Forward-Looking Statements

Certain statements in this Report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including those concerning management's expectations with respect to future financial performance, trends and future events, particularly relating to sales of current products and the development, approval and introduction of new products. To the extent that any statements made in this Report contain information that is not historical, such statements are essentially forward-looking. These statements are often, but not always, made using words such as "estimates," "plans," "projects," "anticipates," "continuing," "ongoing," "expects," "intends," "believes," "forecasts" or similar words and phrases. Such forward-looking statements are subject to known and unknown risks, uncertainties and contingencies, many of which are beyond our control, which could cause actual results and outcomes to differ materially from those expressed in this Report. Risk factors that might affect such forward-looking statements include those set forth in Item 1A ("Risk Factors") of our Annual Report on Form 10-K for the year ended December 31, 2008, in Item 1A of this and our subsequent Quarterly Reports on Form 10-Q, and from time to time in our other filings with the SEC, including Current Reports on Form 8-K, and on general industry and economic conditions. Any forward-looking statements included in this Report are made as of the date of this Report only, and, subject to any applicable law to the contrary, we assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

The following discussion should be read in conjunction with Par's Condensed Consolidated Financial Statements and related Notes to Condensed Consolidated Financial Statements contained elsewhere in this Form 10-Q.

OVERVIEW

The introduction of new manufactured and distributed products at selling prices that generate adequate gross margins is critical to our ability to generate economic value and ultimately the creation of adequate returns for our stockholders. In late 2008 and in early 2009, we resized our generic products division as part of an ongoing strategic assessment of our businesses. This initiative is intended to enable us to optimize our current generic product portfolio and our pipeline of first-to-file/first-to-market generic products.
As a result, we believe we are better positioned to compete in the generic marketplace over the long term. We significantly reduced our research and development expenses by decreased levels of internal research and development activities in an effort to focus on completing products currently in development. Also, we will continue seeking additional generic products for sale through new and existing distribution agreements or acquisitions of complementary products and businesses, additional first-to-file opportunities and unique dosage forms to differentiate our products in the marketplace. We pay a percentage of the gross or net profits or sales to our strategic partners on sales of products covered by our distribution agreements. Generally, products that Par had developed internally, and to which it is not required to split any profits with strategic partners, contribute higher gross margins than products covered by distribution agreements. To continue the development of our Strativa segment, on March 31, 2009, we acquired the worldwide rights to Nascobal® Nasal Spray. Nascobal® Nasal Spray is an FDA approved prescription vitamin B12 supplement indicated to treat vitamin B12 deficiency. It is the first and currently only once-weekly, self-administered alternative to B12 injections.

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

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

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

In the three-month period ending March 28, 2009, our generic business net revenues and gross margin were concentrated in a few products, including two products that were launched subsequent to the first quarter of 2008. The top 5 generic products that we plan to market throughout 2009 accounted for approximately 70% total revenues and approximately 60% of total gross margins in the first quarter of 2009.

Throughout the first quarter of 2009, we did not have competition for sales of metoprolol (sold pursuant to a supply and distribution agreement with AstraZeneca), which resulted in increased volume of units sold coupled with a price increase commensurate with being the sole distributor.

In November 2008, we launched generic versions of Imitrex® (sumatriptan) injection 4mg and 6mg starter kits and 4mg and 6mg prefilled syringe cartridges pursuant to a supply and distribution agreement with GlaxoSmithKline plc. Throughout the first quarter of 2009, we remained the sole distributor of 3 SKUs (packaging sizes) with one competitor for a single SKU.

In the third quarter of 2008, we launched dronabinol in 2.5mg, 5mg and 10mg strengths in soft gel capsules. We share net product margin, as contractually defined, on sales of dronabinol with SVC Pharma LP, an affiliate of Rhodes Technologies.

We marketed meclizine prior to an explosion at the manufacturing facility of our API supplier in February 2008. Subsequently, we qualified a new API source and received the appropriate approval of our abbreviated new drug application to manufacture and market meclizine utilizing our new supplier. We reintroduced meclizine HCl tablets in 12.5mg and 25mg strengths in the third quarter of 2008.
Throughout the first quarter of 2009, we believe we were the exclusive supplier of this generic product.

In addition, our investments in generic development is expected to yield approximately 14 new product launches during the remainder of 2009 and 2010 based on one or more of the following: expiry of the relevant 30-month stay period; patent expiry date; expiry of regulatory exclusivity. However, such dates may change due to various circumstances, including extended litigation, outstanding citizens petitions, other regulatory requirements set forth by the FDA, and stays of litigation. These launches will be significant mileposts for Par as many of these products are first-to-file/first-to-market opportunities with gross margins in excess of our current portfolio.

STRATIVA

For Strativa, we will continue to invest in the marketing and sales of our promoted products and prepare for the commercialization of our licensed products. In addition, we will continue to seek new licenses and acquisitions that accelerate the growth of our branded business.

In July 2005, we received FDA approval for our first New Drug Application ("NDA"), filed pursuant to Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, and immediately began marketing megestrol acetate oral suspension NanoCrystal® Dispersion ("Megace® ES"). Megace® ES is indicated for the treatment of anorexia, cachexia or any unexplained significant weight loss in patients with a diagnosis of AIDS and is utilizing the Megace® brand name that the company has licensed from Bristol-Myers Squibb Company. The net book value of the trademark was $5.8 million at March 28, 2009 and will be amortized over approximately 3.5 years. We have promoted Megace® ES as our primary brand product since 2005.

In September 2006, we entered into an extended-reach agreement with Solvay Pharmaceuticals, Inc. that provides for our branded sales force to co-promote Androgel®, as well as future versions of the product or other products that are mutually agreed upon, for a period of six years. As compensation for our marketing and sales efforts, we will receive up to $10 million annually, paid quarterly, for the six-year period. On January 30, 2009, the FTC filed a lawsuit against us in the U.S. District Court for the District of Central California alleging violations of antitrust laws stemming from our court-approved settlement in the patent litigation with Solvay Pharmaceuticals.
On April 9, 2009, the U.S. District Court of Central California granted our motion to transfer the lawsuit, along with three class action lawsuits that had been filed in the same court, to the United States District Court for the Northern District of Georgia, the jurisdiction in which our consent judgment in connection with the original patent litigation had been entered. On April 17, 2009 and April 21, 2009, two additional class action plaintiffs filed complaints in the United States District Court for the District of New Jersey alleging antitrust law violations. We believe we have complied with all applicable laws in connection with the court-approved settlement and intend to vigorously defend these actions.

In July 2007, we entered into an exclusive licensing agreement under which we received commercialization rights in the U.S. to BioAlliance Pharma's Loramyc®(miconazole Lauriad®), an antifungal therapy in development for the treatment of oropharyngeal candidiasis, an opportunistic infection commonly found in immunocompromised patients, including those with HIV and cancer.
BioAlliance completed Phase III studies and on February 6, 2009 submitted a NDA for Loramyc®. On April 9, 2009, we announced that the NDA was not accepted based on the lack of an imprint code on the tablet. BioAlliance had previously initiated the development of a debossed tablet and is planning to use that work to fulfill the FDA requirement and plans to resubmit the NDA later this year.

In June 2008, we entered into an exclusive licensing agreement with MonoSol Rx ("MonoSol") under which we acquired the commercialization rights in the United States and its territories to MonoSol's thin film formulation of ondansetron.
Through March 2009, we made payments of $3.5 million (charged to research and development expense) to MonoSol, consisting of an initial payment of $1.3 million for the delivery of product prototype, development milestones of $1.3 million for the delivery of pilot stability reports and $1.0 million for the successful completion of the final ondansetron thin film bioequivalence reports indicating successful completion of all clinical studies necessary to file the NDA for the product with the FDA, including meeting all applicable clinical end-points necessary for the approval of the NDA for the Product. On April 7, 2009, we submitted a NDA for the product. If the product receives FDA approval, MonoSol will earn a milestone payment of $2.5 million. Upon FDA approval, MonoSol will supply commercial quantities of the product to us and we will commercialize the product in the United States and pay MonoSol royalties on net sales.

In January 2008, we announced that we entered into an exclusive licensing agreement with Alfacell Corporation ("Alfacell") to acquire the commercialization rights in the United States for Onconase® (ranpirnase), then in development for the treatment of unresectable malignant mesothelioma. In May 2008, Alfacell reported that the preliminary data from its Phase III clinical trial, which assessed treatment with Onconase® plus doxorubicin compared to treatment with doxorubicin alone, did not meet statistical significance for the primary endpoint of overall survival in unresectable malignant mesothelioma. However, based on the preliminary data from the Phase III study, statistically significant results were achieved in the subset of evaluable unresectable malignant mesothelioma patients who failed a prior chemotherapy regimen before entering this clinical trial. This subset of patients achieved a statistically significant increase in overall survival when treated with Onconase® plus doxorubicin compared to treatment with doxorubicin alone. On January 27, 2009, Alfacell reported that it has conducted a pre-NDA meeting with the FDA to discuss its planned submission of the final components of the Onconase® rolling New Drug Application for the treatment of unresectable malignant mesothelioma patients. At the pre-NDA meeting, the FDA provided guidance to Alfacell recommending that an additional clinical trial be conducted in unresectable malignant mesothelioma patients that have failed one prior chemotherapy regimen, prior to submitting an NDA. Alfacell's current financial situation does not allow it to pursue an additional clinical trial, prior to submitting an NDA until other sources of capital are secured. Alfacell intends to continue to explore strategic alternatives and additional capital. Under our agreement, the next milestone payment to Alfacell is payable upon approval of Onconase® by the FDA for unresectable malignant mesothelioma. We do not have an obligation to provide Alfacell with any additional funding to conduct the FDA required additional clinical trial.

On March 31, 2009, we acquired the worldwide rights to Nascobal® (Cyanocobalamin, USP) Nasal Spray from QOL Medical LLC. Nascobal® Nasal Spray is an FDA approved prescription vitamin B12 supplement indicated to treat vitamin B12 deficiency. Under the terms of the all cash transaction, we paid QOL Medical $54.5 million for the worldwide rights to Nascobal® Nasal Spray. Nascobal® Nasal Spray will be manufactured by Par with assets acquired and operating leases assumed on March 31, 2009 from MDRNA (formerly Nastech Pharmaceutical).

OTHER CONSIDERATIONS

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

RESULTS OF OPERATIONS

Revenues

Total revenues of our top selling products were as follows:


                                                    Three months ended
                                             March 28,   March 29,
Product                                        2009        2008      $ Change
   Generic

Metoprolol succinate ER (Toprol-XL®)         $112,214     $43,298    $68,916
Sumatriptan succinate injection (Imitrex®)     16,020           -     16,020
Meclizine Hydrochloride (Antivert®)             9,820       6,513      3,307
Dronabinol (Marinol®)                           7,001           -      7,001
Fluticasone (Flonase®)                          4,157      17,762    (13,605)
Propranolol HCl ER (Inderal LA®)                4,001       5,455     (1,454)
Cabergoline (Dostinex®)                         3,775       7,982     (4,207)
Ibuprofen Rx (Advil®, Nuprin®, Motrin®)         3,144       3,279       (135)
Megestrol oral suspension (Megace®)             2,883       2,065        818
Hydralazine Hydrochloride (Apresazide®)         2,622       2,586         36
Other product related revenues                  1,312       1,048        264
Other                                          19,123      37,888    (18,765)
Total Generic Revenues                       $188,081    $129,884    $58,197

   Strativa
Megace® ES                                    $13,454     $22,401    ($8,947)
Other product related revenues                  2,500       2,643       (143)
Total Strativa Revenues                       $15,954     $25,044    ($9,090)

                                                      Three months ended
                                                                         Percentage of Total Revenues
                       March 28,    March 29,                            March 28,         March 29,
($ in thousands)          2009         2008      $ Change   % Change        2009              2008
Revenues:
  Generic                $188,081     $129,884    $58,197      44.8%            92.2%             83.8%
  Strativa                 15,954       25,044    (9,090)    (36.3%)             7.8%             16.2%
Total revenues           $204,035     $154,928    $49,107      31.7%           100.0%            100.0%

The increase in generic segment revenues in the first quarter of 2009 was primarily due to the lack of competition for sales of metoprolol that resulted in increased volume of units sold coupled with a price increase commensurate with being the sole distributor of the generic product. We also launched various sumatriptan SKUs in the fourth quarter of 2008. Throughout the first quarter of 2009, we remained the sole distributor of 3 sumatriptan SKUs with one competitor for a single SKU. In the third quarter of 2008, Par launched multiple strengths of dronabinol. We also commenced shipment of meclizine HCl tablets in 12.5mg and 25mg strengths in the third quarter of 2008. We believe we were the exclusive supplier of this generic product, throughout the first quarter of 2009. These gains were tempered by lower sales of fluticasone as the supply agreement with GlaxoSmithKline plc was not extended and we have substantially sold through all available inventories as of March 28, 2009. In addition, cabergoline sales were negatively impacted by the loss of key customers and pricing pressure due to additional competition. Products aggregated in "Other" also declined principally due to the generic segment's resizing that included the trimming of the generic product portfolio to only retain those marketed products that deliver acceptable gross margins coupled with pricing pressures on the remaining products.

Net sales of distributed products, which consist of products manufactured under contract and licensed products, were $145.0 million or 72% of the Company's total product revenues for the three month period ended March 28, 2009 and $87.0 million or 56% of our total product revenues for the three month period ended March 29, 2008. The increase in the percentage is primarily driven by higher sales of metoprolol, dronabinol, and sumatriptan. We are substantially dependent upon distributed products for our overall sales and any inability by our suppliers to meet demand could adversely affect our future sales.

The net sales decline of Megace® ES in the first quarter of 2009 is primarily attributed to the timing of trade buying patterns. In December 2007, the trade delayed its Megace® ES purchases until after the holidays to the benefit of the first quarter of 2008. In December 2008, the trade accelerated its Megace® ES purchases before the holidays to the detriment of the first quarter of 2009.

Gross Revenues to Total Revenues Deductions

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

As detailed above, we have the experience and the access to relevant information that we believe necessary to reasonably estimate the amounts of such deductions from gross revenues. Some of the assumptions we use for certain of our estimates are based on information received from third parties, such as wholesale customer inventory data and market data, or other market factors beyond our control. The estimates that are most critical to the establishment of these reserves, and therefore would have the largest impact if these estimates were not accurate, are estimates related to expected contract sales volumes, average contract pricing, customer inventories and return levels. We regularly review the information related to these estimates and adjust our reserves accordingly if and when actual experience differs from previous estimates. With the exception of the product returns allowance, the ending balances of account receivable reserves and allowances generally are eliminated during a two- to four-month period, on average.

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

Our gross revenues before deductions for chargebacks, rebates and incentive programs (including rebates paid under federal and state government Medicaid drug reimbursement programs), sales returns and other sales allowances were as follows:

                                  March 28, 2009                  March 29, 2008
                                                    Percentage                      Percentage
                                  ($ thousands)      of Gross     ($ thousands)      of Gross
                                                     Revenues                        Revenues
Gross revenues                          $292,569                        $307,976

Chargebacks                             (42,821)         14.6%         (108,178)          35.1%
Rebates and incentive programs          (21,705)          7.4%          (24,657)           8.0%
Returns                                  (6,637)          2.3%             (611)           0.2%
Cash discounts and other                (11,329)          3.9%          (11,925)           3.9%
Medicaid rebates and rebates             (6,042)          2.1%           (7,677)           2.5%
  due under other US
   Government pricing programs
Total deductions                        (88,534)         30.3%         (153,048)          49.7%

Total revenues                          $204,035         69.7%          $154,928          50.3%

The total gross-to-net sales adjustments as a percentage of gross sales decreased for the three months ended March 28, 2009, compared to the three months ended March 29, 2008, primarily due to the significant reduction of chargebacks driven by lower overall volume of sales of products that carry higher than average chargeback rates, including lower fluticasone sales coupled with the discontinuation of other lower margin products. In addition, the chargeback rate benefited from new product launches of dronabinol and sumatriptan and the lack of competition for sales of metoprolol. Refer to the March 29, 2008 accounts receivable reserves activity table below for details of the prior period returns deduction amount.

                                            For the Period Ended March 28, 2009
. . .