; disclosure of the fair values of derivative instruments and their gains and losses in a tabular format; disclosure of information about credit-risk-related contingent features; and cross-reference from the derivative footnote to other footnotes in which derivative-related information is disclosed. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. Early application is encouraged. The Company is currently evaluating the impact of the adoption of this statement on its condensed consolidated financial statements.

3. Earnings Per Share

     The following is a reconciliation of the numerators and denominators used to calculate earnings per common share (“EPS”) as presented in the condensed consolidated statements of operations:

		Three Months Ended
		March 31,
		2008				2007
(table in millions, except per share data)
Numerator for basic and diluted earnings (loss) per share
Net earnings from continuing operations		$	23			$	13
Net loss from discontinued operations			—				(1	)
Net earnings		$	23			$	12
Denominator: Weighted average shares — basic			108				107
Earnings per common share — continuing operations		$	0.21			$	0.12
Loss per common share — discontinued operations			—				(0.01	)
Earnings per common share — basic		$	0.21			$	0.11
Denominator: Weighted average shares — diluted			109				108
Earnings per common share — continuing operations		$	0.21			$	0.12
Loss per common share — discontinued operations			—				(0.01	)
Earnings per common share — diluted		$	0.21			$	0.11
Calculation of weighted average common shares — diluted
Weighted average shares — basic			108				107
Effect of dilutive options			1				1
Weighted average shares — diluted			109				108
Not included in the calculation of diluted earnings per-share because their impact is antidilutive:
Stock options outstanding (amounts in thousands)			835				151

4. Acquisitions and Business Combinations

O.R.C.A.pharm GmbH

     On September 5, 2007, the Company acquired 100% of the outstanding shares of O.R.C.A. pharm GmbH (“ORCA”), a privately-owned specialty pharmaceutical company focused on the oncology market in Germany. In accordance with SFAS No. 141 (“SFAS 141”), Business Combinations, the Company used the purchase method to account for this transaction. Under the purchase method of accounting, the assets acquired and liabilities assumed from ORCA are recorded at the date of acquisition, at their respective fair values. The purchase price at September 5, 2007 was approximately $44 million, including minimum future payments due in 2008 and 2009. The Company may also be required to pay up to an additional $7 million based on the achievement of defined performance milestones for 2008. The operating results of ORCA are included in the condensed consolidated financial statements subsequent to the September 5, 2007 acquisition date. The fair value of the assets and liabilities acquired on September 5, 2007, including adjustments made during the purchase price allocation period are as follows:

$ in millions
Inventory		$	3
Products acquired			29
Goodwill			10
Other assets			6
Liabilities			(4	)
Total		$	44

     The above purchase price allocation is preliminary and is based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. Management believes the available information provides a reasonable basis for allocating the purchase price but the Company is awaiting additional information necessary to finalize the purchase price allocation. The Company expects to finalize the valuation and complete the purchase price allocation as soon as possible but no later than one year from the acquisition date. Under the guidance of SFAS 141, this acquisition is being treated as an immaterial acquisition. As an immaterial acquisition, pro-forma financial statements are not required to be presented.

5. Assets Held for Sale and Discontinued Operations

     The Company has decided to divest or exit its operations in Goa, India. As a result, as of March 31, 2008, the assets and liabilities relating to the Goa operations met the “held for sale” criteria of SFAS No. 144 (“SFAS 144”), Accounting for the Impairment or Disposal of Long Lived Assets. The Company expects to sell these assets and the related liabilities held for sale within one year. Following the divestiture, the cash flows and operations of the divested operations will be eliminated from the Company’s ongoing operations, and the Company will cease to have continuing involvement with these operations. The Company’s operations in Goa are part of the generic pharmaceuticals segment.

     The following combined amounts of assets for Goa have been segregated and included in assets held for sale on the Company’s condensed consolidated balance sheet as of March 31, 2008 and December 31, 2007, as shown below:

$ in millions		March 31,				December 31,
		2008				2007
Property, plant and equipment, net		$	4			$	4
Long-term assets held for sale		$	4			$	4

     During 2007, the Company sold its operations in Spain and Italy, and its Veterina business. For the three months ended March 31, 2007, the Company has segregated from continuing operations and included in discontinued operations, net of taxes, in the condensed consolidated statement of operations, the following:

$ in millions		Three Months Ended
		March 31, 2007
		Italy				Spain				Veterina				Total
Revenues
Generics		$	3			$	8			$	-			$	11
Other			-				-				7				7
Total net revenues of discontinued operations		$	3			$	8			$	7			$	18
Loss before income taxes and minority interest		$	(1	)		$	-			$	-			$	(1	)
Loss from discontinued operations- net of tax		$	(1	)		$	-			$	-			$	(1	)

6. Investments in Marketable Securities

     Investments in Marketable Securities and Debt

     Trading Securities

     The fair value of marketable securities classified as trading at each of March 31, 2008 and December 31, 2007 was $4 million, which is included as a component of current marketable securities. Net (losses) gains for the three-month periods ended March 31, 2008 and March 31, 2007 were $(0.1) million and $1 million, respectively. These amounts are included as a component of other (expense) income.

     Available-for-Sale Securities

     Available-for-sale equity securities include amounts invested in connection with the Company’s excess 401(k) and other deferred compensation plans of $10 million and $12 million at March 31, 2008 and December 31, 2007, respectively.

     Available-for-sale debt securities at March 31, 2008 includes $41 million in market auction debt securities and $16 million in municipal bonds. The market auction debt securities have auction rate reset dates ranging from April 1, 2008 to April 25, 2008 with underlying maturity dates ranging January 1, 2016 to August 15, 2034. The municipal bonds have maturity dates ranging from June 1, 2008 to February 1, 2010.

     The Company’s holdings of market auction debt securities are restricted to highly rated municipal securities. The Company’s typical practice has been to continue to own the respective securities or liquidate the holdings by selling those securities at par value at the next auction, which generally ranges from 7 to 35 days after purchase. The market auction debt securities investments are investment grade (A rated and above) municipal securities and are insured against loss of principal and interest by bond insurers whose AAA ratings are under review.

     The recent uncertainties in the credit markets have prevented the Company and other investors from liquidating holdings of market auction debt securities in recent auctions because the amount of market auction debt securities submitted for sale has exceeded the amount of purchase orders. In 2008, the Company decided to liquidate its holdings in market auction debt securities and not reinvest in market auction debt securities in order to intentionally reduce exposure to these instruments. At March 31, 2008, the Company held $41 million in market auction debt securities as these securities have not been liquidated due to failed auctions. Accordingly, the Company reclassified these securities as long-term as of March 31, 2008 on the condensed consolidated balance sheet.

     Despite these failed auctions, there have been no defaults on the underlying securities, and interest income on these holdings continues to be received on scheduled interest payment dates. As a result, the Company now earns premium interest rates on the failed auction investments (currently earning 2.75% to 5% on a tax-free basis). If the issuers of these securities are unable to successfully close future auctions and their credit ratings deteriorate, the Company may be required to adjust the carrying value of these investments to reflect other than temporary declines in their value.

     The Company has historically valued these securities at par because this is the value it receives when trading them in the established market. In assessing the fair value of these securities, the Company determined market input comparability based on an analysis of similar security current market data factors. As a result of such assessment the Company believes that the fair value of these securities continues to be par. Therefore, the Company has not adjusted the recorded value of theses securities. The Company will re-evaluate these securities each quarter for any possible temporary or permanent adjustments to their value.

     Based on the Company’s ability to access its cash and other short-term investments, its expected operating cash flows and its other sources of cash, the Company does not anticipate that the lack of liquidity in its holdings of market auction debt securities will affect its ability to operate the business as usual.

     The amortized cost, gross unrealized gains, and losses recorded as a component of other comprehensive income, and estimated market values for available-for-sale securities at March 31, 2008 and December 31, 2007 are as follows:

$ in millions		Available for Sale
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
		Cost				Gains				(Losses)				Value
March 31, 2008
Debt securities		$	57			$	—			$	—			$	57
Equity securities			12				—				—				12
		$	69			$	—			$	—			$	69
December 31, 2007
Debt securities		$	288			$	—			$	—			$	288
Equity securities			12				1				—				13
		$	300			$	1			$	—			$	301

7. Fair Value Measures

     On January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements. SFAS 157 applies to all financial instruments that are measured and reported on a fair value basis. This includes items currently reported in marketable securities (current and long-term) on the condensed consolidated balance sheet as well as financial instruments reported in “other assets” and “other liabilities” that are reported at fair value.

     As defined in SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income, and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable firm inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

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

	•		Level 1 primarily consists of financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access (examples include active exchange-traded equity securities, exchange-traded derivatives, most U.S. Government and agency securities, and certain other sovereign government obligations).
	•		Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market, and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. Financial instruments in this category include certain corporate debt, certain U.S. agency and non-agency mortgage-backed securities and non-exchange-traded derivatives such as interest rate swaps.
	•		Level 3 is comprised of financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

     In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are subject to SFAS 157. At each reporting period all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3.

     The following table presents the Company’s fair value hierarchy for those financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2008.

$ in millions		Fair Value Measurements on a Recurring Basis
		as of March 31, 2008
		Level 1				Level 2				Level 3
		Quoted prices				Significant
		in Active				Other				Significant				Balance at
		Markets for				Observable				Unobservable				March 31,
		Identical Items				Inputs				Inputs				2008
Assets:
U.S. T-Bills (1)		$	115			$	—			$	—			$	115
Marketable securities — trading (2)			4				—				—				4
Marketable securities — available for sale (3)			28				41				—				69
Venture fund investments (4)			—				—				20				20
Derivative instruments (5)			—				1				—				1
Total assets at fair value		$	147			$	42			$	20			$	209
Liabilities:
Derivative instruments (5)		$	—			$	39			$	—			$	39

The following table represents the Level 3 significant unobservable input components:

$ in millions		Fair value Measurements
		Using Significant Unobservable Inputs
		(Level 3)
		Venture Fund
		Investments
Beginning balance January 1, 2008		$	20
Total gains or losses (realized/unrealized)			1
Included in earnings (or changes in net assets)			1
Included in other comprehensive income			—
Purchase issuance or settlements			1
Distribution			(2	)
Ending balance March 31, 2008		$	20

     The level 3 fair value disclosure above relates to the Company’s equity interest in venture funds, which are recorded at fair value. The venture funds value their underlying investments based on a combination of recent trading activity and discounted cash flow valuations.

8. Derivative Instruments

     Interest Rate Risk

     The Company’s interest-bearing investments, loans, and borrowings are subject to interest rate risk. The Company invests and borrows primarily on a variable-rate basis. Depending upon market conditions, the Company may fix the interest rate it either pays or receives by entering into fixed-rate investments and borrowings or through the use of derivative financial instruments.

     During 2007, as reflected in the table below, the Company entered into pay-fixed, receive-floating interest rate swap agreements effectively converting $800 million of variable-rate debt under unsecured senior credit facilities to fixed-rate debt. The objective of the hedge is to manage the variability of cash flows in the interest payments related to the portion of the variable-rate debt designated as being hedged. With the hedge in place, the sole source of variability to the Company is the interest payments it receives based on changes in LIBOR. The swaps are accounted for in accordance with SFAS No. 133 (“SFAS 133”), Accounting for Derivative Instruments and Hedging Activities as amended and interpreted as amended.

     Derivative financial instruments are measured at fair value, are recognized as assets or liabilities on the condensed consolidated balance sheet, with changes in the fair value of the derivatives recognized in either net income (loss) or other comprehensive income (loss), depending on the timing, and designated purpose of the derivative. When the Company pays interest on the portion of the debt designated as hedged, the gain or loss on the swap designated as hedging the interest payment will be reclassified from accumulated other comprehensive income into interest expense.

     These derivative instruments are designated as cash flow hedges with the related gains or losses recorded in other comprehensive income (net of tax) with an offsetting amount included in other non-current liabilities. The losses are $20 million and $11 million for the three months ended March 31, 2008 and the year ended December 31, 2007, respectively.

     The Company estimates that approximately $11 million of the net losses at March 31, 2008 will be realized into earnings over the next twelve months for the transactions that are expected to occur over that period.

     The terms of the interest rate swap agreements that are still in effect as of March 31, 2008 are shown in the following table:

$ in millions
Notional
Principal Amount						Start Date				Maturity Date				Receive Variable Rate				Pay Fixed Rate
$	175					Mar-30-07				Jun-30-08				90 day LIBOR					5.253	%
$	125					Jun-30-07				Jun-30-10				90 day LIBOR					5.4735	%
$	100					Jun-30-07				Jun-30-10				90 day LIBOR					5.3225	%
$	100					Sept-30-07				Sept-30-10				90 day LIBOR					4.985	%
$	100					Sept-30-07				Sept-30-09				90 day LIBOR					4.92875	%
$	100					Sept-30-07				Mar-31-09				90 day LIBOR					4.755	%
$	100					Sept-30-07				Sept-30-09				90 day LIBOR					4.83	%

Foreign Exchange Risk

     The Company seeks to manage potential foreign exchange risk from foreign subsidiaries by matching each such subsidiary’s revenues and costs in its functional currency. Similarly, the Company seeks to manage the foreign exchange risk relating to assets and liabilities of its foreign subsidiaries by matching the assets and liabilities in the subsidiary’s functional currency. When this is not practical, the Company uses foreign exchange forward contracts or options to manage its foreign exchange risk, as described below.

     The Company entered into foreign exchange forward contracts that serve as economic hedges of certain forecast foreign currency transactions occurring at various dates through 2008. At March 31, 2008, none of the Company’s remaining foreign exchange derivatives were eligible for hedge accounting, resulting in their changes in fair value

being reported in other (expense) income as a loss of $18 million which is partially offset by the change in the mark-to-market value of the underlying exposure that it is hedging.

     All foreign exchange derivative instruments described above are measured at fair value and are reported as assets or liabilities on the condensed consolidated balance sheet. Changes in fair value are reported in earnings or other comprehensive income depending upon whether the risk-management instrument is classified as a formal hedge pursuant to the guidelines outlined by SFAS 133. Economically, the gains or losses realized on these instruments at maturity are intended to offset the losses or gains of the transactions, which they are hedging.

     The table below summarizes the respective fair values of the derivative instruments described above at March 31, 2008 and December 31, 2007:

$ in millions		March 31, 2008								December 31, 2007
		Assets				Liabilities				Assets				Liabilities
Interest rate swap		$	—			$	(32	)		$	—			$	(17	)
Foreign exchange forward contracts			1				(7	)			—				—
Total		$	1			$	(39	)		$	—			$	(17	)

9. Inventories

     Inventories consist of the following:

$ in millions		March 31,				December 31,
		2008				2007
Raw materials and supplies		$	157			$	166
Work-in-process			108				77
Finished goods			216				211
Total inventories		$	481			$	454

At March 31, 2008 and December 31, 2007, $60 million and $47 million, respectively, of inventory is classified as “other assets” as such inventory is not expected to be sold within 12 months of the applicable period. Included in inventory is $25 million and $27 million at March 31, 2008 and December 31, 2007, respectively, of prelaunch inventory related to products that have not yet received the requisite regulatory approvals for commercial launch.

10. Goodwill and Other Intangible Assets

     Goodwill at March 31, 2008 and December 31, 2007 was as follows:

$ in millions		Generic				Proprietary
		Pharmaceuticals				Pharmaceuticals				Total
Goodwill balance at December 31, 2007		$	238			$	48			$	286
Currency translation effect			18				—				18
ORCA goodwill adjustments			1				—				1
Goodwill balance at March 31, 2008		$	257			$	48			$	305

     Intangible assets at March 31, 2008 and December 31, 2007 consist of the following:

$ in millions		March 31,												December 31,
		2008												2007
		Gross								Net				Gross								Net
		Carrying				Accumulated				Carrying				Carrying				Accumulated				Carrying
		Amount				Amortization				Amount				Amount				Amortization				Amount
Finite-lived intangible assets:
Product licenses		$	45			$	21			$	24			$	45			$	21			$	24
Product rights			1,524				268				1,256				1,456				218				1,238
Land use rights			116				1				115				106				1				105
Other			42				16				26				43				16				27
Total amortized finite-lived intangible assets			1,727				306				1,421				1,650				256				1,394
Indefinite-lived intangible assets - tradenames:			96				—				96				89				—				89
Total identifiable intangible assets		$	1,823			$	306			$	1,517			$	1,739			$	256			$	1,483

     The Company’s product licenses, product rights, land use rights and other finite lived intangible assets have weighted average useful lives of approximately 10, 17, 99 and 10 years, respectively. Amortization expense associated with these acquired intangibles was $44 million and $41 million for the three months ended March 31, 2008 and 2007, respectively.

     The Company reviews the carrying value of its goodwill and indefinite lived intangible assets for impairment annually and whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. Fair value is defined as the market price. If the market price is not available, fair value is estimated based on the present value of future cash flows. Such evaluation last took place as of July 1, 2007, with no impairment deemed required.

     The annual estimated amortization expense for the next five calendar years on finite-lived intangible assets is as follows:

$ in millions
Years Ending December 31,
2009		$	148
2010		$	151
2011		$	142
2012		$	132
2013		$	118

     Included in the finite-lived intangible assets table above are product rights to over 200 intangible assets acquired by the Company over the past five years. The following table disaggregates the values of these product rights into therapeutic categories as of March 31, 2008:

$ in millions		March 31, 2008
														Weighted
		Gross								Net				Average
		Carrying				Accumulated				Carrying				Amortization
		Amount				Amortization				Amount				Period
Therapeutic Category
Contraception		$	384			$	78			$	306				18
Antibiotics, antiviral & anti-infectives			254				46				208				10
Cardiovascular			242				44				198				10
Psychotherapeutics			192				31				161				12
Other (1)			452				69				383				10
Total product rights		$	1,524			$	268			$	1,256

11. Debt

     A summary of outstanding debt is as follows:

$ in millions
		March 31,				December 31,
		2008				2007
Credit facilities (a)		$	1,750			$	1,800
Note due to WCC shareholders (b)			—				7
Obligation under capital leases (c)			3				2
Fixed rate bonds (d)			120				113
Dual-currency syndicated credit facility (d)			24				24
Euro commercial paper program (d)			87				78
Dual-currency term loan facility (d)			25				25
Multi-currency revolving credit facility (d)			32				29
Other			1				2
			2,042				2,080
Less: current installments of debt and capital lease obligations			299				298
Total long-term debt		$	1,743			$	1,782

     Principal maturities of existing long-term debt and amounts due on capital leases for the period set forth in the table below are as follows:

$ in millions
Twelve Months Ending March 31,		Total
2010		$	269
2011			200
2012			1,269
2013			1
2014			1
Thereafter			—
Total principal maturities and amounts due on long term debt and capital obligations		$	1,740
Premium on fixed rate bond			3
Total long term debt and capital lease obligations		$	1,743

12. Accumulated Other Comprehensive Income

     Comprehensive income is defined as the total change in shareholders’ equity during the period other than from transactions with shareholders. For the Company, comprehensive income is comprised of net income, unrealized gains (losses) on securities classified for SFAS No. 115 Accounting for Certain Investments in Debt and Equity Securities purposes as “available for sale,” unrealized gains (losses) on pension and other post employment benefits and foreign currency translation adjustments.

		Three Months Ended
$ in millions		March 31,				March 31,
		2008				2007
Net income		$	23			$	12
Net unrealized gain on marketable securities, net of tax			—				1
Net (loss) on derivative financial instruments designated as cash flow hedges, net of tax			(9	)			(2	)
Net unrealized gain on currency translation adjustments			160				9
Total comprehensive income		$	174			$	20

Accumulated other comprehensive income, as reflected on the condensed consolidated balance sheet, is comprised of the following:

$ in millions		March 31,				December 31,
		2008				2007
Cumulative net (loss) on derivative financial instruments designated as cash flow hedges, net of tax		$	(20	)		$	(11	)
Cumulative net unrealized gain on pension and other post employment benefits, net of tax			1				1
Cumulative net unrealized gain on currency translation adjustments			448				288
Accumulated other comprehensive income		$	429			$	278

13. Income Taxes

     The Company’s effective tax rate increased in the current quarter to 42.0% from 41.7% in the same period for 2007. The rate was negatively impacted by the expiration of the U.S. research and development tax credit at December 31, 2007, a shift in the Company’s investment portfolio from tax-exempt securities to taxable securities due to market conditions and a change of the mix of income in certain U.S. and foreign taxing jurisdictions. The rate was favorably impacted by a reduction of the tax rates in Germany and the Czech Republic.

     The total amount of gross unrecognized tax benefits as of December 31, 2007 was $26 million and did not change materially as of March 31, 2008. Included in the balance at March 31, 2008 was $16 million of tax positions that, if recognized, would positively affect the Company’s effective tax rate. The Company estimates that during the next 52-week period the amount of its liability for unrecognized tax benefits may decrease by $1 million to $5 million from the completion of certain audits and the expiration of the statute of limitations in certain U.S. and foreign taxing jurisdictions. It is also possible that tax authorities could raise new issues requiring increases to the balance of unrecognized tax benefits. However, such potential increases cannot reasonably be estimated at this time. The Company had $2 million accrued for interest and penalties at December 31, 2007, which did not change materially as of March 31, 2008.

     The Company is currently being examined by the IRS for its six-month transition period ended December 31, 2006 and subsequent tax years. Prior periods have either been examined or are no longer subject to examination. Examinations in several state jurisdictions are currently in progress for tax years 2004 to 2006. The Company’s significant foreign operations remain subject to examination for tax years 2002 through 2007, with examinations currently in process for tax years 2003 through 2006.

14. Stock-based Compensation

     The Company recognized stock-based compensation expense, related tax benefits and the effect on net income from recognizing stock-based compensation for the three months ended March 31, 2008 and 2007 in the following amounts:

		Three Months Ended
$ in million except per share data		March 31,
		2008				2007
Stock-based compensation expense		$	7			$	7
Related tax benefits		$	3			$	2
Effect on net income		$	4			$	5
Per share — basic		$	0.04			$	0.05
Per share — diluted		$	0.04			$	0.04

     The total number of shares of common stock issuable upon the exercise of stock options and stock-settled appreciation rights granted during the three months ended March 31, 2008 and 2007 was 2,572,520 and 928,950 respectively, with weighted-average exercise prices of $49.26 and $49.46, respectively.

     For all of the Company’s stock-based compensation plans, the fair value of each grant was estimated at the date of grant using the Black-Scholes option-pricing model. Black-Scholes utilizes assumptions related to volatility, the risk-free interest rate, the dividend yield (which is assumed to be zero, as the Company has not paid any cash dividends) and option holder exercise behavior. Expected volatilities utilized in the model are based mainly on the historical volatility of the Company’s stock price and other factors. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect in the period of grant. The model incorporates exercise and post-vesting forfeiture assumptions based on an analysis of historical data. The average expected term is derived from historical and other factors. The stock-based compensation for the awards issued in the respective periods was determined using the following assumptions and calculated average fair values:

		Three Months Ended
		March 31,
		2008				2007
Average expected term (years)			4.0				4.0
Weighted average risk-free interest rate			1.86%				4.43%
Dividend yield			0%				0%
Volatility			23.10%				26.95%
Weighted average grant date fair value		$	10.54			$	14.08

     As of March 31, 2008, the aggregate intrinsic value of awards outstanding and exercisable was $65 million. In addition, the aggregate intrinsic value of awards exercised during the three months ended March 31, 2008 and 2007 was $2 million and $6 million, respectively. The total remaining unrecognized compensation cost related to unvested awards amounted to $61 million at March 31, 2008 and is expected to be recognized over the next three years. The weighted average remaining requisite service period of the unvested awards was 27 months.

15. Restructuring

     Management’s plans for the restructuring of the Company’s operations as a result of its acquisition of PLIVA are completed. As of March 31, 2008, certain elements of the restructuring plan have been recorded as a cost of the acquisition.

     Through March 31, 2008, the Company has recorded restructuring costs primarily associated with severance costs and the costs of vacating certain duplicative PLIVA facilities in the U.S. Certain of these costs were recognized as liabilities assumed in the acquisition. The components of the restructuring costs capitalized as a cost of the acquisition are as follows and are included in the generic pharmaceuticals segment:

$ in millions		December 31,												March 31,
		2007				Payments				Additions				2008
Involuntary termination of PLIVA employees		$	1			$	—			$	—			$	1
Lease termination costs			10				—				—				10
		$	11			$	—			$	—			$	11

     Lease termination costs represent costs incurred to exit duplicative activities of PLIVA. Severance includes accrued severance benefits and costs associated with change-in-control provisions of certain PLIVA employment contracts.

     In addition, in connection with its restructuring of PLIVA’s U.S. operations, the Company incurred $1 million of severance and retention bonus expense in the three months ended March 31, 2008 that was charged primarily to cost of sales and selling, general and administrative expenses.

16. Commitments and Contingencies

Commitments and Contingencies

   Indemnity Provisions

     From time-to-time, in the normal course of business, the Company agrees to indemnify its suppliers, customers and employees concerning product liability and other matters. For certain product liability matters, the Company has incurred legal defense costs on behalf of certain of its customers under these agreements. No amounts have been recorded in the financial statements for probable losses with respect to the Company’s obligations under such agreements.

     In September 2001, Barr filed an ANDA for the generic version of Sanofi-Aventis’ Allegra^® tablets. Sanofi-Aventis has filed a lawsuit against Barr claiming patent infringement. A trial date for the patent litigation has not been scheduled. In June 2005, the Company entered into an agreement with Teva Pharmaceuticals USA, Inc. which allowed Teva to manufacture and launch Teva’s generic version of Allegra during the Company’s 180-day exclusivity period, in exchange for Teva’s obligation to pay the Company a specified percentage of Teva’s operating profit, as defined, earned on sales of the product. The agreement between Barr and Teva also provides that each company will indemnify the other for a portion of any patent infringement damages they might incur, so that the parties will share any such damage liability in proportion to their respective share of Teva’s operating profit on generic Allegra.

     On September 1, 2005, Teva launched its generic version of Allegra. The Company, in accordance with FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, recorded a liability of $4 million to reflect the fair value of the indemnification obligation it has undertaken.

Litigation Settlement

     On October 22, 1999, the Company 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 million made to Schein in 1999. An additional $15 million payment is required under the terms of the settlement if Cenestin achieves total profits, as defined, of greater than $100 million over any rolling five-year period prior to October 22, 2014. The Company believes that it is probable that this payment will be earned during 2008. As a result, the Company has recorded a contingent liability as of March 31, 2008 in the amount of $14 million, representing an estimated pro-rata amount of the liability incurred as of March 31, 2008.

Litigation Matters

     The Company is involved in various legal proceedings incidental to its business, including product liability, intellectual property and other commercial litigation and antitrust actions. The Company records accruals for such contingencies to the extent that it concludes a loss is probable and the amount can be reasonably estimated. The Company also records accruals for litigation settlement offers made by the Company, whether or not the settlement offers have been accepted.

     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. The Company’s assessments are based on estimates that it, in consultation with outside advisors, believe are reasonable. Although the Company believes it has substantial defenses in these matters, litigation is inherently unpredictable. Consequently, the Company could in the future incur judgments or enter into settlements that could have a material adverse effect on its results of operations, cash flows, or financial condition in a particular period.

     Fexofenadine Hydrochloride Suit

     In June 2001, the Company 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. The Company 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 the Company 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 the Company’s ANDA, Sanofi-Aventis listed an additional patent on Allegra in the Orange Book. The Company filed appropriate amendments to its 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 the Company’s 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 the Company summary judgment of non-infringement as to two patents. On March 31, 2005, the court granted the Company 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, the Company received final FDA approval for its fexofenadine tablet products. As referenced above, pursuant to the agreement between the Company and Teva, the Company selectively waived its 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 the Company and Teva 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 the Company for infringement of the API (active pharmaceutical ingredient) patents based on the sale of the Company’s fexofenadine product and for inducement of infringement of the API patents based on the sale of Teva’s fexofenadine product. On June 22, 2006, the Company 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 the Company 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 the Company induced Teva’s allegedly infringing sales. On November 21, 2006, Sanofi-Aventis filed an amended complaint in the same court, asserting that the Company’s fexofenadine hydrochloride tablets infringe a different patent directed to a different crystal form of fexofenadine hydrochloride. On January 12, 2007, the Company 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 the Company’s 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 the Company and/or Teva are unsuccessful in the Allegra litigation, the Company potentially could be liable for a portion of Sanofi-Aventis’ lost profits on the sale of Allegra, which could potentially exceed the Company’s profits earned from its arrangement with Teva on generic Allegra.

     Product Liability Matters

     Hormone Therapy Litigation

     The Company has been named as a defendant in approximately 5,095 personal injury product liability cases brought against the Company 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 the Company involve its Cenestin products and/or the use of the Company’s 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 the Company has been named as a defendant in these cases, fewer than a third of the complaints actually allege the plaintiffs took a product manufactured by the Company, and the Company’s experience to date suggests that, even in these cases, a high percentage of the plaintiffs will be unable to demonstrate actual use of a Company product. For that reason, approximately 4,636 of such cases have been dismissed (leaving approximately 459 pending) and, based on discussions with the Company’s outside counsel, more are expected to be dismissed.

     The Company believes it has viable defenses to the allegations in the complaints and is defending the actions vigorously.

     Antitrust Matters

     Ciprofloxacin (Cipro^®) Antitrust Class Actions

     The Company has 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 7, 2007, the Second Circuit transferred the appeal involving the indirect purchaser plaintiffs to the United States Court of Appeals for the Federal Circuit, while retaining jurisdiction over the appeals of the direct purchaser plaintiffs in the case. Briefing on the merits is now complete in the Federal Circuit, and an oral argument has been scheduled for June 4, 2008. Merits briefing in the Second Circuit is scheduled to take place in May and June 2008.

     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 May 16, 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, although a status hearing is currently scheduled for May 19, 2008.

     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.

     The Company believes that its 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, the Company is vigorously defending itself in these matters.

     Ovcon Antitrust Proceedings

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

     Under the State Attorneys General settlement, the states agreed to dismiss their claims against the Company in exchange for a cash payment of $6 million and commitments by the Company 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, the Company reached court-approved settlements with the class representatives of the certified class of indirect purchasers on behalf of the class. The settlements require the Company to pay $2 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 U.S. District Court for the District of Columbia 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, the Company 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.

     Through March 31, 2008, the Company recorded charges in the amount of $16 million related to these settlements and other settlement offers in the Ovcon litigation.

     Provigil Antitrust Proceedings

     To date, the Company has 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.

     The Company was 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.

     The Company believes that it has not engaged in any improper conduct and is vigorously defending these matters.

     Medicaid Reimbursement Cases

     The Company, along with numerous other pharmaceutical companies, has 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).

     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. On April 11, 2008, the Illinois trial court dismissed all allegations against generic-drug-manufacturer defendants including the Company, but with leave for the State to replead. Discovery is underway in the Alabama and Kentucky actions. The Alabama trial court completed the trial of a different defendant, and has scheduled two others, but with the sequencing for all remaining defendants not yet known. The Kentucky trial court has scheduled the trials of three other defendants to take place next year, with the first one starting on May 19, 2009, but has not yet determined the trial schedule thereafter.

     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, with discovery underway but again with no trial dates set.

     The State of Hawaii case was filed in state court in Hawaii on April 27, 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 complete. 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 the Judicial Panel on Multidistrict Litigation is transferring the action to the U.S. District Court for the District of Massachusetts. The State’s motion to remand the case to state court remains pending. No trial date has been set.

     The Company believes that it has not engaged in any improper conduct and is 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 the Company 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 the Company to purchase raw material for its generic Allegra product from Ranbaxy, prohibiting the Company from launching its generic Allegra product without Ranbaxy’s consent and prohibiting the Company 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. The Company believes there was no such contract, fraud or negligent misrepresentation and is vigorously defending this matter.

     Other Litigation

     As of March 31, 2008, the Company was 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 the Company’s condensed consolidated financial statements.

     Government Inquiries

     On October 3, 2006, the FTC notified the Company 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. The Company is complying with this Civil Investigative Demand and is cooperating with the agency in its investigation.

     Commitments

     On January 15, 2008, the Company made a commitment to invest up to $30 million in a new venture fund, NewSpring Health Capital II L.P. Investments made will also be accounted for under the equity method. Payments related to this commitment are payable when capital calls are made. The first capital call payment was made in January 2008 in the amount of $1 million.

17. Segment Reporting

     The Company operates in two reportable business segments: generic pharmaceuticals and proprietary pharmaceuticals. The Company evaluates the performance of its operating segments based on net revenues and gross profit. The Company does not report depreciation expense, total assets or capital expenditures by segment as such information is neither used by management nor accounted for at the segment level. Net product sales and gross profit information for the Company’s operating segments consisted of the following:

Three Months Ended
March 31, 2008																														% of
$ in millions		Generic				%				Proprietary				%				Other (1)				%				Consolidated				revenue
Revenues:
Product sales		$	469				77	%		$	96				16	%		$	–				0	%		$	565				93	%
Alliance and development revenue			–				–	%			–				–	%			32				5	%			32				5	%
Other revenue			–				–	%			–				–	%			11				2	%			11				2	%
Total revenues		$	469				77	%		$	96				16	%		$	43				7	%		$	608				100	%

						Margin								Margin								Margin								Margin
						%								%								%								%
Gross Profit:
Product sales		$	233				50	%		$	66				68	%		$	–				–	%		$	299				53	%
Alliance and development revenue			–				–	%			–				–	%			32				100	%			32				100	%
Other revenue			–				–	%			–				–	%			2				23	%			2				23	%
Total gross profit		$	233				50	%		$	66				68	%		$	34				80	%		$	333				55	%

Three Months Ended
March 31, 2007																														% of
$ in millions		Generic				%				Proprietary				%				Other (1)				%				Consolidated				revenue
Revenues: (2)
Product sales		$	471				79	%		$	89				15	%		$	–				–	%		$	560				94	%
Alliance and development revenue			–				–	%			–				–	%			25				4	%			25				4	%
Other revenue			–				–	%			–				–	%			12				2	%			12				2	%
Total revenues		$	471				79	%		$	89				15	%		$	37				6	%		$	597				100	%

						Margin								Margin								Margin								Margin
						%								%								%								%
Gross Profit: (2)
Product sales		$	208				44	%		$	59				66	%		$	–				–	%		$	267				48	%
Alliance and development revenue			–				–	%			–				–	%			25				100	%			25				100	%
Other revenue			–				–	%			–				–	%			5				37	%			5				37	%
Total gross profit		$	208				44	%		$	59				66	%		$	30				80	%		$	297				50	%

(1)		The other category includes alliance and development revenues and revenues from certain non-core operations.
(2)		Prior period amounts have been reclassified to include the effect of discontinued operations.

Product sales by therapeutic category

     The Company’s generic and proprietary pharmaceutical segment net product sales are represented in the following therapeutic categories for the following periods:

		Three Months Ended
$ in millions		March 31,
		2008				2007
Contraception		$	153			$	165
Psychotherapeutics			63				67
Cardiovascular			61				66
Antibiotics, antiviral & anti-infectives			69				67
Other (1)			219				195
Total		$	565			$	560

18. Subsequent Events

     On May 5, 2008, the Company entered into an agreement with Allergan Inc. related to Allergan’s Sanctura^® product that PLIVA divested in 2005 to Esprit Pharma, which has since been acquired by Allergan. Under the terms of this agreement, Allergan paid the Company $53 million, extinguishing any future contingent royalty payments, if earned, related to Sanctura^®.

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

     The following discussion and analysis addresses material changes in the results of operations and financial condition of Barr Pharmaceuticals, Inc. and subsidiaries for the periods presented. This discussion and analysis should be read in conjunction with the consolidated financial statements, the related notes to the consolidated financial statements and Management’s Discussion and Analysis of Results of Operations and Financial Condition included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, and the unaudited interim condensed consolidated financial statements and related notes included in Item 1 of this report on Form 10-Q.

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 the three months ended March 31, 2008, we recorded $564.6 million of product sales and $608.0 million of total revenues.

     During the three months ended March 31, 2008, sales of our generic products were $468.9 million, accounting for 83% of our total product sales. North America accounted for $261.2 million of our generic product sales while the Rest of World (“ROW”) accounted for $207.7 million. Sales of our proprietary products were $95.7 million, accounting for 17% of our total product sales. In addition, we recorded $32.3 million of alliance and development revenues during the quarter and $11.1 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 the three months ended March 31, 2008, we generated $101 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.

     We recorded earnings of $0.21 per share for our first quarter of 2008. We expect higher product sales in our second quarter as compared to our first quarter, but we believe that incremental earnings from these higher sales will be more than offset by higher operating expenses. Nevertheless, we expect our earnings per share in the second quarter to be approximately double our earnings per share in the first quarter due to the $53 million (approximately $0.30 per share) payment we received in May 2008 from our agreement with Allergan Inc., as described in the discussion of alliance and development revenues below. We expect our earnings per share in each of the third and fourth quarters to be higher than our earnings per share in the second quarter.

     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 a portion of 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.

     For purposes of discussing results on a comparable basis below, we will refer to all total increases and decreases in US dollars, and often quantify the amount of those changes that are due to changes in foreign currency exchange rate fluctuations.

     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 354 sales representatives that promote directly to physicians six of our products — SEASONIQUE®, Enjuvia™, Mircette®, ParaGard®, Plan B™ and Amniscreen – 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®, which was the first and largest selling extended-cycle oral contraceptive, in the U.S., and SEASONIQUE, also an extended-cycle oral contraceptive, 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; Amniscreen, an at home amniotic fluid detection liner, in 2008; 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.

     Results of Operations

Comparison of the Three Months Ended March 31, 2008 and March 31, 2007

     The following table sets forth revenue data for the three months ended March 31, 2008 and 2007 (dollars in millions):

		Three Months Ended March 31,
										Change
		2008				2007				$				%
Product sales:
Generic products:
Oral contraceptives		$	92.5			$	113.2			$	(20.7	)			–18	%
Other generics			376.4				358.0				18.4				5	%
Total generic products			468.9				471.2				(2.3	)			0	%
Proprietary products			95.7				89.0				6.7				8	%
Total product sales			564.6				560.2				4.4				1	%
Alliance and development revenue			32.3				25.1				7.2				29	%
Other revenue			11.1				11.5				(0.4	)			–3	%
Total revenues		$	608.0			$	596.8			$	11.2				2	%