Securities to be registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value per share
(Title of class)

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

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

 

 

TABLE OF CONTENTS

Explanatory Note			1
Forward-Looking Statements			1
Recent Developments			1
Item 1. Business			3
Item 1A. Risk Factors			17
Item 2. Financial Information			38
Item 3. Properties			61
Item 4. Security Ownership of Certain Beneficial Owners and Management			62
Item 5. Directors and Executive Officers			66
Item 6. Executive Compensation			69
Item 7. Certain Relationships and Related Transactions, and Director Independence			112
Item 8. Legal Proceedings			114
Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters			118
Item 10. Recent Sales of Unregistered Securities			120
Item 11. Description of Registrant’s Securities to be Registered			121
Item 12. Indemnification of Directors and Officers			124
Item 13. Financial Statements and Supplementary Data			126
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			126
Item 15. Financial Statements and Exhibits			126
Exhibit 3.1

Explanatory Note

     Our common stock was registered under Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”) until May 23, 2008, when the Securities and Exchange Commission (the “SEC”), in a proceeding commenced in December 2006, revoked such registration because of our failure to file the quarterly and annual reports required by Section 13 of the Exchange Act subsequent to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. See SEC Release No. 34-57864 (Admin. Proc. File No. 3-12519). Our failure to file those reports stemmed from our inability to determine the appropriate revenue recognition policy with respect to transactions under a multi-faceted alliance agreement. Our efforts to complete that process, including consultation with our auditors, our outside subject-matter experts and the SEC’s Office of the Chief Accountant (“OCA”), were ongoing from early 2005 until July 24, 2007, when the consultation process came to a close with OCA indicating it would not object to our proposed method to account for our alliance agreements with multiple deliverables. Thereafter, our efforts and those of our independent registered public accountants to complete their examination of our financial statements for each of the four years ended December 31, 2007 were ongoing until the completion of such examination on October 10, 2008.

Forward-Looking Statements

     Statements included in this registration statement that do not relate to present or historical conditions are “forward-looking statements.” Additional oral or written forward-looking statements may be made by Impax Laboratories, Inc. (“we,” “us,” “our,” the “Company” or “Impax”) from time to time. Such forward-looking statements involve risks and uncertainties that could cause results or outcomes to differ materially from those expressed in the forward-looking statements. Forward-looking statements may include statements relating to our plans, strategies, objectives, expectations and intentions. Words such as “believes,” “forecasts,” “intends,” “possible,” “estimates,” “anticipates,” and “plans” and similar expressions are intended to identify forward-looking statements. Our ability to predict results or the effect of events on our operating results is inherently uncertain. Forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those discussed in this registration statement. Such risks and uncertainties include our ability to timely file periodic reports required by the Exchange Act, our ability to maintain an effective system of internal control over financial reporting, our ability to sustain profitability and positive cash flows, our ability to maintain sufficient capital to fund our operations, any delays or unanticipated expenses in connection with the construction of our Taiwan facility, our ability to successfully develop and commercialize pharmaceutical products, the uncertainty of patent litigation, consumer acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, the difficulty of predicting Food and Drug Administration (“FDA”) filings and approvals, our inexperience in conducting clinical trials and submitting new drug applications, our reliance on key alliance agreements, the availability of raw materials, the regulatory environment, exposure to product liability claims, fluctuations in operating results and other risks described in “Item 1A. Risk Factors” below. You should not place undue reliance on forward-looking statements. Forward-looking statements speak only as to the date on which they are made, and we undertake no obligation to update publicly or revise any forward-looking statement, regardless of whether new information becomes available, future developments occur or otherwise.

Recent Developments

     In August 2008, Charles Hsiao, Ph.D., our Chairman and a Director since December 1999, died. Dr. Hsiao co-led our research and development activities until January 1, 2004, when he became our non-executive chairman and took charge of exploratory research activities at a newly established laboratory in Pleasanton, California. Dr. Hsiao was a co-founder of our predecessor, Impax Pharmaceuticals, Inc., in 1994, and served as our Co-Chief Executive Officer from 1999 to 2003. In 1986, he was one of three co-founders of IVAX Corporation, which, by 1994, when he left the Vice-Chairman position at IVAX, had become the world’s largest generic pharmaceutical company.

     On August 1, 2008, David S. Doll, who until then had been our Executive Vice President, Commercial Operations, resigned. We entered into a separation agreement with Mr. Doll, under which we paid him severance benefits consisting of cash and shares of our common stock. Subsequently, we entered into a one-year consulting agreement, under which we issued to Mr. Doll additional shares of common stock and agreed to pay an hourly rate for services provided. Both agreements with Mr. Doll are more fully described under “Item 6. Executive Compensation — Narrative Disclosure to Summary Compensation and Grants of Plan-Based Awards Tables — Agreements with Our Named Executive Officers — Employment Agreement with David S. Doll.”

     In November 2008, we entered into an agreement under which we expect to receive $ 25 million, payable on December 12, 2008, in settlement of our antitrust claim against Abbott Laboratories and Fournier Industrie et Sante.

     In November 2008, we also entered into agreements with Medicis Pharmaceutical Corporation settling patent infringement litigation involving our generic versions of SOLODYN ^® 45mg, 90mg, and 135mg products. Medicis granted us a license to market our generic versions of the product upon the occurrence of certain conditions, but in any event not later than November 2011. We may be required to pay Medicis a royalty based on our sales of the generic product. Separately, we also entered into a joint development agreement with Medicis providing for the parties to collaborate in the development of five dermatology products, including an advanced form SOLODYN ^® product. Under the joint development agreement, Medicis will pay us an upfront fee of $ 40 million in December 2008, plus up to $ 23 million upon completion of specified clinical and regulatory milestones. To the extent the products are commercialized, Medicis will pay us royalties based on its sales of the advanced form SOLODYN product and we will share equally with Medicis in the profits on the sales of the four additional products.

     We have received approximately 265 consumer complaints regarding the performance of our generic version of Wellbutrin XL ^® in the 300 mg strength, which has represented a significant source of our revenue since Teva began distributing it in December 2006. We understand that the complaints emanate principally from a scientific debate whether there is a therapeutic difference between our product and the branded product. In April 2008, the FDA published a report entitled “Review of Therapeutic Equivalence Generic Bupropion XL 300 mg and Wellbutrin XL 300 mg,” in which it concluded, “...The FDA considers the generic form of bupropion XL 300 mg ... bioequivalent and therapeutically equivalent to (interchangeable with) Wellbutrin XL 300 mg...” The full report is available at http://www.fda.gov/cder/drug/infopage/bupropion/TE_ review.htm. In September 2008, an FDA spokeswoman stated that the agency would look into conducting a further study to test the product in patients that have reported problems with it.

Item 1. Business

Our Business

     We are a technology-based, specialty pharmaceutical company focused on the development and commercialization of bioequivalent and brand-name pharmaceuticals, utilizing our controlled-release and other in-house development and formulation expertise. Bioequivalent pharmaceuticals, commonly referred to as “generics,” are the pharmaceutical and therapeutic equivalents of brand-name drug products and are usually marketed under their established nonproprietary drug names rather than by a brand name. Brand-name products are generally protected by patents or regulatory exclusivities, which provide for a period of market exclusivity during which they are sold with little or no competition. Brand-name products may continue to have a significant presence in the market even after the expiration of the patent protection period as a result of consumer and physician loyalty. Bioequivalent pharmaceuticals contain the same active ingredient and are of the same route of administration, dosage form, strength and indication(s) as brand-name pharmaceuticals already approved for use in the United States by the FDA.

     In the generic pharmaceuticals market, we focus our efforts on controlled-release generic versions of selected brand-name pharmaceuticals covering a broad range of therapeutic areas and having technically challenging drug delivery mechanisms or limited competition. We employ our technologies and formulation expertise to develop generic products that will reproduce the brand-name product’s physiological characteristics but not infringe any valid patents relating to the brand-name product. We generally focus on brand-name products as to which the patents covering the active pharmaceutical ingredient have expired or are near expiration, and we employ our proprietary formulation expertise to develop controlled-release technologies that do not infringe patents covering the brand-name products’ controlled-release technologies.

     We are also developing specialty generic pharmaceuticals that we believe present one or more barriers to entry by competitors, such as difficulty in raw materials sourcing, complex formulation or development characteristics or special handling requirements. In the brand-name pharmaceuticals market, we are developing products for the treatment of central nervous system, or CNS, disorders. Our brand-name product portfolio consists of development-stage projects to which we are applying our formulation and development expertise to develop differentiated, modified, or controlled-release versions of currently marketed drug substances. We intend to expand our brand-name products portfolio primarily through internal development and also through licensing and acquisition.

     To obtain FDA approval for a new drug product, a prospective manufacturer must submit a new drug application (“NDA”) containing the results of clinical studies supporting the product’s safety and efficacy. The Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the “Hatch-Waxman” amendments, established an abbreviated new drug application (“ANDA”) for obtaining FDA approval of generic versions of certain drugs. An ANDA is similar to a NDA except that the applicant is not required to conduct and submit to the FDA clinical studies to demonstrate the safety and effectiveness of the drug. Instead, for drugs that contain the same active ingredient and are of the same route of administration, dosage form, strength and indication(s) as drugs already approved for use in the United States, the FDA ordinarily requires only bioavailability data demonstrating the generic formulation is bioequivalent to the previously approved reference listed drug, indicating that the rate of absorption and the levels of concentration of the generic drug in the body do not show a significant difference from those of the previously approved reference listed drug product. The FDA currently takes approximately 18-19 months on average to approve an ANDA following the date of its first submission. See “ — Regulation.”

     If we intend to market our product before patent expiration and believe our product will not infringe the innovator’s patents or that such patents are invalid or unenforceable, we are required to so certify in our filing of an ANDA and to send a notice thereof to the patent holder once our filing is accepted. If the patent holder responds with a timely suit against us to enforce the patent, the FDA is required to withhold its approval of our ANDA for up to 30 months. See “ — Regulation.” Filings made under the Hatch-Waxman amendments often result in the initiation of litigation by the patent holder. See “Item 8. Legal Proceedings.”

     We operate in two segments, referred to as the “Global Pharmaceuticals Division” (“Global Division”) and the “Impax Pharmaceutical Division” (“Impax Division”). The Global Division develops, manufactures, sells, and distributes generic pharmaceutical products through three sales channels: the “Global Products” sales channel, for generic pharmaceutical prescription (“Rx”) products we sell directly to wholesalers, large retail drug chains, and others; the “RX Partner” sales channel, for generic prescription products sold through unrelated third-party pharmaceutical entities pursuant to alliance agreements; and the “OTC Partner” sales channel, for sales of generic pharmaceutical over-the-counter (“OTC”) products sold through unrelated third-party pharmaceutical entities pursuant to alliance agreements. Our Impax Division is engaged in the development of proprietary brand pharmaceutical products through improvements to already approved pharmaceutical products to address CNS disorders. The Impax Division is also engaged in the co-promotion of products developed by unrelated third-party pharmaceutical entities through a direct sales force focused on marketing to physicians(referred to as “physician detailing sales calls”), primarily in the CNS community. Our total revenues for the nine months ended September 30, 2008 and the fiscal year ended December 31, 2007 were predominantly derived from our Global Division. See “Item 15. Financial Statements and Exhibits — Note 18 to Consolidated Financial Statements,” and “ — Note 12 to Interim Consolidated Financial Statements” for financial information about our segments for the fiscal years ended December 31, 2007, 2006 and 2005, respectively, and nine months ended September 30, 2008. We sell our products within the continental United States and the Commonwealth of Puerto Rico. We do not operate and have no sales in foreign countries.

     We market generic pharmaceutical prescription and over-the-counter products through our Global Division and intend to market our branded pharmaceutical products through our Impax Division. Additionally, when strategically appropriate, we enter into alliance agreements to fully leverage our technology platform. As of November 26, 2008, we marketed 70 generic pharmaceuticals representing dosage variations of 25 different pharmaceutical compounds through our Global Pharmaceuticals division and another 15 products representing dosage variations of five different pharmaceutical compounds through our alliance agreements’ partners.

     The following summarizes our generic pharmaceutical product development activities to date:

	•		52 ANDAs approved by the FDA, which include generic versions of brand-name pharmaceuticals such as Brethine®, Florinef®, Minocin®, Claritin-D® 12-hour, Claritin-D® 24-hour, Wellbutrin SR®, OxyContin® and Prilosec®.
	•		23 applications pending at the FDA, including four tentatively approved ( i.e. , satisfying substantive FDA requirements but remaining subject to statutory pre-approval restrictions), that address approximately $11.0 billion in recent 12-month U.S. product sales.
	•		76 products pending FDA review or in various stages of development for which applications have not yet been filed.

In addition, we have one branded pharmaceutical product for which we have recently completed a Phase III clinical study, a second for which we have filed an Investigational New Drug (“IND”) application to allow us to begin clinical studies, and four others in early exploratory phase.

     Unless otherwise indicated, all product sales data and U.S. market size data in this registration statement are based on information obtained from Wolters Kluwer Health, an unrelated third-party provider of prescription market data. We did not independently engage Wolters Kluwer Health to provide this information.

     We were incorporated in the State of Delaware in 1995. Our corporate headquarters are located at 30831 Huntwood Avenue, Hayward, California 94544. We were formerly known as Global Pharmaceutical Corporation until December 14, 1999, when Impax Pharmaceuticals, Inc., a privately held drug delivery company, merged into Global Pharmaceutical Corporation, which changed its name to Impax Laboratories, Inc. in connection with the merger. We treated the merger as the recapitalization of Impax Pharmaceuticals, Inc., with Impax Pharmaceuticals, Inc. deemed the acquirer of Global Pharmaceutical Corporation, and such transaction was deemed a reverse acquisition for accounting purposes.

Controlled-Release Technology

     Controlled-release drug-delivery technologies are designed to release drug dosages at specific times and in specific locations in the body and generally provide more consistent and appropriate drug levels in the bloodstream than immediate-release dosage forms. The controlled-release pharmaceuticals may improve drug efficacy, ensure greater patient compliance with the treatment regimen, reduce side effects or increase drug stability and be more “patient friendly” by reducing the number of times a drug must be taken.

     We have developed a number of different controlled-release delivery technologies that can be utilized with a variety of oral dosage forms and drugs. We believe that these technologies are flexible and can be applied to develop a variety of pharmaceutical products, both generic and branded. Our technologies utilize a variety of polymers and other materials to encapsulate or entrap the active pharmaceutical ingredients and to release them at varying rates or at predetermined locations in the gastrointestinal tract.

Our Products

      Generic Pharmaceuticals

     The following table lists our 47 products, representing 52 ANDAs that have been approved by the FDA:

Product		Generic of
2004 or Earlier
Pentoxifyline 400mg Tablets (1)		Trental ®
Orphenadrine 100mg Tablets		Norflex
Omeprazole 10mg, 20mg Capsules		Prilosec ®
Minocycline 50mg, 75mg, 100mg Capsules		Minocin ®
Sotalol 80mg, 120mg (1) , 160mg (1) , 240mg (1) Tablets		Betapace ®
Terbutaline 2.5mg, 5mg Tablets		Brethin ®
Fludrocortisone 0.1mg Tablets		Florinef ®
Rimantadine 100mg Tablets		Flumadine ®
Riluzole 50mg Tablets (1)		Rilutek ®
Pyridostigmine 60mg Tablets		Mestinon ®
Chloroquine 250 mg Tablets		Aralen ®
Chloroquine 500mg Tablets		Aralen ®
Flavoxate 100mg Tablets		Urispas ®
Loratadine Orally Disintegrating Tablets, 10mg (1)		Claritin Reditab ®
Fenofibrate 67mg, 134mg, 200mg Capsules		Tricor ®
Loratadine and Pseudoephedrine Sulfate 5 /12mg ER Tablets		Claritin-D 12-hr ®
Methitest (Methyltestosterone) 10mg, 25mg (1) Tablets (2 separate ANDAs)		Android ®
Bupropion Hydrochloride 100mg & 150mg ER Tablets		Wellbutrin SR ®
Bupropion Hydrochloride 150mg ER Tablets		Zyban ®
Loratadine and Pseudoephedrine Sulfate 10/240mg ER Tablets		Claritin-D ® 24-Hour
Demeclocycline Hydrochloride 150mg and 300mg Tablets		Declomycin ®
Carbidopa/Levodopa 25/100 & 50/200mg ER Tablets		SinemetCR ®
Midodrine Hydrochloride 2.5mg, 5mg and 10mg Tablets		Proamatine
Metformin HCl 500mg ER Tablets (1)		Glucophage XR ®
Oxycodone Hydrochloride 80mg ER Tablets (1)		OxyContin ®
Bupropion Hydrochloride 200mg ER Tablets		Wellbutrin SR ®
2005
Dantrolene Sodium 25, 50 and 100mg Capsules		Dantrium ®
Anagrelide Hydrochloride 0.5 and 1.0mg Capsules (1)		Agrylin ®
Carprofen 25, 75 and 100mg Caplets (a veterinary product)		Rimadyl ®
Metformin HCI 750mg ER Tablets (1)		Glucophage XR ®
Oxycodone Hydrochloride 10, 20 and 40mg Tablets (1)		OxyContin ®
2006
Pilocarpine Hydrochloride 5 and 7.5mg Tablets		Salagen ®
Colestipol Hydrochloride 5g Packet and 5g Scoopful		Colestid ®
Colestipol Hydrochloride 1g Tablets		Colestid ®
Bethanechol Chloride 5, 10, 25 and 50mg Tablets (4 separate ANDAs)		Urecholine ®
Oxybutynin Chloride 15mg ER Tablets (2)		Ditropan XL ®
Bupropion Hydrochloride 300mg ER Tablets		Wellbutrin XL ®

As of November 21, 2008, we had 23 products pending at the FDA, of which 13 products, representing 13 ANDAs, had been publicly identified. The following table lists our 13 publicly identified products pending at the FDA:

      Brand-Name Pharmaceuticals

     In the brand-name pharmaceuticals market, we have thus far focused our efforts on the development of products for the treatment of CNS disorders, which include Alzheimer’s disease, attention deficit hyperactivity, depression, epilepsy, migraines, multiple sclerosis, Parkinson’s disease, and schizophrenia. We estimate there are approximately 11,000 neurologists, of which, historically, a concentrated number are responsible for writing the majority of neurological CNS prescriptions. CNS is the largest therapeutic category in the United States with 2007 sales of $65.9 billion, or 21% of the $321.0 billion U.S. drug market. CNS drug sales grew 9.5% in 2007, compared with a sales growth of 6.5% for the entire industry. Our strategy is to build this portfolio primarily through internal development and through licensing and acquisition. We intend to utilize our formulation and development expertise as well as our drug delivery technologies in the formulation of drug substances no longer protected by patents as differentiated, modified, or controlled-release pharmaceutical products that we will market as brand-name products.

     While we have not yet commercialized a brand-name product and have withdrawn our only NDA filed to date, we have recently completed a Phase III clinical study of one product intended to treat spasticity in patients with multiple sclerosis. We have also recently filed our third IND application, which will allow us to begin clinical studies of another CNS product, and are in the early exploratory phase with respect to four other CNS products.

Competition

     The pharmaceutical industry is highly competitive and is affected by new technologies, new developments, government regulations, health care legislation, availability of financing, and other factors. Many of our competitors have longer operating histories and substantially greater financial, research and development, marketing, and other resources than we have. We compete with numerous other companies that currently operate, or intend to operate, in the pharmaceutical industry, including companies that are engaged in the development of controlled-release drug delivery technologies and products, and other manufacturers that may decide to undertake development of such products. Our principal competitors are Barr Pharmaceuticals Inc., Sandoz, Inc., Mylan, Inc., Ranbaxy Laboratories Limited, Teva Pharmaceutical Industries, Ltd. (“Teva”) and Watson Pharmaceuticals, Inc.

     Due to our focus on relatively hard-to-replicate controlled-release products, however, competition in the generic pharmaceutical market is sometimes limited to those competitors who possess the appropriate drug delivery technology. The principal competitive factors in the generic pharmaceutical market are:

	•		the ability to introduce generic versions of products promptly after a patent expires;
	•		price;
	•		product quality;
	•		customer service (including maintenance of inventories for timely delivery);
	•		breadth of product line; and
	•		the ability to identify and market niche products.

     In the brand-name pharmaceutical market, we are not marketing our products. However, if we obtain the FDA approval for, and start marketing, our own CNS brand-name pharmaceuticals, we expect that competition will be limited to large pharmaceutical companies, other drug delivery companies, and other specialty pharmaceutical companies that have focused on CNS disorders.

Sales and Marketing

     We market and sell our generic pharmaceutical prescription drug products within the continental United States of America and the Commonwealth of Puerto Rico. We derive a substantial portion of our revenue from sales to a limited number of customers. The customer base for our products consists primarily of drug wholesalers, warehousing chain drug stores, mass merchandisers, and mail-order pharmacies. We market our products both directly, through our Global Division, and indirectly through our Rx Partner and OTC Partner alliance agreements, as described below. Our five major customers, DAVA, McKesson, Teva, Cardinal Health and Amerisource-Bergen, accounted for 70% and 80% of revenue for the nine months ended September 30, 2008 and the year ended December 31, 2007, respectively. These five customers individually accounted for 18%, 17%, 14%, 11% and 10%, respectively, of our revenue for the nine months ended September 30, 2008 and 37%, 14%, 13%, 11% and 6%, respectively, of our revenue for the year ended December 31, 2007. We have long-term contracts only with Teva and DAVA. A reduction in or loss of business with any one of these customers, or any failure of a customer to pay us on a timely basis, would adversely affect our business.

Rx Partner and OTC Partner Alliance Agreements

     We currently have alliance agreements with Teva, DAVA, Wyeth, and Schering-Plough Corporation, or their affiliates. On a combined basis, the alliance agreements with Teva and DAVA are referred to as “Rx Partners,” and the alliance agreements with Wyeth and Schering-Plough are referred to as “OTC Partners.” Under each of these Rx Partners and OTC Partners alliance agreements, our partner distributes a specified product or products developed and manufactured by us, and we either receive payment on delivery of the product, share in the resulting profits, or receive royalty or other payments from our partners. The revenue recognized and the percentage of revenue for each of the periods noted, for the Rx Partner and OTC Partners alliance agreements, is as follows:

      Rx Partners Alliance Agreements

      Teva Agreement

     We entered into the Strategic Alliance Agreement with Teva in June 2001 (“Teva Agreement”). The Teva Agreement is our most significant alliance agreement, and it covers generic versions of the following 11 controlled-release generic pharmaceutical branded and over-the-counter products and a 12th product we have not yet publicly identified, as follows:

	•		Prilosec ® 10mg, 20mg and 40mg delayed released capsules
	•		Wellbutrin SR ® 100mg and 150mg extended release tablets
	•		Zyban ® 150mg extended release tablets
	•		Claritin-D ® 12-hour 120 mg 12-hour extended release tablets
	•		Claritin-D ® 24-hour 240mg 24-hour extended release tablets
	•		Claritin Reditabs ® 10mg orally disintegrating tablets
	•		Ditropan XL ® 5mg, 10mg and 15mg extended release tablets
	•		Glucophage XR ® 500mg extended release tablets
	•		Allegra — D ® 60mg/120mg extended release tablets
	•		Concerta ® 18mg, 27mg, 36mg and 54mg extended release tablets
	•		Wellbutrin XL ® 150mg and 300mg extended release tablets

     The 12 covered products under the Teva Agreement represent 22 different product /strength combinations, of which 13 have been approved by the FDA and are currently being marketed, 7 are awaiting FDA approval and 2 are under development. With the exception of Glucophage XR ^® , which Teva elected to develop and manufacture itself, and Wellbutrin XL ^® 150mg, for which product rights have been returned to us, and the Claritin ^® products noted above, we manufacture and supply each of these products to Teva. Teva pays us a fixed percentage of defined profits on its sales of products, except for the Claritin ^® products noted above, and reimburses us for our manufacturing costs, for a term of 10 years from the initial commercialization of each product. Additionally, under the Teva Agreement, we share with Teva the profits (up to a maximum of 50%) from the sale of the generic pharmaceutical over-the-counter versions of the Claritin ^® products noted above, sold through our OTC Partners’ alliance agreements.

     The Teva Agreement also included a number of additional obligations, terms, and conditions. Under the Teva Agreement, Teva provided us with an interest-bearing advance deposit payable of $22 million for the purchase of exclusive marketing rights to the 12 products, contingent upon our achievement of specified product-development milestones. To the extent the milestones were not met, we were required to repay the advance deposit, except to the extent Teva elected to purchase market exclusivity for particular products in exchange for forgiveness of specified amounts of the deposit. Ultimately, none of the milestones were met by us, and Teva elected to purchase market exclusivity for two of the products, forgiving $6 million of the advance deposit payable. We also had the option to repay the remaining $16 million of the advance deposit payable in shares of our common stock and did so in 2003 and 2004 with approximately 1.05 million shares of our common stock. Also pursuant to the Teva Agreement, Teva in 2001 and 2002 purchased approximately 1.46 million of our common shares for $15 million. The Teva Agreement gave us the right to repurchase one-sixth of the shares for nominal consideration upon the first commercial sale of specified products, which we achieved and exercised in 2006. These and other provisions of the Teva Agreement are discussed in detail in “Item 15. Financial Statements and Exhibits — Note 13 to Consolidated Financial Statements.”

     Our remaining obligations under the Teva Agreement are to complete development of the covered products still under development, continue our efforts to obtain FDA approval of those not yet approved, and manufacture and supply the approved products to Teva. Our obligation to manufacture and supply each product extends for 10 years following the commercialization of the product.

      DAVA Agreement

     In November 2005, we entered into an alliance agreement with DAVA related to the exclusive supply and distribution of 10mg, 20mg, 40mg and 80mg strengths of our generic pharmaceutical of the branded OxyContin ^® product (“DAVA Agreement”). The DAVA Agreement originally provided for DAVA’s payment of an appointment fee in installments over five years, specified acquisition prices for the various strengths of the product, and a specified share of the net profits resulting from DAVA’s sales of the product. We amended the DAVA Agreement in February 2007 to eliminate future installments of the appointment fee in exchange for an increased share of the net profits. As a result of the May 2007 settlement of litigation brought by the OxyContin ^® patent holder, distribution of our product for the foreseeable future terminated in early 2008, and can resume only upon expiration of the last OxyContin ^® patent in 2013 or certain other events. As a result, the DAVA agreement, while not terminated, imposes no obligations on either party for the foreseeable future. Our revenue under the DAVA Agreement, net of deferred product manufacturing costs recognized, was $38,674,000 for the six and nine months ended June 30 and September 30, 2008, and $92,949,000, $1,754,000 and $26,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

      OTC Partners Alliance Agreements

     We have an exclusive development, license and supply agreement with Wyeth relating to our generic Claritin-D ^® 12-hour extended release product. Under the agreement, which was entered into in 2002 and included an upfront payment and product-development milestone payments, we receive quarterly royalty payments consisting of a percentage (less than 10%) of Wyeth’s sales. Wyeth launched the 12-hour product in May 2003 as its OTC Alavert D-12 Hour ^® . The Wyeth agreement terminates in April 2018.

     We also entered into a non-exclusive licensing, contract manufacturing and supply agreement with Schering-Plough relating to our generic Claritin-D ^® 12-hour extended release product in 2002. Under this agreement, which included an upfront payment and milestone payments by Schering-Plough, Schering-Plough purchases the product from us at a fixed price. Schering-Plough launched our product as its Claritin-D ^® 12-hour in March 2003. After our product supply obligations to Schering-Plough end, which is expected in the first quarter of 2009, Schering-Plough is expected to manufacture the product. The Schering-Plough agreement terminates two years after our product supply obligations conclude. During this two year period, Schering-Plough will pay us a royalty fee consisting of an amount (less than $50) per thousand tablets of their product sold.

     The upfront payments and potential milestone payments provided for by these agreements, together with the upfront and milestone payments received under each, are as follows:

(unaudited)
($ in thousands)

     In 2006, we entered into a promotional services agreement with Shire Laboratories, Inc. (the “Shire Agreement”) under which we provide promotional services, consisting of physician detail sales calls, to promote a Shire branded CNS product. In exchange for our services, we receive fees based on the number of sales force members providing the services and are eligible to receive contingent payments based on the number of prescriptions filled for the product. We began providing services under the agreement in July 2006 and will continue to do so through mid-2009. The revenue recognized and the percentage of total revenue for the periods noted, under the Shire Agreement, were $9,666,000 or 6.0% for the nine months ended September 30, 2008 and $12,759,000 or 5.0%, $6,434,000 or 5.0%, and $0 or 0.0%, for the years ended December 31, 2007, 2006, and 2005, respectively.

      Wyeth Co-Promotion Agreement

     In 2008, we entered into a co-promotion agreement with Wyeth under which we will provide promotional services for a Wyeth branded CNS product beginning in mid-2009. We will receive a fee for each face-to-face product presentation and will also be eligible to receive incentive fees based on the number of annual prescriptions filled for the CNS product. The agreement terminates three years from the initiation of our services.

Manufacturing

     We manufacture our finished dosage form products at our Hayward, California facility and use our larger and lower-operating-cost Philadelphia, Pennsylvania facility to package, warehouse and distribute the products. We began full-scale manufacturing in the Hayward facility in June 2002 and believe we have sufficient capacity to produce new products in the immediate future. During the quarter ended September 30, 2008, we were using about 68% of the facility’s estimated annual production capacity of up to approximately 1.5 billion tablets and capsules.

     In the second half of 2007, we began construction of a new manufacturing facility in Taiwan at an estimated cost of $25.0 million. We expect construction of the facility, which will have an annual production capacity of approximately 450 million tablets and capsules, to be completed in 2009, equipment to be installed, validated and approved by the FDA during 2009, and product shipment to begin in early 2010.

     Based on existing demand and expected increased demand due to anticipated new product approvals, we expect the Hayward facility to be fully utilized by the fourth quarter of 2012 if the additional capacity of the Taiwan facility is not available by that time, as currently expected.

     We maintain an inventory of our products in connection with our obligations under alliance agreements. In addition, for products pending approval, we may produce batches of inventory to be used in anticipation of the launch of the products. In the event that FDA approval is denied or delayed, we could be exposed to the risk of this inventory becoming obsolete.

Raw Materials

     The active chemical raw materials, essential to our business, are generally readily available from multiple sources in the U.S. and throughout the world. Certain raw materials used in the manufacture of our products are, however, available from limited sources and, in some cases, a single source. Although we have not experienced any material delays in receipt of raw materials to date, any curtailment in the availability of such raw materials could result in production or other delays and, in the case of products for which only one raw material supplier exists or has been approved by the FDA, could result in material loss of sales with consequent adverse effects on our business and results of operations. Also, because raw material sources for pharmaceutical products must generally be identified and approved by regulatory authorities, changes in raw material suppliers may result in production delays, higher raw material costs, and loss of sales and customers. We obtain a portion of our raw materials from foreign suppliers, and our arrangements with such suppliers are subject to, among other risks, FDA approval, governmental clearances, export duties, political instability, and restrictions on the transfers of funds.

     Those of our raw materials that are available from a limited number of suppliers are Bendroflumethiazide, Chloroquine, Colestipol, Digoxin, Flavoxate, Methyltestosterone, Nadolol, Orphenadrine, Terbutaline and Klucel, all of which are active pharmaceutical ingredients except Klucel, which is an excipient used in several product formulations. The manufacturers of two of these products, Formosa Laboratories, Ltd. and a division of Ashland, Inc., are sole-source suppliers. While none of the active ingredients is individually significant to our business, the excipient, while not covered by a supply agreement, is utilized in a number of significant products, it is manufactured for a number of industrial applications and supplies have been readily available. Only one of the active ingredients is covered by a long-term supply agreement and, while we have experienced occasional interruptions in supplies, none has had a material effect on our operations.

     Any inability to obtain raw materials on a timely basis, or any significant price increases not passed on to customers, could have a material adverse effect on us. We may experience delays from the lack of raw material availability in the future, which could have a material adverse effect on us.

Quality Control

     In connection with the manufacture of drugs, the FDA requires testing procedures to monitor the quality of the product, as well as the consistency of its formulation. We maintain a quality control laboratory that performs, among other things, analytical tests and measurements required to control and release raw materials, in-process materials, and finished products, and to routinely test marketed products to ensure they remain within specifications.

     Quality monitoring and testing programs and procedures have been established by us in our effort to assure that all critical activities associated with the production, control, and distribution of our drug products will be carefully controlled and evaluated throughout the process. By following a series of systematically organized steps and procedures, we seek to assure that established quality standards will be achieved and built into the product.

     Our policy is to continually seek to meet the highest quality standards, with the goal of thereby assuring the quality, purity, safety and efficacy of each of our drug products. We believe that adherence to high operational quality standards will also promote more efficient utilization of personnel, materials and production capacity.

Research and Development

     We conduct most of our research and development activities at our facilities in Hayward, California, with a staff of approximately 162. In addition, we have outsourced a number of research and development projects to offshore laboratories.

     We spent approximately $43.7 million, $40.0 million, $29.6 million and $26.1 million on research and development activities during the nine months ended September 30, 2008 and the fiscal years ended December 31, 2007, 2006 and 2005, respectively.

Regulation

     The manufacturing and distribution of pharmaceutical products are subject to extensive regulation by the federal government, primarily through the FDA and the Drug Enforcement Administration (“DEA”), and to a lesser extent by state and local governments. The Food, Drug, and Cosmetic Act (“FFDCA”), Controlled Substances Act and other federal statutes and regulations govern or influence the manufacture, labeling, testing, storage, record-keeping, approval, advertising and promotion of our products. Facilities used in the manufacture, packaging, labeling and repackaging of pharmaceutical products must be registered with the FDA and are subject to FDA inspection to ensure that drug products are manufactured in accordance with current Good Manufacturing Practices. Noncompliance with applicable requirements can result in product recalls, seizure of products, injunctions, suspension of production, refusal of the government to enter into supply contracts or to approve drug applications, civil penalties and criminal fines, and disgorgement of profits.

     FDA approval is required before any “new drug” may be marketed, including new formulations, strengths, dosage forms and generic versions of previously approved drugs. Generally, the following two types of applications are used to obtain FDA approval of a “new drug”:

      New Drug Application (NDA) . For a drug product containing an active ingredient not previously approved by the FDA, a prospective manufacturer must submit a complete application containing the results of clinical studies supporting the drug product’s safety and efficacy. An Investigational New Drug (IND) application must be submitted before the clinical studies may begin, and the required clinical studies can take two to five years or more to complete. An NDA is also required for a drug with a previously approved active ingredient if the drug will be used to treat an indication for which the drug was not previously approved or if the dosage form, strength or method of delivery is changed.

      Abbreviated New Drug Application (ANDA) . For a generic version of an approved drug—a drug product that contains the same active ingredient as a drug previously approved by the FDA and is in the same dosage form and strength, utilizes the same method of delivery and will be used to treat the same indications as the approved product—the FDA ordinarily requires only an abbreviated application that need not include clinical studies demonstrating safety and efficacy. An ANDA requires only bioavailability data demonstrating that the generic formulation is bioequivalent to the previously approved “reference listed drug,” indicating that the rate of absorption and levels of concentration of the generic drug in the body do not show a significant difference from those of the reference listed drug. The FDA currently takes an average of approximately 18-19 months, to approve an ANDA.

     Under the Hatch-Waxman Act, which established the procedures for obtaining approval of generic drugs, an ANDA filer must make certain patent certifications that can result in significant delays in obtaining FDA approval. If the applicant intends to challenge the validity or enforceability of an existing patent covering the reference listed drug or asserts that its drug does not infringe such patent, the applicant files a so-called “Paragraph IV” certification and notifies the patent holder that it has done so, explaining the basis for its belief that the patent is not infringed or is invalid or unenforceable. If the patent holder initiates a patent infringement suit within 45 days after receipt of the Paragraph IV Certification, the FDA is automatically prevented from approving an ANDA until the earlier of 30 months after the date the Paragraph IV Certification is given to the patent holder, expiration of the patents involved in the certification, or when the infringement case is decided in our favor. In addition, the first company to file an ANDA for a given drug containing a Paragraph IV certification can be awarded 180 days of market exclusivity following approval of its ANDA, during which the FDA may not approve any other ANDAs for that drug product.

     During any period in which the FDA is required to withhold its approval of an ANDA due to a statutorily imposed non-approval period, the FDA may grant tentative approval to an applicant’s ANDA. A tentative approval reflects the FDA’s preliminary determination that a generic product satisfies the substantive requirements for approval, subject to the expiration of all statutorily imposed non-approval periods. A tentative approval does not allow the applicant to market the generic drug product.

     The Hatch-Waxman Act contains additional provisions that can delay the launch of generic products. A five-year marketing exclusivity period is provided for new chemical compounds, and a three-year marketing exclusivity period is provided for approved applications containing new clinical investigations essential to an approval, such as a new indication for use, or new delivery technologies, or new dosage forms. The three-year marketing exclusivity period applies to, among other things, the development of a novel drug delivery system, as well as a new use. In addition, companies can obtain six additional months of exclusivity if they perform pediatric studies of a reference listed drug product. The marketing exclusivity provisions apply to both patented and non-patented drug products. The Act also provides for patent term extensions to compensate for patent protection lost due to time taken in conducting FDA required clinical studies and during FDA review of NDAs. In addition, by virtue of the Uruguay Round Agreements Act of 1994 that ratified the General Agreement on Tariffs and Trade, known as GATT, certain brand-name drug patent terms have been extended to 20 years from the date of filing of the pertinent patent application (which can be longer than the former patent term of 17 years from date of issuance).

     The Generic Drug Enforcement Act of 1992 establishes penalties for wrongdoing in connection with the development or submission of an ANDA. In general, FDA is authorized to temporarily bar companies, or temporarily or permanently bar individuals, from submitting or assisting in the submission of an ANDA, and to temporarily deny approval and suspend applications to market generic drugs under certain circumstances. In addition to debarment, FDA has numerous discretionary disciplinary powers, including the authority to withdraw approval of an ANDA or to approve an ANDA under certain circumstances and to suspend the distribution of all drugs approved or developed in connection with certain wrongful conduct.

     We are subject to the Maximum Allowable Cost Regulations, which limit reimbursements for certain generic prescription drugs under Medicare, Medicaid, and other programs to the lowest price at which these drugs are generally available. In many instances, only generic prescription drugs fall within the regulations’ limits. Generally, the pricing and promotion of, method of reimbursement and fixing of reimbursement levels for, and the reporting to federal and state agencies relating to drug products is under active review by federal, state and local governmental entities, as well as by private third-party reimbursers and individuals under whistleblower statutes. At present, the Justice Department and U.S. Attorneys Offices and State Attorneys General have initiated investigations, reviews, and litigation into industry-wide pharmaceutical pricing and promotional practices, and whistleblowers have filed qui

tam suits. We cannot predict the results of those reviews, investigations, and litigation, or their impact on our business.

     Virtually every state, as well as the District of Columbia, has enacted legislation permitting the substitution of equivalent generic prescription drugs for brand-name drugs where authorized or not prohibited by the prescribing physician, and some states mandate generic substitution in Medicaid programs.

     In addition, numerous state and federal requirements exist for a variety of controlled substances, such as narcotics, that may be part of our product formulations. The DEA, which has authority similar to the FDA’s and may also pursue monetary penalties, and other federal and state regulatory agencies have far-reaching authority.

     The State of California requires that any manufacturer, wholesaler, retailer or other entity in California that sells, transfers or otherwise furnishes certain so-called precursor substances must have a permit issued by the California Department of Justice, Bureau of Narcotic Enforcement. The substances covered by this requirement include ephedrine, pseudoephedrine, norpseudoephedrine, and phenylpropanolamine, among others. The Bureau has authority to issue, suspend and revoke precursor permits, and a permit may be denied, revoked or suspended for various reasons, including (i) failure to maintain effective controls against diversion of precursors to unauthorized persons or entities; (ii) failure to comply with the Health and Safety Code provisions relating to precursor substances, or any regulations adopted thereunder; (iii) commission of any act which would demonstrate actual or potential unfitness to hold a permit in light of the public safety and welfare, which act is substantially related to the qualifications, functions or duties of the permit holder; or (iv) if any individual owner, manager, agent, representative or employee of the permit applicant/permit holder willfully violates any federal, state or local criminal statute, rule, or ordinance relating to the manufacture, maintenance, disposal, sale, transfer or furnishing of any precursor substances.

Environmental Laws

     We are subject to comprehensive federal, state and local environmental laws and regulations that govern, among other things, air polluting emissions, waste water discharges, solid and hazardous waste disposal, and the remediation of contamination associated with current or past generation handling and disposal activities, including the past practices of corporations as to which we are the successor. We are subject periodically to environmental compliance reviews by various environmental regulatory agencies.

Employees

     As of October 31, 2008, we had 765 full-time employees, of which 360 were in operations, 162 in research and development, 144 in the quality area, 69 in legal and administration, and 30 in sales and marketing. None of our employees are subject to collective bargaining agreements with labor unions, and we believe our employee relations are good.

Item 1A. Risk Factors.

     An investment in our common stock involves a high degree of risk. In deciding whether to invest in our common stock, you should consider carefully the following risk factors, as well as the other information included in this registration statement. The materialization of any of these risks could have a material adverse effect on our business, financial position and results of operations. This registration statement contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in this “Risk Factors” section. See “Forward-Looking Statements” on page 1 of this registration statement.

Risks Related to Our Business

The SEC previously revoked the registration of our common stock due to our failure to file periodic reports required by the Exchange Act. If we fail to timely file these reports in the future, public information about us would become more limited and the SEC could again seek to deregister our common stock, which could negatively impact our business and liquidity, significantly reduce the liquidity of our common stock and prevent investors from buying or selling our common stock in the public market.

     On May 23, 2008, the SEC revoked the registration of our common stock pursuant to Section 12(j) of the Exchange Act based upon our failure to file quarterly and annual reports required by the Exchange Act subsequent to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. Our failure to file these periodic reports was the result of our inability to determine the appropriate accounting treatment for transactions under the Teva Agreement. As a result of this deregistration, public trading in our common stock ceased as of May 23, 2008.

     Once this registration statement becomes effective, we will again be required to file periodic reports with the SEC. Although we have resolved the accounting issues presented by the Teva Agreement, there can be no assurance that we will not be delinquent in the filing of these periodic reports in the future. If we are unable to timely file our periodic reports, the SEC could again commence proceedings to suspend or revoke the registration of our common stock. The SEC could also seek to impose a trading halt in our common stock for up to 10 trading days if it believes the public interest and the protection of investors requires it. Our failure to file periodic reports would also substantially limit the amount of financial and other information about us that would be available to our stockholders and investors, which could make it more difficult for investors to trade our stock or ascertain the price for our stock.

     If our common stock is ultimately deregistered again, brokers, dealers and other market participants would be prohibited from buying or selling, making a market in, or publishing quotations or otherwise effecting transactions with respect to our common stock. As a result, public trading of our common stock would again cease. This could have an adverse effect on our business and liquidity, significantly reduce the liquidity of our common stock and limit the ability of our stockholders to buy or sell our common stock.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, timely file our periodic reports, maintain our reporting status or prevent fraud.

     The existence of material weaknesses in our internal control over financial reporting may affect our ability to obtain audited financial information and comply with applicable SEC reporting requirements. We identified five material weaknesses in our internal control over financial reporting during 2004 relating to: (i) the Teva Agreement; (ii) our financial close and reporting process relating to our inability to file the required periodic financial reports with the SEC within the prescribed time periods from 2005 through the third quarter of 2008; (iii) our billing controls for non-electronic data interchange orders; (iv) our inventory valuation procedures; and (v) our reserve for shelf-stock adjustments. In addition, we restated our financial statements for the fiscal year ended December 31, 2003 to give effect to the restatement of accounting for the Teva Agreement, certain alliance agreements, common stock purchase warrants issued in May 2003, stock-based compensation, accrued legal fee operating expense, and accrued interest expense for the fiscal year ended December 31, 2003.

     While we believe the internal control material weaknesses discussed above have been remediated, there can be no assurance our independent registered public accounting firm will agree with our assessment that all material weaknesses have been remediated and may identify additional internal control material weaknesses in the future. The existence of internal control material weaknesses may result in current and potential stockholders and alliance agreements’ partners losing confidence in our financial reporting, which could harm our business, the market price of our common stock, and our ability to retain our current alliance agreements’ partners, and to obtain new alliance agreement partners.

     The existence of material weaknesses in our internal control over financial reporting may also affect our ability to timely file periodic reports under the Exchange Act. In May 2008, the SEC revoked the registration of our common stock pursuant to Section 12(j) of the Exchange Act based upon our failure to file the quarterly and annual reports required by the Exchange Act subsequent to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. Our failure to file these reports was the result of our inability to determine the appropriate accounting treatment for transactions under the Teva Agreement.

     Although we remedied the accounting issues presented by the Teva Agreement and do not believe a similar accounting problem is likely to recur, an internal control material weakness may develop in the future and affect our ability to timely file our periodic reports. The inability to timely file periodic reports under the Exchange Act could result in the SEC again revoking the registration of our common stock, which would prohibit us from listing or having our stock quoted on any public market, including the OTC Bulletin Board® and Pink Sheets®. This would have an adverse effect on our business and stock price by limiting the publicly available information regarding us and greatly reducing the ability of our stockholders to sell or trade our common stock.

We have experienced operating losses and negative cash flow from operations and our future profitability is uncertain.

     We recorded net income of $9.6 million and $125.9 million for the nine months ended September 30, 2008 and year ended December 31, 2007, respectively. Although 2007 was our first profitable year and we continued to record net income for the first nine months of 2008, we recorded net losses of $12.0 million and $5.8 million for the years ended December 31, 2006 and 2005, respectively. We do not know whether our business will continue to be profitable or generate positive cash flow, and our ability to remain profitable or obtain positive cash flow is uncertain. As of September 30, 2008, our accumulated deficit was $50.6 million, and we had outstanding indebtedness in an aggregate principal amount of $21.0 million. Through the date hereof, we have repurchased $62.25 million principal amount of our 3.5% convertible senior subordinated debentures (“3.5% Debentures”), constituting a part of such indebtedness. To remain operational, we must, among other things:

	•		obtain FDA approval of our products;
	•		successfully launch new products;
	•		prevail in patent infringement litigation in which we are involved;
	•		continue to generate or obtain sufficient capital on acceptable terms to fund our operations; and
	•		comply with the many complex governmental regulations that deal with virtually every aspect of our business activities.

Our limited capital may make it difficult for us to repay indebtedness, or require us to modify our business operations and plans by spending less money on research and development programs, developing fewer products, and filing fewer drug applications with the FDA.

     Prior to 2005, our cash used in operations exceeded cash generated from operations in each period since our inception. At September 30, 2008, we had outstanding indebtedness of approximately $21.0 million, which bears interest at rates ranging from 3.1% to 6.0% annually. In August and September 2008, we repurchased in the aggregate face value $62.25 million principal amount of our 3.5% Debentures constituting a part of such indebtedness. For the quarter ended September 30, 2008 and the year ended December 31, 2007, we paid interest on our indebtedness of approximately $2.6 million and $4.6 million, respectively. Additionally, as of

September 30, 2008, we had an accumulated stockholders’ deficit of approximately $50.6 million. We may not be able to maintain adequate capital at any given time or from time to time in the future, which could result in less money being spent on research and development programs, fewer products being developed or at a slower pace, and fewer drug applications being filed with the FDA.

If Wachovia or its successor is unable to perform its obligations under our credit agreement or if we are unable to obtain a new credit facility upon the expiration of our credit agreement with Wachovia, there can be no assurance that we will be able to obtain a new credit agreement with another bank or group of lenders on favorable terms or at all.

     In December 2005, we entered into a new three year credit agreement with Wachovia, which was amended in October 2008, replacing the previous loan and security agreement and providing for a $35 million revolving credit facility intended for working capital and general corporate purposes. There was no amount outstanding under the revolving credit facility as of September 30, 2008 and December 31, 2007, 2006 and 2005, respectively. Our credit agreement with Wachovia, as amended, terminates on December 31, 2008. If we are unable to negotiate an extension to the credit agreement on similar terms, there can be no assurance that we would be able to obtain a new credit agreement with another bank or group of lenders on favorable terms or at all. In addition, on October 3, 2008, Wachovia announced its agreement to be acquired by Wells Fargo. If Wachovia, or its successor, is not able to perform its obligations under the credit agreement, we would have no borrowing capacity under our credit facility.

Any delays or unanticipated expenses in connection with the construction of our Taiwan facility could have a material adverse effect on our results of operations, liquidity and financial condition.

     In the second half of 2007, we began construction of a new manufacturing facility in Taiwan at an estimated cost of $25.0 million, of which we spent approximately $13.1 million, in the aggregate, in 2008 and 2007. We estimate that the new facility will have an annual production capacity of approximately 450 million tablets and capsules. We expect construction of the facility to be completed in 2009, equipment to be installed, validated and approved by the FDA during 2009, and product shipment to begin in early 2010.

     While we have thus far not suffered any material delays, increases in estimated expenses or other material setbacks associated with the construction of the manufacturing facility, no assurance can be given that we will timely complete the construction of the facility or that its construction costs will not exceed any amounts budgeted by us. During any delays in development, changing market conditions could render projections relating to our investment in the new facility inaccurate or unreliable. There can also be no assurance that the facility will be approved by the FDA within the time frame we expect, or at all. In addition, there can be no assurance that the facility will become operational as anticipated or ultimately result in profitable operations. If the facility has not become operational by the fourth quarter of 2012, we will, based upon current projections, reach full production capacity at our Hayward, California manufacturing facility. If our manufacturing capacity were to be exceeded by our production requirements, we could lose customers and market share to competing products, and otherwise suffer adverse affects to our results of operations, liquidity and financial condition.

Our continued growth is dependent on our ability to continue to successfully introduce new products to the market.

     Sales of a limited number of our products often represent a significant portion of our revenues in a given period. Revenue from newly launched products that we are the first to market is typically relatively high during the period immediately following launch and can be expected generally to decline over time. Revenue from generic drugs in general can also be expected to decline over time. Our continued growth is therefore dependent upon our ability to continue to successfully introduce new products. We currently have 23 applications pending at the FDA for generic versions of brand-name pharmaceuticals. The FDA and the regulatory authorities may not approve our products submitted to them or our other products under development. Additionally, we may not successfully complete our development efforts. Even if the FDA approves our products, we may not be able to market them if we do not prevail in the patent infringement litigation in which we are involved. Our future results of operations will depend significantly upon our ability to develop, receive FDA approval for, and market new pharmaceutical products or otherwise acquire new products.

We are routinely subject to patent litigation that can delay or prevent our commercialization of products, force us to incur substantial expense to defend, and expose us to substantial liability.

     Brand-name pharmaceutical manufacturers routinely bring patent infringement litigation against ANDA applicants seeking FDA approval to manufacture and market generic forms of their branded products. Likewise, patent holders may bring patent infringement suits against companies that are currently marketing and selling their approved generic products. Patent infringement litigation involves many complex technical and legal issues and its outcome is often difficult to predict, and the risk involved in doing so can be substantial, because the remedies available to the owner of a patent in the event of an unfavorable outcome include damages measured by the profits lost by the patent owner rather than the profits earned by the infringer. Such litigation usually involves significant expense and can delay or prevent introduction or sale of our products.

     We are involved in nine patent infringement suits involving the following products: (i) Omeprazole Delayed Release Capsules, 10 mg, 20 mg and 40 mg (generic to Prilosec®); (ii) Fexofenadine/Pseudoephedrine Tablets (generic to Allegra® and Allegra-D®); (iii) Riluzole Tablets 50mg (generic to Rilutek®); (iv) Oxymorphone HCl Extended Release (“ER”) Tablets 5 mg, 7.5 mg, 10 mg, 15 mg, 20 mg, 30 mg, 40 mg (generic to Opana® ER); (v) Minocycline Hydrochloride Extended Release Tablets 45mg, 90mg, 135mg (generic to Solodyn®); (vi) Tolterodine Tartrate ER Capsules, 2 mg and 4 mg (generic to Detrol LA®); (vii) Tamsulosin Hydrochloride Capsules, 0.4 mg (generic to Flomax®); (viii) Tramadol Hydrochloride ER Tablets 100 mg and 200 mg (generic to Ultram® ER) and (ix) Duloxetine Hydrochloride DR Capsules, 20 mg, 30 mg, and 60 mg (generic to Cymbalta®). Through the nine months ended September 30, 2008, we had incurred costs of approximately $1,635,000 in connection with our participation in these matters, which are in varying stages of litigation. If any of these patent litigation matters are resolved unfavorably, we or any collaborative partners may be enjoined from manufacturing or selling the product that is the subject of such litigation without a license from the other party. In addition, if we decide to market and sell products prior to the resolution of patent infringement suits, we could be held liable for lost profits if we are found to have infringed a valid patent, or liable for treble damages if we are found to have willfully infringed a valid patent. As a result, any patent litigation could have a material adverse effect on our results of operations, financial condition and growth prospects, although it is not possible to quantify the liability we could incur if any of these suits are decided against us.

Our ability to develop or license, or otherwise acquire, and introduce new products on a timely basis in relation to our competitors’ product introductions, all of which is subject to numerous uncertainties.

     Product development is inherently risky, especially for new drugs for which safety and efficacy have not been established and the market is not yet proven. Likewise, product licensing involves inherent risks including uncertainties due to matters that may affect the achievement of milestones, as well as the possibility of contractual disagreements with regard to terms such as license scope or termination rights. The development and commercialization process, particularly with regard to new drugs, also requires substantial time, effort and financial resources. The process of obtaining FDA approval to manufacture and market new and generic pharmaceutical products is rigorous, time consuming, costly and largely unpredictable. We, or a partner, may not be successful in obtaining FDA approval or in commercializing any of the products that we are developing or licensing.

Our approved products may not achieve expected levels of market acceptance.

     Even if we are able to obtain regulatory approvals for our new products, the success of those products is dependent upon market acceptance. Levels of market acceptance for our new products could be affected by several factors, including:

	•		the availability of alternative products from our competitors;
	•		the prices of our products relative to those of our competitors;
	•		the timing of our market entry;
	•		the ability to market our products effectively at the retail level; and
	•		the acceptance of our products by government and private formularies.

Some of these factors are not within our control, and our products may not achieve expected levels of market acceptance. Additionally, continuing and increasingly sophisticated studies of the proper utilization, safety and efficacy of pharmaceutical products are being conducted by the industry, government agencies and others can call into question the utilization, safety and efficacy of previously marketed products. In some cases, studies have resulted, and may in the future result, in the discontinuance of product marketing or other risk management programs such as the need for a patient registry.

We expend a significant amount of resources on research and development efforts and may not lead to successful product introductions.

     We conduct research and development primarily to enable us to manufacture and market pharmaceuticals in accordance with FDA regulations. We spent approximately $43.7 million, $40.0 million, $29.6 million and $26.1 million on research and development activities during the nine months ended September 30, 2008 and the fiscal years ended December 31, 2007, 2006 and 2005, respectively. We are required to obtain FDA approval before marketing our drug products. The FDA approval process is costly and time consuming. Typically, research expenses related to the development of innovative compounds and the filing of NDAs are significantly greater than those expenses associated with ANDAs. As we continue to develop new products, our research expenses will likely increase. Because of the inherent risk associated with research and development efforts in our industry, particularly with respect to new drugs, our research and development expenditures may not result in the successful introduction of FDA-approved new bioequivalent pharmaceuticals.

     Our bioequivalence studies, other clinical studies and/or other data may not result in FDA approval to market our new drug products. While we believe that the FDA’s ANDA procedures will apply to our bioequivalent versions of controlled-release drugs, these drugs may not be suitable for, or approved as part of, these abbreviated applications. In addition, even if our drug products are suitable for FDA approval by filing an ANDA, the abbreviated applications are costly and time consuming to complete. After we submit an NDA or ANDA, the FDA may require that we conduct additional studies, and as a result, we may be unable to reasonably determine the total research and development costs to develop a particular product. Also, for products pending approval, we may obtain raw materials or produce batches of inventory to be used in anticipation of the product’s launch. In the event that FDA approval is denied or delayed, we could be exposed to the risk of this inventory becoming obsolete. Finally, we cannot be certain that any investment made in developing products or product-delivery technologies will be recovered, even if we are successful in commercialization. To the extent that we expend significant resources on research and development efforts and are not able, ultimately, to introduce successful new products or new delivery technologies as a result of those efforts, we will be unable to recover those expenditures.

The time necessary to develop generic drugs may adversely affect whether, and the extent to which, we receive a return on our capital.

     We begin our development activities for a new generic drug product several years in advance of the patent expiration date of the brand-name drug equivalent. The development process, including drug formulation, testing, and FDA review and approval, often takes three or more years. This process requires that we expend considerable capital to pursue activities that do not yield an immediate or near-term return. Also, because of the significant time necessary to develop a product, the actual market for a product at the time it is available for sale may be significantly less than the originally projected market for the product. If this were to occur, our potential return on our investment in developing the product, if approved for marketing by the FDA, would be adversely affected and we may never receive a return on our investment in the product. It is also possible for the manufacturer of the brand-name product for which we are developing a generic drug to obtain approvals from the FDA to switch the brand-name drug from the prescription market to the over-the-counter market. If this were to occur, we would be prohibited from marketing our product other than as an over-the-counter drug, in which case revenues could be substantially less than we anticipated.

We face intense competition from both brand-name and generic manufacturers.

     The pharmaceutical industry is highly competitive and many of our competitors have longer operating histories and substantially greater financial, research and development, marketing, and other resources than we have. In addition, pharmaceutical manufacturers’ customer base consists of an increasingly limited number of large pharmaceutical wholesalers, chain drug stores that warehouse products, mass merchandisers, mail-order pharmacies. Our competitors may be able to develop products and delivery technologies competitive with or more effective or less expensive than our own for many reasons, including that they may have:

	•		proprietary processes or delivery systems;
	•		larger research and development and marketing staffs;
	•		larger production capabilities in a particular therapeutic area;
	•		more experience in preclinical testing and human clinical trials;
	•		more experience in obtaining required regulatory approvals, including FDA approval;
	•		more products; or
	•		more experience in developing new drugs and financial resources, particularly with regard to brand manufacturers.

     The FDA approval process often results in the FDA granting final approval to a number of ANDAs for a given product at the time a patent claim for a corresponding brand product or other market exclusivity expires. This often forces us to face immediate competition when we introduce a generic product into the market. As competition from other manufacturers intensifies, selling prices and gross profit margins often decline, which has been our experience with our existing products. Moreover, with respect to products for which we file a Paragraph IV certification, if we are not the first ANDA filer challenging a listed patent for a product, we are at a significant disadvantage to the competitor that first filed an ANDA for that product containing such a challenge, which is awarded 180 days of market exclusivity for the product. With respect to our 12 products pending FDA approval for which we have filed Paragraph IV certifications, we believe: (i) unrelated third parties are the first to file with respect to products with which our eight products can be expected to compete; (ii) we are the first to file for two products; and (iii) we share first to file status with other filers for two products. Accordingly, the level of market share, revenue and gross profit attributable to a particular generic product that we develop is generally related to the number of competitors in that product’s market and the timing of that product’s regulatory approval and launch, in relation to competing approvals and launches. Although there is no assurance, we strive to develop and introduce new products in a timely and cost-effective manner to be competitive in our industry. See “Item 1. Business — Regulation.” Additionally, ANDA approvals often continue to be granted for a given product subsequent to the initial launch of the generic product. These circumstances generally result in significantly lower prices and reduced margins for generic products compared to brand products. New generic market entrants generally cause continued price and margin erosion over the generic product life cycle.

     In addition to the competition we face from other generic manufacturers, our competition from brand-name manufacturers involves intensive efforts to thwart generic competition, including sales of their branded products as “authorized generics,” obtaining new patents on drugs whose original patent protection is about to expire, filing patent-infringement suits that automatically delay FDA approval of generics, filing “citizen petitions” contesting FDA approvals of generics on alleged health and safety grounds, developing “next generation” versions of products that reduce demand for generic versions we are developing, changing product claims and labeling, and marketing as over-the-counter branded products about to face generic competition.

     Our principal competitors are Barr Pharmaceuticals Inc., Sandoz, Inc., Mylan, Inc., Ranbaxy Laboratories Limited, Teva and Watson Pharmaceuticals, Inc.

Approvals for our new drug products may be delayed or become more difficult to obtain if the FDA institutes changes to its approval requirements.

     Some abbreviated application procedures for controlled-release drugs and other products, including those related to our ANDA filings, are or may become, the subject of petitions filed by brand-name drug manufacturers seeking changes from the FDA in the approval requirements for particular drugs as part of their strategy to thwart generic competition. We cannot predict whether the FDA will make any changes to its abbreviated application requirements as a result of these petitions, or the effect that any changes may have on us. Any changes in FDA regulations may make it more difficult for us to file ANDAs or obtain approval of our ANDAs and generate revenues and thus may materially harm our business and financial results.

Our inexperience in conducting clinical trials and submitting New Drug Applications could result in delays or failure in development and commercialization of our own branded products, which could have a material adverse effect on our results of operations, liquidity, and financial condition.

     With respect to products that we develop that are not generic equivalents of existing brand-name drugs and thus do not qualify for the FDA’s abbreviated application procedures, we must demonstrate through clinical trials that these products are safe and effective for use. We have only limited experience in conducting and supervising clinical trials. The process of completing clinical trials and preparing an NDA may take several years and requires substantial resources. Our studies and filings may not result in FDA approval to market our new drug products and, if the FDA grants approval, we cannot predict the timing of any approval. There are substantial filing fees for NDAs that are not refundable if FDA approval is not obtained.

     There is no assurance that our expenses related to NDAs and clinical trials will lead to the development of brand-name drugs that will generate revenues in the near future. Delays or failure in the development and commercialization of our own branded products could have a material adverse effect on our results of operations, liquidity and financial condition.

The risks and uncertainties inherent in conducting clinical trials could delay or prevent the development and commercialization of our own branded products, which could have a material adverse effect on our results of operations, liquidity, financial condition, and growth prospects.

     There are a number of risks and uncertainties associated with clinical trials. The results of clinical trials may not be indicative of results that would be obtained from large-scale testing. Clinical trials are often conducted with patients having advanced stages of disease and, as a result, during the course of treatment these patients can die or suffer adverse medical effects for reasons that may not be related to the pharmaceutical agents being tested, but which nevertheless affect the clinical trial results. In addition, side effects experienced by the patients may cause delay of approval or limited profile of an approved product. Moreover, our clinical trials may not demonstrate sufficient safety and efficacy to obtain FDA approval.

     Failure can occur at any time during the clinical trial process and, in addition, the results from early clinical trials may not be predictive of results obtained in later and larger clinical trials, and product candidates in later clinical trials may fail to show the desired safety or efficacy despite having progressed successfully through earlier clinical testing. A number of companies in the pharmaceutical industry, including us, have suffered significant setbacks in clinical trials, even in advanced clinical trials after showing positive results in earlier clinical trials. For example, we had sought to develop a product containing carbidopa/levodopa for the treatment of Parkinson’s Disease. Following completion of the clinical trials and submission of the NDA, the NDA was not approved due to the FDA’s concerns over product nomenclature and the potential for medication errors. In the future, the completion of clinical trials for our product candidates may be delayed or halted for many reasons, including:

	•		delays in patient enrollment, and variability in the number and types of patients available for clinical trials;
	•		regulators or institutional review boards may not allow us to commence or continue a clinical trial;
	•		our inability, or the inability of our partners, to manufacture or obtain from third parties materials sufficient to complete our clinical trials;
	•		delays or failure in reaching agreement on acceptable clinical trial contracts or clinical trial protocols with prospective clinical trial sites;
	•		risks associated with trial design, which may result in a failure of the trial to show statistically significant results even if the product candidate is effective;
	•		difficulty in maintaining contact with patients after treatment commences, resulting in incomplete data;
	•		poor effectiveness of product candidates during clinical trials;
	•		safety issues, including adverse events associated with product candidates;
	•		the failure of patients to complete clinical trials due to adverse side effects, dissatisfaction with the product candidate, or other reasons;
	•		governmental or regulatory delays or changes in regulatory requirements, policy and guidelines; and
	•		varying interpretation of data by the FDA or foreign regulatory agencies.

     In addition, our product candidates could be subject to competition for clinical study sites and patients from other therapies under development which may delay the enrollment in or initiation of our clinical trials. Many of these companies have more significant resources than we do.

     The FDA or foreign regulatory authorities may require us to conduct unanticipated additional clinical trials, which could result in additional expense and delays in bringing our product candidates to market. Any failure or delay in completing clinical trials for our product candidates would prevent or delay the commercialization of our product candidates. There is no assurance our expenses related to clinical trials will lead to the development of brand-name drugs which will generate revenues in the near future. Delays or failure in the development and commercialization of our own branded products could have a material adverse effect on our results of operations, liquidity, financial condition, and our growth prospects.

We rely on third parties to conduct clinical trials for our product candidates, and if they do not properly and successfully perform their legal and regulatory obligations, as well as their contractual obligations to us, we may not be able to obtain regulatory approvals for our product candidates.

     We design the clinical trials for our product candidates, but rely on contract research organizations and other third parties to assist us in managing, monitoring and otherwise carrying out these trials, including with respect to site selection, contract negotiation and data management. We do not control these third parties and, as a result, they may not treat our clinical studies as their highest priority, or in the manner in which we would prefer, which could result in delays.

     Although we rely on third parties to conduct our clinical trials, we are responsible for confirming that each of our clinical trials is conducted in accordance with our general investigational plan and protocol. Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to ensure that the data and results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities and requirements. The FDA enforces good clinical practices through periodic inspections of trial sponsors, principal investigators and trial sites. If we, our contract research organizations or our study sites fail to comply with applicable good clinical practices, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials comply with good clinical practices. In addition, our clinical trials must be conducted with product manufactured under the FDA’s current Good Manufacturing Practices, or cGMP, regulations. Our failure, or the failure of our contract manufacturers if any are involved in the process, to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

     If third parties do not successfully carry out their duties under their agreements with us, if the quality or accuracy of the data they obtain is compromised due to failure to adhere to our clinical protocols or regulatory requirements, or if they otherwise fail to comply with clinical trial protocols or meet expected deadlines, our clinical trials may not meet regulatory requirements. If our clinical trials do not meet regulatory requirements or if these third parties need to be replaced, our clinical trials may be extended, delayed, suspended or terminated. If any of these events occur, we may not be able to obtain regulatory approval of our product candidates.

A substantial portion of our total revenues is derived from sales to a limited number of customers.

     We derive a substantial portion of our revenue from sales to a limited number of customers. Our five major customers, DAVA, McKesson, Teva, Cardinal Health and Amerisource-Bergen, accounted for 70% and 80% of revenue for the nine months ended September 30, 2008 and the year ended December 31, 2007, respectively. These five customers individually accounted for 18%, 17%, 14%, 11% and 10%, respectively, of our revenue for the nine months ended September 30, 2008 and 37%, 14%, 13%, 11% and 6%, respectively, of our revenue for the year ended December 31, 2007.

We have long-term contracts only with Teva and DAVA. See “Item 1. Business — Rx Partner and OTC Partner Alliance Agreements — Rx Partners Alliance Agreements” for a discussion of our agreements with Teva and DAVA. A reduction in or loss of business with any one of these customers, or any failure of a customer to pay us on a timely basis, would adversely affect our business.

We are dependent on a small number of suppliers for our raw materials that we use to manufacture our products.

     We typically purchase the ingredients, other materials and supplies that we use in the manufacturing of our products, as well as certain finished products, from a small number of foreign and domestic suppliers. The FDA requires identification of raw material suppliers in applications for approval of drug products. If raw materials were unavailable from a specified supplier or the supplier was not in compliance with FDA or other applicable requirements, the FDA approval of a new supplier could delay the manufacture of the drug involved. As a result, there is no guarantee we will always have timely and sufficient access to a required raw material or other product. In addition, some materials used in our products are currently available from only one supplier or a limited number of suppliers. Generally, we would need as much as 18 months to find and qualify a new sole-source supplier. If we receive less than one year’s termination notice from a sole-source supplier that it intends to cease supplying raw materials, it could result in disruption of our ability to produce the drug involved. Further, a significant portion of our raw materials may be available only from foreign sources. Foreign sources can be subject to the special risks of doing business abroad, including:

	•		greater possibility for disruption due to transportation or communication problems;
	•		the relative instability of some foreign governments and economies;
	•		interim price volatility based on labor unrest, materials or equipment shortages, export duties, restrictions on the transfer of funds, or fluctuations in currency exchange rates; and
	•		uncertainty regarding recourse to a dependable legal system for the enforcement of contracts and other rights.

     Those of our raw materials that are available from a limited number of suppliers are Bendroflumethiazide, Chloroquine, Colestipol, Digoxin, Flavoxate, Methyltestosterone, Nadolol, Orphenadrine, Terbutaline and Klucel, all of which are active pharmaceutical ingredients except Klucel, which is an excipient used in several product formulations. The manufacturers of two of these products, Formosa Laboratories, Ltd. and a division of Ashland, Inc., are sole-source suppliers. While none of the active ingredients is individually significant to our business, the excipient, while not covered by a supply agreement, is utilized in a number of significant products, it is manufactured for a number of industrial applications and supplies have been readily available. Only one of the active ingredients is covered by a long-term supply agreement and, while we have experienced occasional interruptions in supplies, none has had a material effect on our operations.

     Any inability to obtain raw materials on a timely basis, or any significant price increases which cannot be passed on to customers, could have a material adverse effect on us.

     Many third-party suppliers are subject to governmental regulation and, accordingly, we are dependent on the regulatory compliance of these third parties. We also depend on the strength, enforceability and terms of our various contracts with these third-party suppliers.

We depend on qualified scientific and technical employees, and our limited resources may make it more difficult to attract and retain these personnel.

     Because of the specialized scientific nature of our business, we are highly dependent upon our ability to continue to attract and retain qualified scientific and technical personnel. Except for the recent death of Dr. Hsiao, our former chairman of the board of directors, who co-led our research and development activities until 2004 and thereafter took charge of exploratory research activities, we have to date not experienced, or become aware of pending, significant losses of scientific or technical personnel and have retained sufficient personnel to assume Dr. Hsiao’s scientific responsibilities. Loss of the services of, or failure to recruit, key scientific and technical personnel, however, would be significantly detrimental to our product-development programs. As a result of our small size and limited financial and other resources, it may be difficult for us to attract and retain qualified officers and qualified scientific and technical personnel.

     We maintain an employment agreement with our chief executive officer, Dr. Hsu, which was entered into in December 1999. All of our other key personnel are employed on an at-will basis with no formal

employment agreements. We purchase a life insurance policy as an employee benefit for Dr. Hsu, but do not maintain “Key Man” life insurance on any executives.

We may be adversely affected by alliance agreements or licensing arrangements we make with other companies.

     We have entered into several alliance agreements or license agreements with respect to certain of our products and may enter into similar agreements in the future. These arrangements may require us to relinquish rights to certain of our technologies or product candidates, or to grant licenses on terms that ultimately may prove to be unfavorable to us, either of which could reduce the value of our common stock. Relationships with alliance agreements’ partners may include risks due to incomplete information regarding the marketplace, inventories, and commercial strategies of our alliance agreements’ partners, and our alliance agreements and /or other licensing agreements may be the subject of contractual disputes. If we or our alliance agreements’ partners are not successful in commercializing the alliance agreements’ product(s), such commercial failure could adversely affect our business.

We are subject to significant costs and uncertainties related to compliance with the extensive regulations that govern the manufacturing, labeling, distribution, and promotion of pharmaceutical products as well as environmental, safety and health regulations.

     The manufacturing, distribution, processing, formulation, packaging, labeling and advertising of our products are subject to extensive regulation by federal agencies, including the FDA, the Drug Enforcement Administration (DEA), the Federal Trade Commission (FTC), the Consumer Product Safety Commission and the Environmental Protection Agency (EPA), among others. We are also subject to state and local laws, regulations and agencies in California, Pennsylvania and elsewhere. Compliance with these regulations requires substantial expenditures of time, money and effort in such areas as production and quality control to ensure full technical compliance. Failure to comply with FDA and other governmental regulations can result in fines, disgorgement, unanticipated compliance expenditures, recall or seizure of products, total or partial suspension of production or distribution, suspension of the FDA’s review of NDAs or ANDAs, enforcement actions, injunctions and criminal prosecution.

     We cannot accurately predict the outcome or timing of future expenditures that we may be required to make in order to comply with the federal, state, and local environmental, safety, and health laws and regulations that are applicable to our operations and facilities. We are also subject to potential liability for the remediation of contamination associated with both present and past hazardous waste generation, handling, and disposal activities. We are subject periodically to environmental compliance reviews by environmental, safety, and health regulatory agencies. Environmental laws have changed in recent years and we may become subject to stricter environmental standards in the future and face larger capital expenditures in order to comply with environmental laws.

We may experience reductions in the levels of reimbursement for pharmaceutical products by governmental authorities, HMOs or other third-party payers. Any such reductions could have a material adverse effect on our business, financial position and results of operations.

     Various governmental authorities and private health insurers and other organizations, such as HMOs, provide reimbursement to consumers for the cost of certain pharmaceutical products. Demand for our products depends in part on the extent to which such reimbursement is available. In addition, third-party payors are attempting to control costs by limiting the level of reimbursement for medical products, including pharmaceuticals, and increasingly challenge the pricing of these products which may adversely affect the pricing of our products. Moreover, health care reform has been, and is expected to continue to be, an area of national and state focus, which could result in the adoption of measures that could adversely affect the pricing of pharmaceuticals or the amount of reimbursement available from third-party payers for our products.

Reporting and payment obligations under the Medicaid rebate program and other government programs are complex, and failure to comply could result in sanctions and penalties or we could be required to reimburse the government for underpayments, which could have a material adverse affect on our business.

     Medicaid and other government reporting and payment obligations are highly complex and somewhat ambiguous. State attorneys general and the U.S. Department of Justice have brought suits or instituted investigations against a number of other pharmaceutical companies for failure to comply with Medicaid and other government reporting obligations. Our methodologies for making these calculations are complex and the judgments involved require us to make subjective decisions, such that these calculations are subject to the risk of errors. Government agencies may impose civil or criminal sanctions, including fines, penalties and possible exclusion from federal health care programs, including Medicaid and Medicare. Any such penalties or sanctions could have a material adverse effect on our business.

Legislative or regulatory programs that may influence prices of prescription drugs could have a material adverse effect on our business.

     Current or future federal or state laws and regulations may influence the prices of drugs and, therefore, could adversely affect the prices that we receive for our products. Programs in existence in certain states seek to set prices of all drugs sold within those states through the regulation and administration of the sale of prescription drugs. Expansion of these programs, in particular, state Medicaid programs, or changes required in the way in which Medicaid rebates are calculated under such programs, could adversely affect the price we receive for our products and could have a material adverse effect on our business, financial position and results of operations. Decreases in health care reimbursements could limit our ability to sell our products or decrease our revenues.

We depend on our intellectual property, and our future success is dependent on our ability to protect our intellectual property and not infringe on the rights of others.

     We believe intellectual property protection is important to our business and that our future success will depend, in part, on our ability to maintain trade secret protection and operate without infringing on the rights of others. We cannot assure you that:

	•		any of our future processes or products will be patentable;
	•		our processes or products will not infringe upon the patents of third parties; or
	•		we will have the resources to defend against charges of patent infringement by third parties or to protect our own rights against infringement by third parties.

     We rely on trade secrets and proprietary knowledge related to our products and technology which we generally seek to protect by confidentiality and non-disclosure agreements with employees, consultants, licensees and pharmaceutical companies. If these agreements are breached, we may not have adequate remedies for any breach, and our trade secrets may otherwise become known by our competitors.

We are subject to potential product liability claims that can result in substantial litigation costs and liability.

     The design, development and manufacture of pharmaceutical products involve an inherent risk of product liability claims and associated adverse publicity. Product liability insurance coverage is expensive, difficult to obtain, and may not be available in the future on acceptable terms, or at all. Although we currently carry $80.0 million of such insurance, we believe that no reasonable amount of insurance can fully protect against all such risks because of the potential liability inherent in the business of producing pharmaceutical products for human consumption.

We face risks relating to our goodwill and intangibles.

     At September 30, 2008, our goodwill, originally generated as a result of the December 1999 merger of Global Pharmaceuticals Corporation and Impax Pharmaceuticals, Inc., was approximately $27.6 million, or approximately 5.9% of our total assets. We may never realize the value of our goodwill and intangibles. We will continue to evaluate, on a regular basis, whether events or circumstances have occurred to indicate all, or a portion, of the carrying amount of goodwill may no longer be recoverable, in which case an impairment charge to earnings would become necessary. Although as of December 31, 2007, the carrying value of goodwill was not impaired based on our assessment performed in accordance with GAAP, any such future determination requiring the write-off of a significant portion of carrying value of goodwill could have a material adverse effect on our financial condition or results of operations.

Our revenues and operating income could fluctuate significantly.

     Our revenues and operating results may vary significantly from quarter to quarter as well as in comparison to the corresponding quarter of the preceding year. Variations may result from, among other factors:

	•		the timing of FDA approvals we receive;
	•		the timing of process validation for particular generic drug products;
	•		the timing of product launches;
	•		the introduction of new products by others that render our products obsolete or noncompetitive;
	•		the ability to maintain selling prices and gross margins on our products;
	•		the outcome of our patent infringement litigation; and
	•		the addition or loss of customers.

     For example, when we settled our patent infringement litigation relating to our generic version of OxyContin and agreed to terminate sales of our product in early 2008, we revised our estimate of the remaining life of the related DAVA Agreement and adjusted the period of revenue recognition and product manufacturing cost amortization under the DAVA Agreement from 10 years to 27 months (i.e. November 2005 through January 2008). The change in the revenue recognition period for the DAVA Agreement had the effect of increasing income from operations for the year ended December 31, 2007 by $73,226,000 and basic earnings per share by $1.25. In addition, our revenue under the DAVA Agreement, net of deferred product manufacturing costs recognized, was $38,674,000 for the nine months ended September 30, 2008 and $92,949,000 for the year ended December 31, 2007. The loss of such revenue materially affected our results of operations for the nine months ended September 30, 2008 and may have a material adverse effect on our future results of operations.

If we are unable to manage our growth, our business will suffer.

     We have experienced rapid growth in the past several years and anticipate continued rapid expansion in the future. The number of ANDAs pending approval at the FDA has increased from 11 at June 30, 2001 to 23 at November 21, 2008. This growth has required us to expand, upgrade, and improve our administrative, operational, and management systems, internal controls and resources. We anticipate additional growth in connection with the expansion of our manufacturing operations, development of our brand-name products, and our marketing and sales efforts for the products we develop. Although we cannot assure you that we will, in fact, grow as we expect, if we fail to manage growth effectively or to develop a successful marketing approach, our business and financial results will be materially harmed.

There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with GAAP. Any future changes in estimates, judgments and assumptions used or necessary revisions to prior estimates, judgments or assumptions could lead to a restatement of our results.

     The consolidated and condensed consolidated financial statements included in this registration statement are prepared in accordance with GAAP. This involves making estimates, judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities, revenues, expenses (including acquired in process research and development) and income. Estimates, judgments and assumptions are inherently subject to change in the future and any necessary revisions to prior estimates, judgments or assumptions could lead to a restatement. Any such changes could result in corresponding changes to the amounts of assets (including goodwill and other intangible assets), liabilities, revenues, expenses (including acquired in process research and development) and income.

Terrorist attacks and other acts of violence or war may adversely affect our business.

     Terrorist attacks at or nearby our facilities in Hayward, California or Philadelphia, Pennsylvania, or the construction site of our manufacturing facility in Taiwan may negatively affect our operations or delay the completion of our facility in Taiwan. While we do not believe that we are more susceptible to such attacks than other companies, such attacks could directly affect our physical facilities or those of our suppliers or customers. Furthermore, such attacks may make the transportation of our products more difficult and more expensive, and ultimately affect our sales.

     We carry insurance coverage on our facilities of types and in amounts that we believe are in line with coverage customarily obtained by owners of similar properties. We continue to monitor the state of the insurance market in general and the scope and cost of coverage for acts of terrorism in particular, but we cannot anticipate what coverage will be available on commercially reasonable terms in future policy years. Currently, we do not carry terrorism insurance coverage. If we experience a loss that is uninsured or that exceeds policy limits, we could lose the capital invested in the damaged facilities, as well as the anticipated future net sales from those facilities.

Because of the location of our manufacturing and research and development facilities, our operations could be interrupted by an earthquake.

     Our corporate headquarters, manufacturing operations in California, and research and development activities related to process technologies are located near major earthquake fault lines. Although we have other facilities, we produce a substantial portion of our products at our California facility. A disruption at these California facilities due to an earthquake or other natural disaster, even on a short-term basis, could impair our ability to produce and ship products to the market on a timely basis. In addition, we could experience a destruction of facilities which would be costly to rebuild, or loss of life, all of which could materially adversely affect our business and results of operations.

     While we presently carry $40.0 million of dedicated California earthquake coverage, which we believe is appropriate in light of the risks, the amount of our earthquake insurance coverage may not be sufficient to cover losses from earthquakes. We may discontinue some or all of this insurance coverage in the future if the cost of premiums exceeds the value of the coverage discounted for the risk of loss. If we experience a loss which is uninsured or which exceeds policy limits, we could lose the capital invested in the damaged facilities, as well as the anticipated future net sales from those facilities.

We are a defendant in securities litigation that exposes us to liability and could result in the diversion of management’s attention from our business.

     We and current and former members of our senior management are defendants in a consolidated class action brought on behalf of purchasers of our common stock between May 5 and November 3, 2004 alleging that, based upon the restatement of our financial results for the first two quarters of 2004, we filed false and misleading financial statements for those two quarters, thereby artificially inflating the market value of our stock. The action is now in the discovery phase. Our remaining insurance coverage is approximately $5 million. While the plaintiffs’ complaint does not specify the amount of damages they seek, and while we believe the action is without merit and that the class of plaintiffs represented has incurred no damages, the amount sought will likely be in the tens of millions of dollars. The pendency of this action could result in a significant diversion of management’s time and attention from the management of our business, and any expense and any recovery in this action in excess of our insurance coverage could adversely affect our financial results.

Risks Related to Our Stock

There is currently no market for our common stock.

     Because we were unable to file our periodic reports with the SEC subsequent to our quarterly report for the third quarter of 2004, our common stock was delisted by The NASDAQ Stock Market in August 2005. From that time through December 29, 2006, the stock was quoted in the Pink Sheets ^® , to which dealers submitted daily bid and asked prices for the stock. On December 29, 2006, the SEC suspended all trading in the stock through January 16, 2007 and instituted an administrative proceeding to determine whether, in light of our reporting delinquency, to suspend or revoke the registration of our common stock under Section 12 of the Exchange Act. Beginning January 17, 2007, our stock was again quoted in the Pink Sheets ^® , but from that time forward dealers were permitted to publish quotations only on behalf of customers that represented such customers’ indications of interest and did not involve dealers’ solicitation of such interest. On May 23, 2008, the SEC revoked the registration of our stock, and since that time brokers and dealers have been prohibited from effecting transactions in our stock.

     We expect that our stock will again be quoted in the Pink Sheets ^® following the effectiveness of this registration statement. While we intend to apply for relisting of our stock on The NASDAQ Stock Market once unrestricted trading in the stock is again permitted, there is no assurance that, and we cannot predict when, the stock will again trade on The NASDAQ Stock Market or any other exchange.

Our stockholders may sustain future dilution in ownership as a result of the terms of some of our outstanding securities or future issuances of securities.

     We may need to raise additional capital in the future to fund our operations and planned expansion. To the extent we raise additional capital by issuing equity securities or securities convertible into or exchangeable for equity securities, ownership dilution to our stockholders will result. As of October 31, 2008, there were outstanding: $12.8 million of our 3.5% Debentures convertible into 616,240 shares of common stock, subject to adjustment, and there were also outstanding options to purchase an additional 8,926,238 shares, of which 6,929,990 are exercisable, and 395,824 shares of unvested restricted stock under our long-term incentive compensation program. To the extent that these options are exercised, debentures converted and shares of restricted stock issued, stockholders’ ownership interest in our common stock will be diluted.

If shares of our common stock are listed or quoted on a public market, our stock price is likely to be volatile.

     The stock market has, from time to time, experienced significant price and volume fluctuations that may be unrelated to the operating performance of particular companies. In addition, the market price of our common stock, like the stock price of many publicly traded specialty pharmaceutical companies, will likely be volatile. For example, the sale price of our stock during the fiscal years ended December 31, 2007 and 2006 ranged from a high of $12.40 during the quarter ended September 30, 2007 to a low of $4.25 during the quarter ended September 30, 2006. At present, our stock is not traded on any exchange or quoted on any other public market.

     Prices of our common stock may be influenced by many factors, including:

•		our ability to maintain compliance with SEC reporting requirements;
•		our ability to relist our common stock on The NASDAQ Stock Market or another exchange, and maintain such listing;
•		investor perception of us;
•		analyst recommendations;
•		market conditions relating to specialty pharmaceutical companies;
•		announcements of new products by us or our competitors;
•		publicity regarding actual or potential development relating to products under development by us or our competitors;
•		developments, disputes or litigation concerning patent or proprietary rights;
•		delays in the development or approval of our product candidates;
•		regulatory developments;
•		period to period fluctuations in our financial results and those of our competitors;
•		future sales of substantial amounts of common stock by stockholders; and
•		economic and other external factors.

We may in the future issue shares of preferred stock which could adversely affect the rights of holders of our common stock and the value of our common stock.

     Our board of directors has the authority to issue up to 2,000,000 shares of our preferred stock and to determine the price, rights, preferences, and privileges of those shares without any further vote or action by the stockholders. Although we have no preferred stock outstanding, preferred stock issued in the future could adversely affect the rights and interests of holders of common stock by:

	•		exercising voting, redemption, and conversion rights to the detriment of the holders of common stock;
	•		receiving preferences over the holders of common stock regarding our assets in the event of our dissolution or liquidation;
	•		delaying, deferring, or preventing a change in control of our company, even when holders of common stock may desire to effect such a transaction;
	•		discouraging bids for our common stock at a premium over the market price of the common stock; and
	•		otherwise adversely affecting the market price of the common stock.

We do not pay dividends on our common stock and do not anticipate doing so in the foreseeable future.

     We have not paid any cash dividends on our common stock and we do not plan to pay any cash dividends in the foreseeable future. We plan to retain any earnings for the operation and expansion of our business. As a Delaware corporation, we may not declare or pay a dividend on our capital stock if the amount paid exceeds an amount equal to the surplus, which represents the excess of our net assets over paid-in-capital or, if there is no surplus, our net profits for the current or immediately preceding fiscal year. In addition, our loan agreement prohibits the payment of dividends without the lender’s consent. As we do not intend to declare dividends on our common stock in the foreseeable future, any gains on your investment will result from an increase in our stock price, which may or may not occur.

Item 2. Financial Information.

Selected Financial Data

     The following selected consolidated financial data should be read together with our consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this registration statement. The selected consolidated financial data in this section are not intended to replace our consolidated financial statements and the accompanying notes. Our historical results are not necessarily indicative of our future results.

     The selected consolidated financial data set forth below are derived from our consolidated financial statements. The consolidated statements of operations data for the years ended December 31, 2007, 2006 and 2005 and the consolidated balance sheet data as of December 31, 2007, 2006 and 2005 are derived from our audited consolidated financial statements included elsewhere in this registration statement. The consolidated statement of operations data for the nine months ended September 30, 2008 and September 30, 2007 and the consolidated balance sheet data as of September 30, 2008 have been derived from our unaudited interim consolidated financial statements and related notes appearing elsewhere in this registration statement. The unaudited consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements contained in this registration statement and include, in the opinion of management, all adjustments necessary for the fair presentation of our financial position and results of operations for these periods.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion and analysis, as well as other sections in this registration statement, should be read in conjunction with the Consolidated Financial Statements and related Notes to Consolidated Financial Statements included elsewhere herein. All references to fiscal years mean the relevant 12-month period ended December 31.

Overview

     We are a technology based, specialty pharmaceutical company applying formulation and development expertise, as well as our drug delivery technology, to the development, manufacture and marketing of controlled-release and niche generics, in addition to the development of branded products. As of November 26, 2008, we manufactured and marketed 70 generic pharmaceuticals, which represent dosage variations of 25 different pharmaceutical compounds through our own Global Pharmaceuticals division; another 15 of our generic pharmaceuticals representing dosage variations of four different pharmaceutical compounds are marketed by our strategic partners. We have 23 applications pending at the FDA, including four that have been tentatively approved, and 53 other products in various stages of development for which applications have not yet been filed.

     We sell our products both directly to drug wholesalers and through alliance agreements with other unrelated third-party pharmaceutical companies. In our Global Division, the three principal revenue components are Global Product Sales, net, representing revenue received from sales of the products we sell directly, Rx Partner, representing revenue received from sales of prescription drugs through our Rx Partners, and OTC Partner, representing revenue received from sales of over-the-counter (“OTC”) drugs sold by our OTC Partners. A fourth revenue component since 2006, within our Impax Division, is the Promotional Partner, which represents revenue we receive for physician detailing sales calls services promoting the products of other pharmaceutical companies.

      Global Product Sales, net. We recognize revenue from direct sales in accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), as revised by Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104). Revenue from direct product sales is recognized at the time title and risk of loss pass to customers. Provisions for estimated discounts, rebates, chargebacks, returns and other adjustments are provided for in the period the related sales are recorded.

      Rx Partner and OTC Partner . Each of our alliance agreements involves multiple deliverables in the form of products, services or licenses over extended periods. Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21) supplemented SAB 104 for accounting for such multiple-deliverable arrangements. With respect to our multiple-deliverable arrangements, we determine whether any or all of the elements of the arrangement should be separated into individual units of accounting under EITF 00-21. If separation into individual units of accounting is appropriate, we recognize revenue for each deliverable when the revenue recognition criteria specified by SAB 101 and SAB 104 are achieved for that deliverable. If separation is not appropriate, we recognize revenue (and related direct manufacturing costs) over the estimated life of the agreement utilizing a modified proportional performance method. Under this method the amount recognized in the period of initial recognition is based upon the number of years that have elapsed under the agreement relative to the estimated life of the particular agreement. The amount of revenue recognized in the year of initial recognition is thus determined by multiplying the total amount realized by a fraction, the numerator of which is the then-current year of the agreement and the denominator of which is the total number of estimated agreement years. The balance of the amount realized is recognized in equal amounts in each of the remaining years. Thus, for example, with respect to profit share or royalty payment reported by a strategic partner during the third year of an agreement with an estimated life of 18 years, 3/18 of the amount reported is recognized in the year reported and 1/18 of the amount is recognized during each of the remaining 15 years. A fuller description of our analysis under EITF 00-21 and the modified proportional performance method is set forth in “Item 15. Financial Statements and Exhibits” — Note 2 to Consolidated Financial Statements.

      Promotional Partner. We have entered into promotional services agreements with other pharmaceutical companies under which we provide physician detail sales calls to promote certain of those companies’ branded drug products. In exchange for our services we receive fixed sales force fees and are eligible for contingent payments based upon the number of prescriptions filled for the product. We recognize revenue from sales force fees

as the services are provided and the performance obligations are met and from contingent payments at the time they are earned.

Critical Accounting Estimates

     The preparation of our financial statements requires the use of estimates and assumptions, based on complex judgments considered reasonable when made, affecting the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant judgments are employed in estimates used in determining values of tangible and intangible assets, legal contingencies, tax assets and tax liabilities, fair value of common stock purchase warrants, fair value of share-based compensation expense, and estimates used in applying our revenue recognition policy, particularly those related to deductions from gross Global Product Sales for chargebacks, rebates, returns, shelf-stock adjustments, Medicaid payments, and those related to the recognition periods under our alliance agreements.

     Although we believe that our estimates and assumptions are reasonable when made, they are based upon information available to us at the time they are made. We periodically review the factors that influence our estimates and, if necessary, adjust them. Although historically our estimates have generally been reasonably accurate, due to the risks and uncertainties involved in our business and evolving market conditions, and given the subjective element of the estimates made, actual results may differ from estimated results. This possibility may be greater than normal during times of pronounced market volatility or turmoil.

      Consistent with industry practice, we record estimated deductions for chargebacks, rebates, returns, shelf-stock, and other pricing adjustments in the same period when revenue is recognized. The objective of recording provisions for such deductions at the time of sale is to provide a reasonable estimate of the aggregate amount we expect to credit our customers. Since arrangements giving rise to the various sales credits are typically time-driven (i.e. particular promotions entitling customers who make purchases of our products during a specific period of time, to certain levels of rebates or chargebacks), these deductions represent important reductions of the amounts those customers would otherwise owe us for their purchases of those products. Customers typically process their claims for deductions promptly, usually within the established payment terms. We monitor actual credit memos issued to our customers and compare such actual amounts to the estimated provisions, in the aggregate, for each deduction category to assess the reasonableness of the various reserves at each quarterly balance sheet date. Differences between our estimated provisions and actual credits issued have not been significant, and are accounted for in the current period as a change in estimate in accordance with GAAP. We do not have the ability to specifically link any particular sales credit to an exact sales transaction and since there have been no material differences, we believe our systems and procedures are adequate for managing our business. An event such as the failure to report a particular promotion could result in a significant difference between the amount accrued and the amount claimed by the customer, and, while there have been none to date, we would evaluate the particular events and factors giving rise to any such significant difference in determining the appropriate accounting.

      Chargebacks . We have agreements establishing contract prices for certain products with certain indirect customers, such as managed care organizations, hospitals and government agencies, that purchase our products from drug wholesalers. The contract prices are lower than the prices the customer would otherwise pay to the wholesaler, and the difference is referred to as a chargeback, which generally takes the form of a credit issued by us to reduce the gross sales amount we invoiced to our wholesaler. A provision for chargeback deductions is estimated and recorded at the time we ship the products to the wholesalers. The primary factors we consider when estimating the provision for chargebacks are the average historical chargeback credits given, the mix of products shipped, and the amount of inventory on hand at the three major drug wholesalers with which we do business. We monitor aggregate actual chargebacks granted and compare them to the estimated provision for chargebacks to assess the reasonableness of the chargebacks reserve at each quarterly balance sheet date.

     The following table is a rollforward of the activity in the chargeback reserve for the nine months ended September 30, 2008 and each of the three years ended December 31, 2007, 2006 and 2005:

     The increase in the provision for chargebacks from 2005 through September 2008 was the result of increasing price competition for generic drugs sold through our Global Division’s Global Products sales channel. Reductions in the selling prices of our generic products sold through this channel frequently take the form of a larger chargeback credit issued to a wholesaler. As pricing competition increases, the difference between the contract prices we negotiate with indirect customers and the wholesaler prices will increase, thereby resulting in larger chargebacks.

      Rebates . We maintain various rebate programs with our Global Division Global Products sales channel customers in an effort to maintain a competitive position in the marketplace and to promote sales and customer loyalty. The rebates generally take the form of a credit memo to reduce the invoiced gross sales amount charged to a customer for products shipped. A provision for rebate deductions is estimated and recorded at the time of product shipment. The provision for rebates is based upon historical experience of aggregate credits issued compared with payments made, the historical relationship of rebates as a percentage of total Global product sales, gross, and the contract terms and conditions of the various rebate programs in effect at the time of shipment. We monitor aggregate actual rebates granted and compare them to the estimated provision for rebates to assess the reasonableness of the rebates reserve at each quarterly balance sheet date.

     The following table is a rollforward of the activity in the rebate reserve for the nine months ended September 30, 2008 and each of the three years December 31, 2007, 2006 and 2005:

     The provision for rebates, as a percent of Global product sales, gross, has been consistent for the nine months ended September 30, 2008 and each of the three years ended December 31, 2007. Our historical experience for aggregate rebates paid has been more consistent than experience for other sales deductions because the terms of the various rebate programs we offer to our customers are less susceptible to market forces (in the aggregate), and the terms and conditions of the various rebate

Returns . We allow our customers to return product (i) if approved by authorized personnel in writing or by telephone with the lot number and expiration date accompanying any request and (ii) if such products are returned within six months prior to, or until 12 months following, the products’ expiration date. We estimate a provision for product returns as a percentage of gross sales based upon historical experience of Global Division Global Product sales. The sales return reserve is estimated using a historical lag period (the time between the month of sale and the month of return) and return rates, adjusted by estimates of the future return rates based on various assumptions, which may include changes to internal policies and procedures, changes in business practices, and commercial terms with customers, competitive position of each product, amount of inventory in the wholesaler supply chain, the introduction of new products, and changes in market sales information. We also consider other factors, including levels of inventory in the distribution channel, significant market changes which may impact future expected returns, and actual product returns and may record additional provisions for specific returns we believe are not covered by the historical rates. We monitor aggregate actual returns on a quarterly basis and may record specific provisions for returns we believe are not covered by historical percentages.

     The following table is a rollforward of the activity in the accrued product returns for the nine months ended September 30, 2008 and each of the three years ended December 31, 2007, 2006 and 2005:

     During 2006 we experienced a higher level of returns related to our generic drug products that are not bioequivalent (sometimes referred to as “non-AB-rated”) to the associated brand drug, driving the increase in the provision for returns recorded in that year. Sales of our non-AB-rated products declined 29% from 2006 to 2007 as a result of increased competition and our decision to begin to discontinue the sale of non-AB-rated products, thereby having less impact on the overall returns percentage in 2007, and continuing through 2008. In addition, the increase in the return percentage rate during 2006 was affected by a decline from 2005 to 2006 in sales of our generic Wellbutrin® SR 200mg tablets, which have a relatively low return rate.

      Medicaid. As required by law, we provide a rebate payment on drugs dispensed under the Medicaid program. We determine our estimate of Medicaid rebate accrual primarily based on historical experience of claims submitted by the various states and any new information regarding changes in the Medicaid program which may impact our estimate of Medicaid rebates. In determining the appropriate accrual amount, we consider historical payment rates and processing lag for outstanding claims and payments. We record estimates for Medicaid payments as a deduction from gross sales, with corresponding adjustments to accrued liabilities. The accrual for Medicaid payments totaled $579,000 as of September 30, 2008 and $566,000, $421,000 and $2,862,000 as of December 31, 2007, 2006 and 2005, respectively. The Medicare Part D prescription drug benefit, which went into effect on January 1, 2006, had the effect of lowering our overall aggregate Medicaid payments and, as a result, the Medicaid payments reserve was reduced by $2.1 million in 2006. After the January 1, 2006 transition from Medicaid to Medicare Part D, Medicaid payments have been less than 0.5% of Global product sales, gross. Differences between our estimated and actual payments made have been de minimis.

      Shelf Stock Adjustments. When, based on market conditions, we reduce the selling price of a product, we may choose to issue a shelf stock adjustment credit to customers, the amount of which is typically derived from the level of a specific product held by the customer, who agrees to continue to purchase the product from us. Such a credit is referred to as a shelf-stock adjustment, which is the difference between the invoiced gross sales price and the revised lower gross sales price, multiplied by an estimate of the number of product units in the customer’s inventory. The primary factors we consider when estimating a reserve for a shelf stock adjustment include the per unit credit amount and an estimate of the level of inventory held by the customer. The accrued reserve for shelf stock adjustments totaled $509,000 as of September 30, 2008 and $384,000, $382,000 and $544,000 as of December 31, 2007, 2006 and 2005 respectively. Differences between our estimated and actual credits issued for shelf stock adjustments have been de minimis.

      Estimated Lives of Alliance Agreements. The revenue we receive under our alliance agreements is not subject to adjustment for estimated discounts, rebates, chargebacks, returns and similar adjustments, as such adjustments have already been reflected in the amounts we receive from our alliance partners. However, because we recognize the revenue we receive under our alliance agreements over the estimated life of the related agreement or our expected performance utilizing a modified proportional performance method, we are required to estimate the recognition period under each such agreement in order to determine the amount of revenue to be recognized in the current period. Sometimes this estimate is based solely on the fixed term of the particular alliance agreement. In other cases the estimate may be based on more subjective factors as noted in the following paragraphs. While changes to the estimated recognition periods have been infrequent, such changes, should they occur, may have a significant impact on our financial statements.

     The term of the Teva Agreement, for example, is 10 years following the launch of the twelfth product subject to the agreement. Since product launch is dependent upon FDA approval of the product, we are required to estimate when that approval is likely to occur in order to estimate the life of the Teva Agreement. We currently estimate its life to be 18 years, based upon the June 2001 inception of the agreement and our estimate that the twelfth product will be approved by the FDA in 2009. If the timing of FDA approval for the last product is different from our estimate, the revenue recognition and product manufacturing amortization period will change on a prospective basis at the time such event occurs. While no such change in the estimated life of the Teva Agreement has occurred to date, if we were to conclude that significantly more time will be required to obtain such approval, then we would increase our estimate of the recognition period under the agreement, resulting in a lesser amount of revenue and related costs in current and future periods.

     We have changed our estimate of the life of the DAVA Agreement, resulting in the recognition of a substantially greater portion of the revenue thereunder in 2007 and 2008 than we would have recognized under our original estimate. When we entered into the DAVA Agreement in November 2005, we estimated its life at 10 years, which was the fixed term of the agreement, and began recognizing revenue thereunder over 10 years. In March 2007, however, in connection with the settlement of a patent infringement lawsuit against us we agreed to stop manufacturing and selling the product covered by the DAVA Agreement in January 2008. While the settlement permits us to resume manufacture and sale of the product in 2013 or earlier under certain circumstances and the DAVA Agreement will remain effective through November 2015, we concluded that if any of the contingent events occur to permit us to resume sales of the product, the same events will result in such a highly competitive generic marketplace to make it unlikely we will find it economically favorable to devote manufacturing resources to the resumption of sales of our product. As a result, we concluded the economic life of the DAVA Agreement, and therefore our expected period of performance, ended in January 2008. Accordingly, on the March 30, 2007 effective date of the patent litigation settlement, we adjusted the period of revenue recognition and product manufacturing costs amortization under the DAVA Agreement from 10 years to 27 months (i.e. November 2005 through January 2008). As the terms of the patent litigation settlement did not exist and could not have been known when the life of the DAVA Agreement was originally estimated, the change in the recognition period has been applied prospectively as an adjustment in the period of change. The change in the revenue recognition period for the DAVA Agreement had the effect of increasing revenue recognized under the DAVA Agreement by $21.2 million and $ 93.9 million for the nine months ended September 30, 2008 and the year ended December 31, 2007, respectively.

      Third-Party Research and Development Agreements. We use vendors, including universities and independent research companies, to assist in our research and development activities. These vendors provide a range of research and development services to us, including clinical and bioequivalent studies. We generally sign agreements with these vendors which establish the terms of each study performed by them, including, among other things, the technical specifications of the study, the payment schedule, and timing of work to be performed. Payments are generally earned by third-party researchers either upon the achievement of a milestone, or on a pre-determined date, as specified in each study agreement. We account for third-party research and development expenses as they are incurred according to the terms and conditions of the respective agreement for each study performed, with an accrual provided for operating expense incurred but not yet billed to us at each balance sheet date. We monitor aggregate actual payments and compare them to the estimated provisions to assess the reasonableness of the accrued expense balance at each quarterly balance sheet date. Differences between our estimated and actual payments made have been de minimis.

      Share-Based Compensation . We account for stock-based employee compensation arrangements in accordance with provisions of SFAS 123(R), Share-Based Payment , which we adopted on January 1, 2006 using the modified prospective method. Under this method, compensation expense is recognized on a straight-line basis over the remaining vesting period of any outstanding unvested options at the adoption date and any new options granted after the adoption date. Prior periods are not restated under this method. Prior to adoption of SFAS 123(R), we recognized compensation expense related to stock options in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”. Under APB 25, compensation cost for stock options, if any, was measured as the excess of the quoted market price of the common stock at the date of grant over the amount an employee must pay to acquire the stock.

      Income Taxes . We are subject to U.S. federal, state and local income taxes. We create a deferred tax asset when we have temporary differences between the results for financial reporting purposes and tax reporting purposes. Prior to June 30, 2007, we recorded a valuation allowance for all of our deferred tax assets since up and until that time, it was more likely than not that we would be unable to realize those assets primarily due to our history of operating losses. At June 30, 2007, due primarily to the successful sales of generic OxyContin® under a license, we determined that it would be more likely than not that we would be able to realize these assets and the valuation reserve was removed. This resulted in the recognition of a substantial tax benefit in the second quarter of 2007. We have determined that these assets remain realizable primarily due to the amount of taxable income which has been or we expect will be generated to utilize these amounts.

      Fair Value of Financial Instruments. The carrying values of the Company’s cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued expenses approximate their fair values due to their short-term nature. The Company estimates the fair value of its fixed-rate long-term debt to be $12,272,000 at September 30, 2008 and $69,938,000, $73,313,000 and $72,375,000 at December 31, 2007, 2006 and 2005, respectively.

      Contingencies . In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, covering a wide range of matters, including, among others, patent litigation, shareholder lawsuits, and product liability. In accordance with SFAS No. 5, Accounting for Contingencies , the Company records accruals for such loss contingencies when it is probable a liability will be incurred and the amount of loss can be reasonably estimated. The Company, in accordance with SFAS No. 5, does not recognize gain contingencies until realized. A discussion of contingencies is included in Notes 13 and 14 to Consolidated Financial Statements.

      Goodwill . In accordance with SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142), rather than recording periodic amortization, goodwill is subject to an annual assessment for impairment by applying a fair-value-based test. According to SFAS No. 142, if the fair value of the reporting unit exceeds the reporting unit’s carrying value, including goodwill, then goodwill is considered not impaired, making further analysis not required. We consider our Global Division and Impax Division operating segments to be a reporting unit, as this is the lowest level for each of which discrete financial information is available. We attribute the entire carrying amount of goodwill to the Global Division. We perform our annual goodwill impairment test in the fourth quarter of each year. In addition, on a quarterly basis, we review our business operations to determine whether events or changes in circumstances have occurred that could have a material adverse effect on the estimated fair value of the reporting unit, and thus indicate a potential impairment of the goodwill carrying value. If such events or changes in circumstances were deemed to have occurred, we would perform an interim impairment analysis, which may include the preparation of a discounted cash flow model, or consultation with one or more valuation specialists, to analyze the impact, if any, on our assessment of the reporting unit’s fair value.

      Allowance for Doubtful Accounts . We maintain allowances for doubtful accounts for estimated losses resulting from amounts deemed to be uncollectible from our customers; these allowances are for specific amounts on certain accounts.

Results of Operations

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

      Total Revenues

     Total revenues for the nine months ended September 30, 2008, were $165.4 million, a decrease of 20% over the same period in 2007. Global product sales, net, were $70.8 million, an increase of 9% primarily due to sales of our fenofibrate products, the generic versions of Lofibra® capsules, a cholesterol-lowering drug, of which ours was the only generic version in a market experiencing increasing demand for drugs of this type. Rx Partner revenues were $72.1 million, down, more than 41%, primarily attributable to reduced sales of generic OxyContin® (including the absence in the current year’s period of a $74.7 million increase in revenue recognized under the DAVA Agreement during the nine months ended September 30, 2007, related to the change in the recognition period resulting from the 2007 settlement of patent litigation) and our generic Wellbutrin® XL 300mg. As it relates to the generic Wellbutrin® XL 300mg product, our customer’s inventories were relatively full during the first quarter of 2007, resulting from the significant quantity purchases related to the product’s launch in December 2006. Under a litigation settlement agreement, our generic OxyContin® product was one of only two generic versions of OxyContin® in the marketplace during the second and fourth quarters of 2007 and in January 2008, when we ceased further sales of this product. The cessation of the sale of our generic version of OxyContin®, and the lower revenue in the nine months ended September 30, 2008 as compared to the same period in 2007, has materially affected the Rx Partner revenues for the nine months ended September 30, 2008 (as discussed above), and the loss of this revenue may materially affect our Rx Partners revenue (and therefore our total revenue) and resulting gross profit in the future. OTC Partner revenues were $12.7 million, an increase of 45%, primarily attributable to higher demand for seasonal allergy products. Promotional Partner revenues were $9.7 million with nominal change to the same period in 2007.

      Cost of Revenues

     Cost of revenues was $66.4 million for the nine months ended September 30, 2008, a decrease of 11% primarily due to reduced amortization of deferred manufacturing costs with the completion of sales of generic OxyContin® in 2008. The nine months ended September 30, 2007, included a $12.4 million increase in the amortization of deferred product costs under the DAVA Agreement related to the change in the amortization period.

      Gross Profit

     Gross profit for the nine months ended September 30, 2008 was $99.0 million or approximately 60% of total revenues, as compared to 64% of total revenue in the prior period. The decrease in profit margin was due principally to sales of our generic versions of Oxycontin® during the first nine months of 2008. The nine months ended September 30, 2007 included a $62.2 million increase in gross profit under the DAVA Agreement related to the change in the recognition period. The cessation of the sale of our generic version of OxyContin® has materially affected the gross profit for the nine months ended September 30, 2008 (as discussed above), and may materially affect our gross profit in the future.

      Research and Development Expenses

     Total research and development expenses for the nine months ended September 30, 2008 were $43.7 million, an increase of 65%. Generic project activity increased $11.2 million primarily due to increased spending on bioequivalence studies of $4.1 million, and additional research personnel of $2.8 million, related to seven new and 25 pending ANDA filings, higher non-litigation related patent activities and opinion related expenses of $1.2 million due to higher patent research and application activity. Expenses related to our brand product pipeline increased $6.0 million primarily related to higher spending on additional research personnel.

      Patent Litigation Expenses

     Patent litigation expenses for the nine months ended September 30, 2008 and 2007 were $4.8 million and $8.3 million, respectively, a decrease of $3.5 million, principally related to lower overall operating expenses related to legal fees resulting from the conclusion of two litigation matters during 2008.

      Selling, General and Administrative Expenses

     Selling, general and administrative expenses for the nine months ended September 30, 2008 were $36.7 million, a 31% increase attributable to an increase in professional fees of $2.8 million related to the examination and review of our financial statements for the years 2004 through the current period of 2008, as well as the preparation of this registration statement, $2.3 million increase in salary and benefits-related expenses primarily driven by the addition of several executive level personnel, $1.4 million in severance expense related to the separation of a former employee, and $1.2 million in higher consulting expenses associated with strategic and operational management analyses.

      Interest Income

     Interest income was $0.5 million higher for the nine months ended September 30, 2008, primarily due to higher average cash balances.

      Interest Expense

     Interest expense was $0.7 million lower for the nine months ended September 30, 2008, due to reduced amounts of average debt outstanding, including the Cathay Bank term loans which were paid-in full during May 2008 and the repurchase of our 3.5% Debentures.

      Income Taxes

     In the nine months ended September 30, 2008, our tax provision was $6.6 million for federal and state income taxes. In the nine months ended September 30, 2007, we recorded a benefit of $52.3 million which included the reversal of the deferred tax asset valuation allowance of $ 81.5 million offset by an accrual of $6.0 million for uncertain tax positions. The total amount of unrecognized tax benefits was $6.2 million as of September 30, 2008. The tax provision for the nine months ended September 30, 2008, does not include the potential effect of the federal research and development tax credit, as the law related to this credit expired on December 31, 2007, and was not reinstated until after the September 30, 2008 balance sheet date.

      Net Income

     Net income for the nine months ended September 30, 2008 was $9.6 million as compared to net income of $119.4 million in 2007, primarily due to the factors described above.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

      Total Revenues

     Total revenues for 2007 were $273.8 million, an increase of 102% over 2006, driven primarily by Rx Partner and Global Product sales.

     Global product sales, net were $88.0 million, an increase of 13% primarily due to the launch of our generic version of Colestid® tablets and increased sales of our fenofibrate product, the generic version of Lofibra® capsules, a cholesterol-lowering drug of which ours was the only generic version in a market of increasing demand for drugs of this type. These increases were partially offset by lower sales of the generic versions of Brethine® and Minocin® due to increasing price competition.

     Rx Partner revenues were $161.1 million up more than 300%, primarily attributable to sales of our generic version of OxyContin®. Under a patent litigation settlement agreement, our product was one of only two generic version of OxyContin® in the marketplace during the second and fourth quarters of 2007 and in January 2008, when we ceased further sales of this product. As a result, we concluded the economic life of the DAVA Agreement, and therefore our expected period of performance, would end in January 2008. Accordingly, on March 30, 2007, the effective date of the settlement, we adjusted the period of amortization for revenue recognition and product manufacturing costs under the DAVA Agreement from 10 years to 27 months ( i.e. November 2005 through January 2008). The change in the revenue recognition period for the DAVA Agreement had the effect of increasing revenue recognized under the DAVA Agreement by $93.9 million for the year ended December 31, 2007. Additionally, higher sales of our new generic versions of Ditropan® XL 5 mg, 10 mg and 15 mg tablets and Wellbutrin® XL 300 mg were partially offset by a decline in sales of generic Wellbutrin® SR 100mg & 150mg tablets, and generic Prilosec® 10 mg and 20 mg capsules due to a declining market which contributed to both lower volume and pricing as competitors sought to maintain or grow market share.

     Revenues under the Teva Agreement increased to $42.5 million, as compared to $33.9 million in 2006, an increase of over 25%, primarily due to generic Wellbutrin® XL 300 mg, sales of which did not begin until December 2006.

     OTC Partner revenues declined $1.9 million to $11.9 million due to lower demand.

     Promotional Partner revenues were $12.8 million in 2007, double that of 2006 due to the fact that we did not begin providing promotional services until mid-2006.

      Cost of Revenues

     Cost of revenues was $107.7 million in 2007, an increase of 49% primarily as a result of the increases in product sales as described above, including an increase of $20.7 million for the amortization of deferred product manufacturing costs under the DAVA Agreement, related to the change in the amortization period. This amount includes the of cost of products sold under our Teva Agreement in the amount of $20.7 million, an increase of $7.8 million from 2006, primarily due to the launch of our 300 mg generic version of Wellbutrin® XL. It also includes $10.8 million of costs associated with the Promotional Partner revenues.

      Gross Profit

     Gross profit for 2007 was $166.1 million (including $73.2 million under the DAVA Agreement related to the change in the recognition period), or approximately 61% of total revenues, compared with $63.0 million, or 47% of total revenue in 2006. Of the total increase of 14 percentage points, nine percentage points resulted from the relatively high margins associated with sales of generic OxyContin® and the balance resulted from operational efficiencies.

      Research and Development Expenses

     Total research and development expenses for 2007 were $40.0 million, an increase of 35%. Generic project activity increased to $31.2 million, a 28% increase primarily due to increased spending on bioequivalent studies related to submission of 13 new ANDA filings in 2007 as compared to seven filings in 2006. Investments in our brand product pipeline in 2007 were $8.8 million, an increase of 66% related to higher spending on clinical trials.

      Patent Litigation Expenses

     Patent litigation expenses for the years ended December 31, 2007 and 2006 were $10.0 million and $9.7 million, respectively, an increase of $0.3 million, due to higher expenses related to our generic Effexor XR® litigation.

      Selling, General and Administrative Expenses

     Selling, general and administrative expenses for 2007 were $39.6 million, a 22% increase, primarily driven by $1.7 million in professional fees related to legal, accounting, and audit services and $3.9 million in incentive compensation

      Litigation Settlement and Related Expenses

     There were no material litigation settlement expenses in 2007, as compared with $2.6 million for interest expense and legal fees related to a litigation settlement in 2006 of a suit brought against us in 2003 by Solvay Pharmaceuticals, Inc.

      Interest Income

     Interest Income was $2.5 million higher in 2007, primarily due to higher cash balances as a result of the increase in net sales.

      Interest Expense

     Interest expense was $0.3 million higher in 2007, due to higher amounts of average debt outstanding.

      Income Taxes

     Income tax benefit for 2007 was $48.8 million with an effective tax rate of 35% before the change in valuation allowance. There was a nominal income tax expense in 2006 as we reported a loss from operations.

      Net Income (Loss)

     Net income for 2007 was $125.9 million as compared to a net loss of $12.0 million in 2006, primarily due to the factors described above.

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

      Total Revenues

     Total revenues for the year ended December 31, 2006 were $135.2 million, up 20% driven by Rx Partner, OTC Partner, and Promotional Partner revenues, partially offset by a decline in Global product sales, net.

     Global product sales, net declined $11.1 million or 12% due primarily to the exclusion of sales of generic OxyContin®, which we sold directly and reported as Global product sales, net in 2005 but sold through a marketing partner and thus reported as Rx Partner revenues in 2006, and to lower sales of generic Wellbutrin® SR in 2006 due to fewer stocking orders following the launch on December 22, 2004. These reductions were partially offset by the launch of our fenofibrate products, the generic Lofibra® 67 mg, 134 mg, and 200 mg capsules, which were introduced in the first quarter of 2006 and full-year sales of generic Rimadyl® 25 mg, 75 mg and 100 mg tablets, a veterinary product launched in the second quarter of 2005.

     Rx Partner revenues increased to $36.8 million or more than 191%, attributable to the inclusion of, and increases in, the net sales of generic OxyContin® in this category during 2006. The increase in the sales of generic OxyContin® is due to full year sales of the 80mg strength, which was launched in March of 2005, and the additional 10mg, 20mg and 40mg strengths, which were launched in December 2005.

     Revenues under the alliance agreement with Teva increased to $33.9 million in 2006, an increase of over 170%, primarily due to revenues associated with the launch of the generic versions of Ditropan® in the 15mg strength and Wellbutrin® XL in the 300mg strength during the fourth quarter of 2006. In addition, an increase in revenue of generic Prilosec® was offset by lower sales of generic Wellbutrin® SR 100mg and 150mg product principally due to substitution of the Wellbutrin XL 300mg strength.

     OTC Partner revenues were $13.8 million, or 32% over 2006, due to increased demand for our generic version of Claritin-D®. The $6.4 million of Promotional Partner revenues in 2006 was received under an arrangement that did not begin until mid-2006.

      Cost of Revenues

     Cost of revenues was $72.2 million, an increase of 24% primarily due to higher product sales described above. This amount includes the cost of products sold under our Teva Agreement in the amount of $12.9 million, a significant increase from $3.3 million in 2005 primarily due to the launches of generic versions of Ditropan® XL and Wellbutrin® XL 300mg in the fourth quarter of 2006. The amount also includes $5.6 million of cost associated with the Promotional Partner revenues.

      Gross Profit

     Gross Profit for 2006 was $63.0 million, or approximately 47% of total revenues, an increase of 17% over 2005 primarily due to the introduction of the generic versions of OxyContin®, Wellbutrin® XL and Ditropan® XL in 2006. Combined, these products added approximately 25% to total gross profit at favorable margins while improving operational efficiencies.

      Research and Development Expenses

     Research and development expenses for 2006 were $29.6 million, an increase of 14%. Additional expenses for our generic research and development projects were primarily the result of purchases of active pharmaceutical ingredients associated with new product investigations, legal costs of investigating existing and proposed intellectual property, higher depreciation expenses and higher costs of clinical studies. Expenses related to our brand product projects increased due to higher spending on research staff of $1.0 million and increased clinical study expenses of $0.5 million.

      Patent Litigation Expenses

     Patent litigation expenses for the years ended December 31, 2006 and 2005 were $9.7 million and $7.7 million, respectively, an increase of $2.0 million, primarily attributable to the receipt of $1.8 million in 2005 in connection with a litigation reimbursement.

      Selling, General and Administrative Expenses

     Selling, general and administrative expenses for 2006 were $32.4 million, an increase of 26% primarily due to higher salary and related expenses associated with new hires, a cash-based employee retention program for 2006 and regular increases in employee compensation.

      Litigation Settlement and Related Expenses

     While we incurred expenses of $2.6 million in connection with the settlement of a litigation matter in 2006, there were no material litigation settlements or related expenses in 2005.

      Interest Income

     Interest Income was $0.2 million higher in 2006, due to higher average cash and short-term investment balances during 2006.

      Interest Expense

     Interest expense was $2.5 million lower in 2006, due to the absence of higher interest expense in 2005 related to the write-off of deferred financing costs associated with the repayment of the Company’s 1.25% Convertible Senior Subordinated Debentures due 2024 (“1.25% Debentures”) and reduced average levels of debt outstanding resulting from the repayment of certain bank loans in June 2005.

      Income Taxes

     In 2005 and 2006 there was no current federal or state income tax expense due to the utilization of federal and state net operating loss carry forwards, except for one state in which there was a statutory limitation on the maximum annual utilization of net operating loss carry forwards to reduce current tax expense. As a result, a current state tax liability of $0.1 million and $0.2 million was recorded in 2005 and 2006 respectively.

      Net Loss

     The net loss for 2006 was $12.0 million as compared to a net loss of $5.8 million in 2005.

Liquidity and Capital Resources

     We have historically funded our operations with the proceeds from the sale of debt and equity securities, and more recently, with cash from operations. Currently, our primary source of liquidity is cash from operations, consisting of the proceeds from the sales of our products. We expect to incur significant operating expenses, including expanded research and development activities and patent litigation expenses, for the foreseeable future. We also anticipate incurring capital expenditures of $20 million to $28 million during the next twelve months, primarily for our plant capacity expansion in Taiwan. We believe our existing cash and cash equivalent and short-term investment balances, together with cash generated from operations, and our bank revolving line of credit, will be sufficient to meet our financing requirements through the next twelve months. We may, however, seek additional financing through alliance agreements or the equity or debt capital markets to fund the planned capital expenditures, and to fund our research and development plans, and potential revenue shortfalls due to delays in new product introductions.

Cash and Cash Equivalents

     At September 30, 2008, we had $25.9 million in cash and cash equivalents, a decrease of $31.3 million as compared to September 30, 2007. At December 31, 2007, we had $37.5 million in cash and cash equivalents, an increase of $31.1 million as compared to December 31, 2006. At December 31, 2006, we had $6.4 million in cash and cash equivalents, a decrease of $49.5 million as compared to December 31, 2005.

Cash Flows

      Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007 .

     Net cash provided by operating activities for the nine months ended September 30, 2008 was $21.4 million, a decrease of $94.4 million from the prior year period.

     The decrease in net cash provided by operating activities, among other items noted below, resulted from a $109.8 million reduction in net income, of which such amount was $9.6 million for the nine months ended September 30, 2008 as compared to $119.4 for the same period in the prior year. Additionally, the change in revenue deferrals of $113.6 million, less the change in deferred product manufacturing cost of $16.4 million, resulted in a $97.2 million net decrease of deferrals related to our alliance agreements, offset by a $39.1 million increase in revenue recognized in excess of product manufacturing costs amortized under our alliance agreements. The net decrease of deferrals related to our alliance agreements was principally due to lower sales of our generic OxyContin® and generic Wellbutrin XL® products, marketed under the Company’s Rx Partners’ alliance agreements, including the DAVA Agreement and the Teva Agreement, respectively.

     Additionally, the absence of certain items in the current period as compared to the prior period include an $81.5 million reversal of the valuation allowance on deferred tax assets, a $10.5 million deduction for the tax benefit related to the exercise of employee stock options (which for the nine months ended September 30, 2007, was classified as a source of cash flows from financing activities under GAAP), offset by a $6.0 million provision for uncertain tax positions.

     Other items impacting the change in net cash provided by operating activities include lower aggregate exclusivity period fee payments of $9.0 million in the nine months ended September 30, 2008 as compared to $15.5 million in the same period of the prior year, a $4.1 million increase in share-based compensation, a $13.9 million decrease in accounts payable and accrued expenses, including $23.6 million accrued taxes payable absent from the current year period but included in the prior year period, a decrease of $6.7 million in deferred tax assets, resulting principally from a lower deferred tax benefit corresponding to the lower net deferrals related to our alliance agreements noted above, and an aggregate increase of $10.7 million in inventory, prepaid expenses, and other assets, offset by a $8.6 million decrease in accounts receivable balances.

     Net cash provided by investing activities for the nine months ended September 30, 2008, amounted to $32.1 million, an increase of $107.6 million as compared to the prior year period, with the change primarily due to $112.8 million net liquidations of short-term investments (related to the repurchase of the Company’s 3.5% Debentures — see the discussion of net cash used in financing activities below). Capital expenditures for the nine months ended September 30, 2008 amounted to $20.9 million as compared to $15.7 million for the prior year period. The 2008 capital expenditures includes $13.1 million of a total estimated investment of $25.0 million for our new Taiwan manufacturing facility, which is expected to be completed in 2009. In addition, we expect continued investment in facilities, equipment, and information technology projects supporting our quality initiatives to ensure we have appropriate levels of technology infrastructure to manage and grow our global business. We estimate research and development and patent litigation expenses to be approximately $75.0 million and $12.0 million, respectively, for the next 12 months.

     Net cash used in financing activities for the nine months ended September 30, 2008 was approximately $65.0 million, primarily related to $65.2 million used for the repayment of long-term debt. In this regard, during August and September 2008, at the request of the holders, the Company made aggregate cash payments of $59.9 million to repurchase, at a discount, an aggregate of $62.25 million in principal face value of our 3.5% Debentures. Proceeds to fund the repurchase of the 3.5% Debentures were generated from the liquidation of our short-term investments. The remaining $12.75 million principal amount of the 3.5% Debentures are subject to repurchase by us at 100% of the face value on June 15, 2009 at the option of the holders. Additionally, during the current period, aggregate payments of $5.2 million (which includes $5.1 million in early repayments, without penalty) were made for our Cathay Bank term loans, resulting in the repayment in full of both the term loans. Net cash provided by financing activities for the nine months ended September 30, 2007 was approximately $10.5 million, principally resulting from the $10.5 million tax benefit related to the exercise of employee stock options.

      Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006.

     Net cash provided by operating activities for the year ended December 31, 2007 was $119.0 million, an increase of $124.8 million from the prior year period. This increase was primarily attributable to net income generated by the business principally due to sales of generic OxyContin® and net deferred revenue from Rx Partners of approximately $55.4 million. In addition, $18.2 million in payments to Teva as exclusivity fees regarding the launch of generic Wellbutrin® XL 300mg was partially offset by a $9.9 million increase in cash receipts from trade accounts receivables, lower inventories of $6.5 million and other working capital items.

     Net cash used in investing activities were purchases of short-term investments, net of sales of $98.3 million, an increase of $54.6 million as compared to the prior period. This reflects our decision to invest the excess portion of our cash balances into higher-yielding short term investments. Our capital expenditures for the twelve months ended December 31, 2007 were $18.8 million as compared to $21.5 million for the same period in 2006. The 2007 expenditures included $0.4 million as part of our total estimated investment of $25.0 million for our new Taiwan manufacturing facility which is expected to be completed in 2009.

     Net cash used by financing activities for the year ended December 31, 2007 was approximately $10.3 million, principally resulting from the $10.5 million tax benefit related to the exercise of employee stock options, and $0.1 million net proceeds from exercise of stock options and warrants and purchases under the ESPP, offset by $0.3 million used for repayment of long-term debt. Cash flows from financing activities for the year ended December 31, 2006, consisted of $0.1 million net proceeds from exercise of stock options and warrants and purchases under the ESPP, fully offset by $0.1 million used for repayment of long-term debt.

      Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005 .

     Net cash used by operating activities for the year ended December 31, 2006 was $5.8 million, a decrease of $26.9 million from the prior year period. This decrease was primarily attributable to net deferred revenue from Rx Partners of approximately $50.2 million offset by $14.4 million in payments to Teva as exclusivity fees regarding the launch of generic Wellbutrin® XL 300mg, payment of a $12.0 million litigation settlement, a $24.7 million increase in trade accounts receivables and other working capital items.

     Net cash used in investing activities were purchases of short-term investments, net of sales of $43.7 million, an increase of $79.1 million as compared to the prior period. Our capital expenditures for the twelve months ended December 31, 2006 were $21.5 million as compared to $14.8 million for the same period in 2005.

     Cash flows from financing activities for the year ended December 31, 2006, consisted of $0.1 million net proceeds from exercise of stock options and warrants and purchases under the ESPP, fully offset by $0.1 million used for repayment of long-term debt. Cash flows used in financing activities for the year ended December 31, 2005 amounted to $29.7 million, principally consisting of $95.0 million used for repurchase of the 1.25% Debentures, offset by proceeds of $74.9 million from the issuance of the 3.5% Debentures, along with the payment of $2.5 million used for the payment of deferred financing fees associated with the 3.5% Debentures, $5.0 million used for the repayment of the revolving line of credit, and $2.6 million used to repay long-term debt.

Outstanding Debt Obligations

      Senior Lenders; Wachovia Bank

     In December 2005, we entered into a new three year credit agreement with Wachovia, replacing the previous loan and security agreement and providing for a $35 million revolving credit facility intended for working capital and general corporate purposes. There was no amount outstanding under the revolving credit facility as of September 30, 2008 and December 31, 2007, 2006 and 2005, respectively. The revolving credit facility is collateralized by eligible accounts receivable, inventory, and machinery and equipment, subject to limitations and other terms. The interest rate for the revolving credit facility is either the prime rate, or LIBOR plus a margin ranging from 1.5% to 2.25% based upon terms and conditions, at our option.

     The credit agreement contains various financial covenants, the most significant of which include a “fixed charge coverage ratio” and a capital expenditure limitation. The fixed charge coverage ratio requires EBITDA less cash paid for taxes, dividends, and certain capital expenditures, to be not less than 1.25 to 1.00 as compared to scheduled principal payments coming due in the next 12 months plus cash interest paid during the applicable period. We were limited to capital expenditures of no more than $50,000,000 for the period from January 1, 2005 through December 31, 2006 and no more than $25,000,000 for the period from January 1, 2007 through December 31, 2007. We are limited to capital expenditures of no more than $34,000,000 for the period from January 1, 2008 to December 31, 2008. At September 30, 2008 and December 31, 2007, we were in compliance with the financial covenants contained in the credit agreement.

     The credit agreement also provides for certain information reporting covenants, including a requirement to file certain periodic financial information. On October 14, 2008, we entered into an amendment to the credit agreement with Wachovia in which Wachovia waived our failure to timely deliver annual and interim financial statements required by the credit agreement as well as our noncompliance with the fixed charge coverage ratio at June 30, 2006. In addition, we agreed to an increase in the unused line fee from 25 basis points per annum to 50 basis points per annum. During the nine months ended September 30, 2008 and the year ended December 31, 2007, we paid $67,976 and $87,500, respectively, as unused line fee to Wachovia.

     Our credit agreement with Wachovia, as amended, terminates on December 31, 2008. If we are unable to negotiate an extension to the credit agreement on similar terms, there can be no assurance that we would be able to obtain a new credit agreement with another bank or group of lenders on favorable terms or at all. In addition, on October 3, 2008, Wachovia announced its agreement to be acquired by Wells Fargo. If Wachovia, or its successor, is not able to perform its obligations under the credit agreement, we would have no borrowing capacity under our credit facility.

      3.5% Debentures

     In June 2005, we completed a private placement of $75 million of 3.5% Debentures. The 3.5% Debentures are our senior subordinated, unsecured obligations that mature on June 15, 2012 and may not be redeemed by us prior to maturity. Holders also have the right to require us to repurchase all or any portion of the 3.5% Debentures on June 15, 2009. We used the net proceeds from the sale of the 3.5% Debentures together with existing cash to repay our $95.0 million 1.25% Convertible Senior Subordinated Debentures due 2024 (“1.25% Debentures”), which, together with accrued interest thereon, had become due and payable following our default under the terms of the indenture governing such 1.25% Debentures. Our default under the 1.25% Debentures resulted from our failure to file our 2004 annual report on Form 10-K, which constituted a breach of a covenant of the indenture governing the 1.25% Debentures.

     The 3.5% Debentures rank pari passu with our accounts payable and other liabilities and are subordinate to certain senior indebtedness, including our credit agreement with Wachovia. The indenture governing the 3.5% Debentures limits the aggregate amount of our indebtedness ranking senior to or pari passu with the 3.5% Debentures to the greater of (i) $50 million or (ii) as of any date, four times our EBITDA for the immediately preceding 12-month period for which public financial information is available. The 3.5% Debentures are convertible into shares of our common stock at an initial conversion price of $20.69 per share.

     Under a related registration rights agreement, we agreed to file a registration statement covering the 3.5% Debentures and shares of common stock issuable upon the conversion of such debentures. Because we did not meet the deadlines set forth in the registration rights agreement, we are required to pay liquidated damages, at an annual rate of 0.5% of the aggregate principal amount of the 3.5% debentures, until the registration statement becomes effective. We paid $601,000 in liquidated damages through December 15, 2007 and have not made any additional payments, which payments are being accrued.

     In August and September 2008, at the request of the holders, we repurchased at a discount, an aggregate face value of $62.25 million principal amount of the 3.5% Debentures, paying $60.3 million including $433,000 of accrued interest. Proceeds to fund the repurchase of the 3.5% Debentures were generated from the liquidation of our short-term investments. The remaining $12.75 million principal amount of the 3.5% Debentures are subject to repurchase by us at 100% of the face value on June 15, 2009 at the option of the holders.

      Solvay Promissory Note

     In June, 2006, we issued a subordinated promissory note in the amount of $11.0 million related to the settlement of litigation brought by Solvay Pharmaceuticals, Inc. (“Solvay”), bearing interest at 6.0% per annum, with 24 quarterly principal and interest installment payments of $549,165 commencing March 2007 through December 2012. The Solvay promissory note becomes immediately due and payable upon the occurrence of a default in any payment due, a change in control of us, voluntary or involuntary bankruptcy proceeding by or against us and failure to maintain working capital less than 150% of the remaining unpaid balance of the promissory note. As of September 30, 2008, none of the four events noted above occurred.

Commitments and Contractual Obligations

     Our contractual obligations as of December 31, 2007 were as follows:

Off Balance-Sheet Arrangements

     We have not entered into any off-balance arrangements other than $500,000 in letters of credit entered into in the ordinary course of business.

Recent Accounting Pronouncements

     In September 2006, the SEC Staff issued Staff Accounting Bulletin No. 108 (“SAB 108”), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”. SAB 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements. Traditionally, there have been two widely-recognized methods for quantifying the effects of financial statement misstatements: the “rollover” method and the “iron curtain” method. The rollover method focuses primarily on the impact of a misstatement on the income statement—including the reversing effect of prior year misstatements—but its use can lead to the accumulation of misstatements in the balance sheet. The iron curtain method, on the other hand, focuses primarily on the effect of correcting the period-end balance sheet with less emphasis on the reversing effects of prior year errors on the income statement. The staff believes registrants must quantify the impact of correcting all misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. The staff believes that this can be accomplished by quantifying an error under both the rollover and iron curtain approaches as described above and by evaluating the error measured under each approach. Thus, a registrant’s financial statements would require adjustment when either approach results in quantifying a misstatement that is material, after considering all relevant quantitative and qualitative factors. SAB 108 is effective for any report for an interim period of the first fiscal year ending after November 15, 2006. Our SAB 108 analysis did not result in an adjustment to our consolidated financial statements for the effective periods.

     In September 2006, the FASB issued SFAS No. 157 (“SFAS 157”) “Fair Value Measurements”, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. With respect to financial assets and liabilities SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The effective date of SFAS 157, with respect to non-financial assets and liabilities, was deferred by FASB Staff Position FAS 157-2 and is effective for financial statements issued for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The adoption of SFAS 157 did not have a significant impact on our consolidated financial statements.

     In February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115”, providing companies with an option to choose, at specific election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007, early adoption is allowed. We have not elected to use the fair value option of SFAS 159, and therefore do not expect SFAS 159 to have an impact on our consolidated financial statements.

     In June 2007, the EITF reached a final consensus on EITF Issue No. 07-3 (“EITF 07-3”), “Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities”. EITF 07-3, which is effective for fiscal years beginning after December 15, 2007, requires non-refundable advance payments for future research and development activities to be capitalized until the goods have been delivered or related services have been performed. Adoption is on a prospective basis and could impact the timing of expense recognition for agreements entered into after December 31, 2007. We do not expect the adoption of EITF 07-3 to have a significant impact on our consolidated financial statements.

     In November 2007, the EITF reached a final consensus on EITF Issue No. 07-1 (“EITF 07-1”) “Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property”. EITF 07-1 is focused on how the parties to a collaborative agreement should account for costs incurred and revenue generated on sales to third parties, how sharing payments pursuant to a collaborative agreement should be presented in the income statement and certain related disclosure questions. EITF 07-1 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. Adoption is on a retrospective basis to all prior periods presented for all collaborative arrangements existing as of the effective date. We are currently evaluating the impact of EITF 07-1 adoption on our consolidated financial statements.

     In December 2007, the FASB issued SFAS 141 (Revised 2007) (“SFAS 141(R)”), “Business Combinations”, which replaces SFAS No 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141R is effective for us beginning January 1, 2009 and will apply prospectively to business combinations completed on or after that date. The effect of SFAS 141 (R) on our consolidated financial statements will be dependent on the nature and terms of any business combinations that occur after its effective date.

     In December 2007, the FASB issued SFAS No. 160 (“SFAS 160”), “Non-controlling Interests in Consolidated Financial Statements”. SFAS 160 clarifies that a non-controlling (minority) interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements, and establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation. SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of SFAS 160 shall be applied prospectively. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. We do not expect the adoption of SFAS 160 to have a significant impact on our consolidated financial statements unless a future transaction results in a non-controlling interest in a subsidiary.

     In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets”. The FSP is intended to improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R) and other U.S. generally accepted accounting principles. The new standard is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. We are currently evaluating the impact of FSP FAS 142-3 adoption on our consolidated financial statements.

     In May 2008, the FASB issued FASB Staff Position APB 14-1 (“FSP APB 14-1”), “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)”. FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This FASB staff position is effective for financial statements issued for fiscal years beginning after December 31, 2008. We are currently evaluating the impact of FSP APB 14-1 on our consolidated financial statements.

Quantitative and Qualitative Disclosures about Market Risk

     Our cash and cash equivalents include a portfolio of high credit quality securities, including U.S. Government securities, treasury bills, short-term commercial paper, and high-rated money market funds. Our entire portfolio matures in less than one year. The carrying value of the portfolio approximates the market value at December 31, 2007. Our debt instruments at December 31, 2007, are subject to fixed and variable interest rates and principal payments. We estimate the fair value of our fixed-rate long-term debt to be $12,272,000 at September 30, 2008, and $69,938,000, $73,313,000 and $72,375,000 at December 31, 2007, 2006, and 2005, respectively. While changes in market interest rates may affect the fair value of our fixed and variable rate long-term debt, we believe the effect, if any, of reasonably possible near-term changes in the fair value of such debt on our financial statements will not be material.

     We do not use derivative financial instruments and have no material foreign exchange or commodity price risks.

Item 3. Properties.

     Our primary properties consist of a 35,000 sq. ft. corporate headquarters and research and development center and 50,000 sq. ft. manufacturing facility, both located in Hayward, CA, a 113,000 sq. ft. packaging, warehousing and distribution center in Philadelphia, PA, all of which are owned by us, and a leased 44,000 sq. ft. facility in New Britain, PA housing sales, marketing and administration personnel and providing additional warehouse space. In addition, we own a 19,000 sq. ft. office building containing additional administrative and laboratory facilities in Hayward and lease six additional buildings aggregating 92,000 sq. ft. in Hayward, Pleasanton, and Fremont, CA utilized for additional research and development, administrative services and equipment storage. We also have currently under construction a 100,000 sq. ft. manufacturing facility in Taiwan. We expect construction of the facility, which will have an annual production capacity of approximately 450 million tablets and capsules, to be completed and equipment to be installed, validated, and approved by the FDA in 2009, and product shipments to begin in early 2010.

     In our various facilities we maintain an extensive equipment base that includes new or recently reconditioned equipment for the manufacturing and packaging of compressed tablets, coated tablets, and capsules. The manufacturing and research and development equipment includes mixers and blenders for capsules and tablets, automated capsule fillers, tablet presses, particle reduction, sifting equipment, and tablet coaters. The packaging equipment includes fillers, cottoners, cappers, and labelers. We also maintain two well-equipped, modern laboratories used to perform all the required physical and chemical testing of our products. We also maintain a broad variety of material handling and cleaning, maintenance, and support equipment. We own substantially all of our manufacturing equipment and believe it is well maintained and suitable for its requirements.

     We maintain property and casualty and business interruption insurance in amounts we believe are sufficient and consistent with practices for companies of comparable size and business.

Item 4. Security Ownership of Certain Beneficial Owners and Management.

     The following table sets forth information as of October 31, 2008 (except as otherwise noted in the footnotes) regarding the beneficial ownership of our common stock by: (i) each person known by us to beneficially own more than five percent of our outstanding common stock; (ii) each director; (iii) each executive officer named in the Summary Compensation Table for the fiscal year ended December 31, 2007; and (iv) all of our directors and executive officers as a group. As of October 31, 2008, 59,218,938 shares of our common stock were outstanding. Except as otherwise indicated, to our knowledge, the beneficial owners of shares of common stock listed below have sole voting and investment power with respect to such shares.

Item 5. Directors and Executive Officers.

Directors

     Our Board of Directors is currently comprised of seven members. Each director holds office for a term of one year and until his successor has been elected and shall have qualified or until the directors earlier death, resignation or removal. Dr. Charles Hsiao had been our chairman and director since December 14, 1999 until his death in August 2008. Dr. Hsiao was a co-founder of our predecessor, Impax Pharmaceuticals, Inc., in 1994, and served as our Co-Chief Executive Officer from 1999 to 2003.

     The current members of our Board of Directors, their ages as of October 31, 2008, and the year in which each became a director are as follows:

     On December 4, 2008, Mr. Burr was elected as Chairman of our Board of Directors.

     Set forth below is the business experience of the members of our Board of Directors for the past five years and the names of other public companies in which such persons hold directorships.

     Leslie Z. Benet, Ph.D. has been a Professor since 1969 of, and has also served as Chairman of, the Department of Biopharmaceutical Sciences, University of California, San Francisco. Dr. Benet has since 1995 been Chairman, President or Chief Executive Officer of AvMax Inc., a biopharmaceutical company. He received his A.B. (English), B.S. (Pharmacy), and M.S. from the University of Michigan, and his Ph.D. from the University of California. Dr. Benet has received six honorary doctorates: Uppsala University, Sweden (Pharm.D., 1987); Leiden University, The Netherlands (Ph.D., 1995); University of Illinois at Chicago (D.Sc., 1997); Philadelphia College of Pharmacy and Science (D.Sc., 1997); Long Island University (D.Sc., 1999); and University of Athens (Ph.D., 2005). Dr. Benet’s research interests, more than 470 publications, and 11 patents are in the areas of pharmacokinetics, biopharmaceutics, drug delivery, and pharmacodynamics. He is listed among the 250 most highly cited pharmacologists worldwide. In 1985, Dr. Benet served as President of the APhA Academy of Pharmaceutical Sciences. During 1986, Dr. Benet was a founder and first President of the American Association of Pharmaceutical Scientists (AAPS). In 1987, Dr. Benet was elected to membership in the Institute of Medicine (IOM) of the National Academy of Sciences. Dr. Benet has received the highest scientific awards of AAPS (1989 and 2000), Rho Chi (1990), American Association of Colleges of Pharmacy (1991), American Society for Clinical Pharmacology and Therapeutics (1995), American Pharmaceutical Association (2000), International Pharmaceutical Federation (2001) and in 2004 received the Pharmaceutical Sciences World Congress Research Achievement Award and the Controlled Release Society Career Achievement in Oral Drug Delivery Award. Dr. Benet formerly served as Chair of the FDA Expert Panel on Individual Bioequivalence and the FDA Center for Biologics Peer Review Committee, and as a member of the FDA Science Board and the Generic Drugs Advisory Committee. Dr. Benet presently serves as a member of the IOM Forum on Drug Discovery, Development and Translation.

     Robert L. Burr is a partner of Fleming US Discovery Partners, L.P., a private equity sponsor affiliated with J.P. Morgan Chase & Co. Mr. Burr was employed by J.P. Morgan Chase & Co. and associated entities from 1995 to May 2008, at which time he resigned his position as Managing Partner of the Fleming US Discovery III Funds. From 1992 to 1995, Mr. Burr was head of Private Equity at the investment banking firm of Kidder, Peabody & Co., Inc. Prior to that time, Mr. Burr served as the Managing General Partner of Morgan Stanley Ventures and General Partner of Morgan Stanley Venture Capital Fund I, L.L.P. and was a corporate lending officer with Citibank, N.A. Mr. Burr received an MBA from Columbia University and a BA from Stanford University.

     Nigel Ten Fleming, Ph.D. is Chairman and Chief Executive Officer of Minerva Healthcare, an emerging specialty pharmaceutical company. He previously founded Athena Diagnostics, a neurological diagnostics reference laboratory, serving variously as Chairman, CEO and Vice President of Business Development prior to the company’s 1995 sale to Athena Neurosciences /Elan Pharmaceuticals. Dr. Fleming has also served on the boards of directors of Examplar, a subsidiary of Transgenic Sciences Inc. that developed the first transgenic Alzheimer’s mouse model, and Genmedica, an oral insulin company based in Barcelona. He has also consulted for, and served in various leadership roles at a number of early-stage biotechnology companies, including Gamera Biosciences, Neurocal, Nephros’, TheraMed Partners and Plant Cell Technologies. Dr. Fleming obtained his Ph.D. in Clinical Biochemistry from the University of Cambridge in England and was a lecturer at Harvard Medical School for a number of years.

     Larry Hsu, Ph.D. has been our President and Chief Executive Officer since October 1, 2006. Prior to holding these positions, Dr. Hsu served as President and Chief Operating Officer beginning in 1999. Dr. Hsu co-founded Impax Pharmaceuticals, Inc. in 1994 and served as its President, Chief Operating Officer and a member of the Board of Directors from its inception until its merger with the Company. From 1980 to 1995, Dr. Hsu worked at Abbott Laboratories, where, during his last four years, he served as Director of Product Development in charge of formulation development, process engineering, clinical lot manufacturing and production technical support of all dosage forms, managing a staff of approximately 250 people. Dr. Hsu obtained his Ph.D. in pharmaceutics from the University of Michigan.

     Michael Markbreiter has been a portfolio manager for Sofaer Capital, a global hedge fund, since December 2000. From August 1995 to December 1998, Mr. Markbreiter was a portfolio manager for private equity investments for Kingdon Capital Management Corp., a New York hedge fund. In April 1994 he co-founded Ram Investment Corp., a venture capital company. From March 1993 to January 1994, Mr. Markbreiter was an analyst at Alliance Capital Management Corp. From July 1983 to September 1989, Mr. Markbreiter was an Executive Editor for Arts of Asia magazine. Mr. Markbreiter graduated from Cambridge University with a degree in Engineering.

     Oh Kim Sun has been employed by the Chemical Company of Malaysia Berhad (CCM), a Malaysian corporation whose stock is listed on the Bursa Malaysia Berhad, since 1983 and served as Executive Director from 1983 through October 2003. Currently, Mr. Oh is a member of the Board of Directors of Nikko Electronics Berhad, Pharmaniaga Berhad, UEM Land Holdings Berhad and Faber Group Berhad, all of which are listed on the Bursa Malaysia Berhad. Mr. Oh is also a director of various other companies in Kuala Lumpur. Mr. Oh is also a member of The Malaysian Institute of Certified Public Accountants.

     Peter R. Terreri has over 20 years of experience primarily in generic pharmaceuticals with a specialized expertise in finance. Mr. Terreri is President and Chief Executive Officer of CGM, Inc., a manufacturing company that he owns and operates. He previously served as Senior Vice President and Chief Financial Officer of Teva Pharmaceuticals USA from 1985 through 2000, where he actively participated in the growth of the company from a $20 million local generic pharmaceutical company into a global leader in generic pharmaceuticals. As an active member of senior management, he was involved in all facets of the decision-making process at Teva Pharmaceuticals USA, including structuring and negotiating company and product acquisitions, participating in multiple public financings and securing several licensing deals and a substantial credit line. In addition to his role as Chief Financial Officer, Mr. Terreri contributed to many areas related to the company’s success outside of finance, including product development selection, facility utilization, business development, strategic planning, and implementing integration plans for the company’s acquisitions. He also supervised areas such as operations, sales and marketing, and information technology during his tenure.

     Arthur A. Koch, Jr. has served as our Senior Vice President, Finance, and Chief Financial Officer since March 2005. Prior to joining Impax, Mr. Koch was employed by Strategic Diagnostics Inc., a company which develops, manufactures and markets immunoassay-based diagnostic test kits. While at Strategic Diagnostics Inc., Mr. Koch served as Chief Operating Officer for six years, interim Chief Executive Officer for five months and Chief Financial Officer and Vice President for five years. In addition, Mr. Koch has previously held Chief Financial Officer positions at Paracelsian Inc., IBAH Inc., Liberty Fish Company, and Premier Solutions Ltd. Mr. Koch holds a Bachelor of Business Administration from Temple University and has been a Certified Public Accountant since 1977.

     Charles V. Hildenbrand is our Senior Vice President, Operations, a position he has held since he joined Impax in August 2004. From 1996 until September 2004, Mr. Hildenbrand worked for PF Laboratories, Inc. as Plant Manager until 2001 and then as Executive Director of Engineering and Technical Services until his departure from the company. From 1983 until 1996, Mr. Hildenbrand worked at Lederle Laboratories/Wyeth as Section Head of Biochemical Production, Manager of Filing and Packaging, and Production Director of Consumer Health Products. Mr. Hildenbrand holds a B.S. in Chemical Engineering from Villanova University and an MBA from Lehigh University.

     Michael J. Nestor joined us in March 2008 as the President of our branded products division, Impax Division. Before joining us he was Chief Operating Officer of Piedmont Pharmaceuticals a specialty pharmaceutical company. Prior to Piedmont, Mr. Nestor was CEO of NanoBio, a startup biopharmaceutical company, prior to which he was employed by Alpharma, initially as President of its generic pharmaceutical business and later as President of its branded pharmaceutical business. Before this he was President, International business at Banner Inc, a global contract manufacturing concern. Mr. Nestor spent 16 years at Lederle Laboratories / Wyeth holding increasing positions of responsibility including Vice President, Cardiovascular business, Vice President / General Manager of Lederle-Praxis Biologics, and Vice President of Wyeth-Lederle Vaccines and Pediatrics. Mr. Nestor has experience in a number of pharmaceutical therapeutic areas including vaccines, anti-infectives, dermatologics, CNS, generics, and analgesics. Mr. Nestor has a Bachelor of Business Administration degree from Middle Tennessee State University and a MBA from Pepperdine University.

Item 6. Executive Compensation.

Compensation Discussion and Analysis

     The following discussion provides an analysis of our compensation program for the executive officers named in the Summary Compensation Table beginning on page 57 of this registration statement and discusses the material factors involved in our decisions regarding the compensation of our named executive officers. The executive officers named in the table include Charles Hsiao, Ph.D., who was our Chairman until his death in August 2008, and David S. Doll, who was our Executive Vice President until his resignation in August 2008. The following discussion cross-references those specific tabular and narrative disclosures that appear following this subsection where appropriate. You should read this Compensation Discussion and Analysis in conjunction with such tabular and narrative disclosures.

      Compensation Philosophy and Objectives

     At its core, our executive compensation program recognizes that our success is dependent upon our ability to attract, motivate and retain the highly talented individuals we need to achieve our business results. The program reflects the following key principles:

	•		We seek to align the interests of our named executive officers and stockholders . We believe that equity compensation is an excellent way to encourage our executive officers to act in the best interests of our stockholders. Historically, we have provided our named executive officers with equity awards (primarily in the form of stock options) as part of their overall compensation package to encourage equity ownership and to place their interests in line with those of our stockholders. We did not use this component as to any of our named executive officers during 2007, however, as our compensation committee determined (as it had done in 2006 and, as to certain named executive officers, in 2005) that our delinquency in filing our periodic reports with the SEC made it inappropriate to grant equity awards to our named executive officers. Our compensation committee may consider granting equity awards to our named executive officers in 2008.
	•		To attract, motivate and retain the best talent we can obtain, our compensation should be competitive. We strongly believe that our future success rests with our people, including our executive officers. To be successful, we must be able to attract, motivate and retain quality executive officers. We realize that compensation is a key tool to achieve this objective; thus, one facet of our compensation program is to provide our named executive officers pay amounts and components that are competitive with those of other companies in our industry.
	•		Our compensation program should encourage and reward positive performance. Our executive compensation program is designed to promote and reward positive performance. In doing so, we consider both the individual performance of each named executive officer, as well as the overall performance of our business. Positive performance on the part of our management and our company will permit our named executive officers to be eligible to receive incentive compensation. On the other hand, when an individual executive does not meet stated objectives or our business is facing financial or other challenges, this incentive compensation may be appropriately reduced or eliminated.
	•		Compensation should encourage teamwork and executive cohesion. While individual performance is carefully reviewed and considered, we have also maintained a philosophy of pay equity. This means that we aim to provide similar compensation for our named executive officers who perform similar functions or who are at similar executive levels. We believe that following a plan of pay equity discourages internal comparison of compensation packages among executives and fosters teamwork and cohesion.
	•		Our compensation program should balance our short- and long-term financial and operational goals. We generally strive to achieve a balance between achievement of both short- and long-term goals through the use of both salary and annual cash incentives and equity-based incentives. Our management

incentive program primarily rewards short-term performance by paying out base salary and annual cash incentive awards based on performance over a period of approximately one fiscal year. Equity-based awards are generally designed to reward long-term financial performance. As noted, although long-term equity awards were not granted in 2007 (or in 2006 or, as to certain named executive officers, in 2005), we may consider resumption of equity compensation in 2008.

     Generally, we do not believe that gains realized from prior compensation, such as stock option exercises, or compensation to be received upon a future termination of employment or a change in control, should be considered in setting elements of compensation in any given year. Reducing or limiting compensation because of prior gains would unfairly penalize the executive for quality past performance and may ultimately reduce an executive’s motivation to continue to perform at high levels. Tying current compensation to past gains may also serve to make the executive’s compensation package less competitive. Moreover, severance and change-in-control compensation is intended to achieve purposes unrelated to rewarding executives for positive performance and aligning their compensation to increases in stockholder value.

      Our Compensation Decision Making Process

     In general, as to most items of compensation, the chief executive officer annually evaluates each named executive officer, other than himself and our chairman, and recommends each component of compensation for all of those named executive officers. Compensation not covered by the chief executive officer’s evaluation includes benefits and other compensation mandated or determined by reference to an existing employment or similar agreement.

     As to the compensation of our chief executive officer and our chairman, the compensation committee discusses and creates a proposal as to the amount of and changes to their compensation. The compensation committee also evaluates the proposals provided by the chief executive officer as to the compensation of our other named executive officers. The compensation committee then submits its recommendations regarding the compensation of our named executive officers to the board of directors for final approval.

      Role of Compensation Consultants

     While we had not historically engaged a compensation consultant to advise us with respect to our compensation of named executive officers, beginning with our evaluation of the cash incentive compensation for 2007 we retained the services of Radford Surveys + Consulting, a business unit of AON, to assist in our evaluation of such compensation. Radford provided us with a survey of comprehensive executive and director compensation data and related information at over 500 companies operating in the life sciences industry and employing more than 500 employees. Companies included in this survey operated in the following areas of the life sciences industry:

	•		research of molecular and genetic techniques;
	•		research and manufacture of molecular or genetic materials;
	•		research, development and manufacture of drugs and drug delivery methods; and
	•		clinical research.

     We believe that these data provide appropriate guidelines for our compensation committee and chief executive officer to compare proposed pay levels for our named executive officers against those paid by other companies in the life sciences industry.

     During 2007, our compensation decision makers used a portion of the Radford data as a yardstick to assess the amount of base salary we proposed to pay our named executive officers, except as to David S. Doll, who was then our Executive Vice President and whose base salary increases were established by our employment agreement with him during his employment with us. Treating those of the 500 surveyed companies with the highest compensation as being in the 99th percentile, it was the sense of the board of directors and compensation committee during 2007 that our base salary should be comparable with those of companies between the 25th and 50th percentiles of the Radford compensation survey data. The purpose of using these data was to assist the decision makers in assessing whether their proposed compensation was competitive as compared to other companies in the life sciences industry. The decision makers considered these data only as a guidepost to their evaluation of proposed compensation amounts, and there was no mandate that any actual compensation paid must fall within any

set range. Thus, the decision makers had discretion to consider whether compensation paid should fall within or outside this range, and in some instances they found it appropriate to set compensation at a level lower or higher than this range. Our board of directors believed that using the Radford data in this manner was essential to establishing an appropriate but competitive compensation structure, given our overall performance and the challenges we faced during 2007. Our board of directors reviews this process each year and in future years may determine to measure executive compensation by reference to data of companies in a different percentile range if our performance criteria or results, as viewed by reference to our yearly budget, change significantly, or it may choose to implement a different process altogether.

     In 2007, our compensation committee asked Radford to review the compensation committee’s proposed cash incentive payment calculation methodology and payouts, and total cash delivery, to Dr. Hsu, our President and Chief Executive Officer; Mr. Doll; Mr. Koch, our Senior Vice President, Finance and Chief Financial Officer; and Mr. Hildenbrand, our Senior Vice President, Operations. The compensation committee also asked Radford to review the performance evaluations and criteria established for each of these named executive officers to determine whether they were consistent with general market practice in content and approach. The compensation committee used the results of Radford’s reviews to confirm its preliminary view that its proposed compensation amounts and mechanisms were both competitive and consistent with general market practice.

      Components of Our Executive Compensation Program

           Overview of Elements of Compensation

     Total compensation for our named executive officers is comprised of the following elements:

	•		base salary;
	•		annual cash incentive awards;
	•		options and other equity-based awards (although we did not grant any of these awards to our named executive officers in 2007 or, as to certain of them, in 2005 and 2006);
	•		non-qualified deferred compensation plan contributions;
	•		401(k) retirement plan contributions;
	•		post-employment and change-in-control benefits, including severance protection; and
	•		other benefits and perquisites.

          With respect to each of these elements, we provide the following discussion and analysis:

	•		a description of the element;
	•		the objectives of each element;
	•		the specific performance that each element is designed to reward, if any;
	•		why we choose to pay each element;
	•		how we determine the amount of each element; and
	•		how each element and our decisions regarding that element fit into our overall compensation objectives and affect decisions regarding those elements.

           Base Salary

     Base salary is paid to all employees, including our named executive officers, to provide them with a degree of financial certainty and a source of fixed compensation to meet their day-to-day living and other needs. We believe that our base salaries are set competitively, as compared to other companies in our industry, and thus that they also serve to attract and retain talented executives. In 2007 Radford confirmed this belief with respect to four of our named executive officers, including our chief executive officer.

     We generally set an initial base salary range for a particular level of our executives (for example, all officers with the title of Senior or Executive Vice President) and then apply that range to all executives who are at that level. In establishing these base salary ranges, we consider:

	•		the individual experience, education, skills and value of the position to us and our operations;
	•		the particular needs of our company for an executive at the level being considered;
	•		our desire to promote a cohesive management team among executives of that level by establishing internal pay equity; and
	•		proposed salaries for executives in similar positions in other companies in our industry, as reflected in the Radford compensation survey data, applying the procedure described above in “ — Compensation Overview — Role of Compensation Consultants.”

     Once the base salary range is established for a particular executive level, we then determine the amount of salary that a specific executive officer will receive. For new hires or promotions to a particular executive level, we consider:

	•		the individual experience, education and skills of the particular executive;
	•		for promotion candidates, the executive’s prior performance and length of service with us;
	•		the salaries of other executives at that level, if any; and
	•		other special circumstances that may apply to the particular executive.

     We believe that, generally, the salary levels we set for our named executive officers are less, and in some cases significantly less, than competitive compensation for an executive who:

	•		is fully experienced and educated as required by the position;
	•		is a strong performer and strong leader who makes solid contributions; and
	•		possesses a full skill set for his or her position and applies those skills successfully.

     Increases in base salary are used to reward executives for their positive performance in the preceding year and to ensure that their salaries remain competitive. In 2007, our compensation committee used a comprehensive evaluation process to determine increases in the base salary for our chief executive officer and our chairman. In this process, the compensation committee first informally evaluates the performance of the chief executive officer and the chairman during the year based upon their respective periodic reports to and meetings with the board of directors. The compensation committee also receives periodic reports from other members of management to assist it in determining the chief executive officer’s and the chairman’s overall effectiveness. The compensation committee also examines a series of objective criteria tied to our performance, which includes, among other things:

	•		the development of company-wide strategies and goals;
	•		achieving or exceeding revenue and profit goals outlined in our budgets; and
	•		improvements in employee growth and turnover rates.

     The compensation committee believes that this evaluative process allows it to obtain a complete and overall picture of the chief executive officer’s and chairman’s effectiveness during the year. The use of these objective criteria also ensures that salary adjustments reflect positive performance that can be tied to measurable increases in

stockholder value. For 2007, we did not increase Dr. Hsiao’s or Dr. Hsu’s base salary. We believe that this decision appropriately promoted the alignment between the interests of our executive officers and stockholders while we sought to regain compliance with our public reporting requirements.

     As of September 1, 2006, increases in Mr. Doll’s base salary through September 1, 2009 were fixed by the terms of his employment agreement with us. See “— Narrative Disclosure to Summary Compensation and Grants of Plan-Based Awards Tables — Agreements with Our Named Executive Officers — Employment Agreement with David S. Doll.” Mr. Doll was our only named executive officer whose base salary increases were fixed in this manner. The principal reason for fixing his increases was our hope that, because the employment agreement effectively provided Mr. Doll with the security of guaranteed increases in base salary regardless of company performance or market conditions, we would be more likely to retain Mr. Doll’s services over the full term of his employment agreement. In return, Mr. Doll gave up the right to receive salary increases that would be directly tied to his or our performance, which may ultimately have been higher (but could have been lower) than the guaranteed increases under his employment agreement.

     In determining the amount of each annual salary increase to be specified in Mr. Doll’s agreement, we compared proposed increases with the Radford survey data. Based upon information available when the employment agreement was being prepared, the salary increases incorporated into the agreement fell between the 50th and 75th percentiles of the Radford data. While these increases were higher than those given by the companies with which our executive salaries are generally comparable, the compensation committee believed that a higher compensation level was warranted in Mr. Doll’s case, as pharmaceutical sales and marketing executives with Mr. Doll’s experience are in relatively high demand. The committee also believed that providing Mr. Doll with a higher relative level of salary increases was warranted because his expected performance in developing new relationships with alliance agreement partners would significantly enhance our financial performance and results of operations and, in turn, lead to increases in stockholder value.

     As for our other named executive officers, base salary adjustments are evaluated and proposed by the chief executive officer, whose proposals are reviewed by the compensation committee. At the beginning of each year, a set of objectives is prepared for, and discussed with, each such named executive officer. These objectives are tailored to each individual executive and are based upon his or her job responsibilities and on certain of our results of business and financial performance that reflect directly upon the executive’s duties. These objectives might include, for example:

	•		achieving objective operating or financial metrics associated with the executive’s role, such as sales, product development milestones and activity levels, operating efficiency and product reliability;
	•		developing and implementing particular policies, procedures and systems necessary for the smooth and proper operation or function of the particular business unit; and
	•		hiring and retaining appropriate personnel to support specific business units.

     For 2007, we established these objectives to reflect our compensation philosophy of using pay to encourage and reward our named executive officers’ positive performance, as the achievement of the goals directly impacts whether base salaries are increased and the amount of any such increase. Some of the objectives established in 2007 required the executive to have met specific operating metrics, such as achieving increases in operating efficiency or submitting to the FDA a stated number of ANDAs. These objectives were consistent with our philosophy of aligning the interests of our executives with those of our stockholders, because we believe the achievement of these goals had a direct or indirect impact on our results of operations, financial performance or profitability.

     The criteria we established to determine the increases in base salary of our named executive officers are the same as those we use to determine their respective annual cash incentive awards (for the purposes of the increases in base salary, the compensation committee determined that the individual goals of Dr. Hsu and Dr. Hsiao were similar). See “— Annual Cash Incentive Awards” below for a description of the types of individual and corporate performance goals, the achievement of which we evaluate to determine the named executive officer’s salary increase.

     In addition to the information provided by these evaluations, in an effort to maintain pay equity, the chief executive officer generally developed in 2007 base salary increases for these other named executive officers consistently among executives serving in similar capacities and with similar levels of responsibility. The amount of a named executive officer’s base salary may also serve as a reference point for determining the amount of his or her other compensation elements. For example, in 2007, the potential maximum annual cash incentive award for each executive was derived from a percentage of the executive’s base salary.

     For 2007, we increased Mr. Koch’s and Mr. Hildenbrand’s base salary to reward them for their achievement in substantial part of stated performance goals during the year. Specific performance goal and achievement information for each of these named executive officers is provided below in “— Annual Cash Incentive Awards.”

     We also found these increased base salaries appropriate and competitive, not only based on our review of the overall performance evaluations for each of Mr. Koch and Mr. Hildenbrand, but also in light of our overall corporate and financial performance in 2007. We also considered and analyzed these increases in the context of their overall total compensation package to confirm that their total compensation was competitive with that of life sciences companies in the 25th to 50th percentile level of the Radford survey. These efforts support our compensation objective of providing competitive compensation to attract, motivate and retain top executive talent.

           Annual Cash Incentive Awards

     Through annual cash incentive awards, we provide our named executive officers with an increased cash compensation opportunity and reward them for attaining short-term, rather than long-term, individual and corporate goals. We believe that a meaningful amount of executive compensation should be variable and contingent on individual and corporate performance. Establishing executive compensation that is rewarded upon the achievement of these performance-based criteria, discussed in more detail below, supports our goal of providing incentives to our executives who dedicate their full efforts toward achieving our performance objectives, which in turn makes our business successful and contributes to increases in stockholder value in the short-term. Generally, our named executive officers who have been in their position during the year are eligible to receive these cash incentive awards. While our 1999 employment agreements with Drs. Hsiao and Hsu provide that their annual cash incentive payments will be equal, at the time of Dr. Hsiao’s appointment as non-executive Chairman in 2004 his agreement was orally modified to provide that only his annual cash incentive target would be the same as Dr. Hsu’s, with any actual award being based upon his and Dr. Hsu’s respective individual performance. Because Dr. Hsiao’s role was changing from an executive to a non-executive position, the compensation committee determined to forego any cash incentive award to Dr. Hsiao for 2006 and 2007 and to consider a future cash incentive award to him based upon a cumulative three-year review of his performance at the end of 2008.

     Annual cash incentive awards are generally calculated based upon two primary variables: a percentage of base salary and performance goals that must be achieved to earn the award. In an effort to maintain pay parity, executives at the same job level and with similar degrees of responsibility will generally be assigned the same percentage of base salary.

     With the exception of Mr. Doll’s annual cash incentive award percentage, which beginning in September 2006 was set at a target of 75% of his annual base salary in his employment agreement, the compensation committee evaluates and establishes base salary percentages for our named executive officers as part of the yearly compensation process. The establishment of a fixed cash incentive award percentage for Mr. Doll, which in 2007 was not provided for our other named executive officers, was consistent with our philosophy of seeking to attract, motivate and retain Mr. Doll for the term of the employment agreement and our belief at that time that Mr. Doll’s successful performance would contribute directly to our stockholder value during such term. Although the compensation committee employs its discretion in setting these percentages, its decisions in 2007 were generally guided by the overall objectives to maintain pay parity among executives with similar titles and responsibilities and to provide competitive compensation that is generally compatible with that provided by companies between the 25th and 50th percentiles of Radford’s peer group. Thus, the compensation committee sets these base salary percentages on a position-by-position basis each year. For 2007, the annual award target

percentage for each of our named executive officers (other than Dr. Hsiao) was set at 75% of base salary, consistent with and in furtherance of the compensation objectives and philosophies described above. Once set, the compensation committee has the discretion to pay at above or below these percentage targets depending on our overall financial and operational performance and individual performance. The actual payments it established for 2007 were below the percentage targets.

     To determine whether or how much cash incentive compensation is to be received, each named executive officer is also evaluated against specified performance goals that are designed to ensure that payment of annual incentive compensation is tied to measurable positive performance and increases in stockholder value.

     During the first quarter of 2007, the board of directors and the compensation committee established individual goals for the chief executive officer. With respect to each other named executive officer, during the first quarter of 2007 the chief executive officer developed with each executive specific individual performance goals and a set of corporate or company-wide goals. Individual goals were customized to the applicable executive and reflected the responsibilities and duties that we believe the executive should fulfill in connection with his or her particular position. Corporate goals reflected company performance as a whole and included criteria based on the company’s achievement of particular performance targets, such as revenue and net income. The establishment of individual and corporate goals in 2007 was tied to and consistent with our compensation philosophy, as described above in “— Base Salary.”

     With the exception of the chief executive officer, in 2007 individual goals comprised two-thirds of the total possible cash incentive compensation. Our chief executive officer’s cash incentive award is generally determined based entirely upon individual goals, as our compensation committee believes it is important to have our chief executive officer’s cash compensation be determined by reference to the special contributions this officer can make to our overall growth and development. In 2007, we preferred to emphasize individual goals because we believed it was important to provide short-term, cash rewards to our named executive officers for performance that meets and exceeds what is expected of them. Used this way, our cash compensation program in 2007 rewarded demonstration of the types of performance, and the presence of executive skill sets, that in our experience are directly attributable to our growth and an increase in value to our stockholders.

     The following table provides the individual performance goals used to determine cash incentive compensation in 2007, and our determination as to the achievement in 2007 of those goals, for each named executive officer who participated in the cash incentive program.

     Except with respect to the chairman (who did not receive any cash incentive compensation in 2007) and the chief executive officer, in 2007, corporate performance goals represented one-third of the total weight in determining the named executive officer’s annual cash incentive awards, which we believe was appropriate to reflect our philosophy that executive performance must benefit our company in ways that can be objectively measured and quantified.

          For 2007, our corporate performance goals were comprised of the following: (i) an internal revenue target based on revenues adjusted for certain deferrals under Staff Accounting Bulletin No. 104 and (ii) an internal profit target based on the metric calculated by deducting our expenses determined in accordance with GAAP from the internal revenues described in (i) above. Because we defer a substantial portion of the revenue realized under our alliance agreements, we do not believe our results determined in accordance with GAAP provide as accurate a measure of our executives’ annual contribution to corporate performance as non-GAAP financial measures that reflect the flows of the products subject to these agreements to drug wholesalers and other ultimate customers as reported to us by our marketing partners.

     The 2007 corporate performance goals were recommended by our chief executive officer and set by the compensation committee based on their assessment of current and anticipated market and other conditions affecting our business and the goals. In the view of the compensation committee, payout on these performance goals in 2007 required substantial achievement by each named executive officer. Because our 2007 revenue-based and profit-based performance goals were ultimately achieved at these targets, all named executive officers received a cash incentive award payout based upon the achievement of such performance. The use of identical performance goals tied to substantive increases in the revenue- and profit-based criteria for all of our named executive officers supports our stated compensation philosophies of rewarding named executive officers for positive performance, aligning the interests of our executives with those of our stockholders and maintaining executive cohesion and teamwork through the implementation of similar pay structures for our executives.

     For 2008, corporate performance goals have been set in a similar manner as those in 2007. As a result, these goals were set by the compensation committee so that they are reasonably likely, but by no means certain, of being attained. Our continued use of these corporate performance goals in 2008 with respect to our named executive officers is tied to the compensation objectives described above.

     All performance goals are disclosed to and discussed with each executive at the beginning of the year. An executive must generally be actively employed by us on the payment date to receive an annual cash incentive award. Each set of performance goals counts for a portion of the total potential bonus that may be received, and items constituting individual performance goals are individually weighted. The portion of the bonus based on overall corporate performance is earned in full if the goals are met. Payouts of cash incentive awards are determined in part by the compensation committee’s or chief executive officer’s determination as to whether such goals were achieved in whole or in part. See “— Summary Compensation Table” and “— Grants of Plan-Based Awards During Fiscal Year Ended December 31, 2007” for the amounts related to actual cash incentive awards paid out by us and the target annual cash incentive awards for 2007 performance.

      Equity Awards

     We maintain the Impax Laboratories, Inc. 2002 Amended and Restated Equity Incentive Plan for the purpose of granting stock options and other equity-based awards, such as stock appreciation rights (commonly known as SARs) and stock bonus awards (also known as restricted stock awards), to our employees, including our named executive officers. We have historically granted to our named executive officers only stock options, including incentive stock options and non-qualified stock options, under the 2002 plan. During 2007 (as well as 2006 and 2005 as to certain named executive officers) we did not grant any equity awards to any of our named executive officers. In 2007, our compensation committee believed that it was inappropriate to grant equity awards to our named executive officers (except with respect to the awards granted under Mr. Doll’s employment agreement) while we were in the process of regaining compliance with our public reporting requirements. We may consider making awards of stock options or other equity incentive awards to our named executive officers in 2008.

     Option awards produce value to our named executive officers only if the price of our stock appreciates, and then only to the extent of the excess of our stock price over the exercise price of the option. Our stock options are granted with an exercise price equal to the fair market value on the date of grant to avoid providing any immediate benefit to the named executive officer upon grant. Option awards also link the interests of our executives to our stockholders in that the exercise of an option would result in the executive being issued shares of our common stock. Because they generally vest incrementally over time, options create an incentive for named executive officers to continue their employment with us for extended periods after the initial grant.

     We have established procedures for granting equity awards to all of our eligible employees, including our named executive officers. Each year we establish a stock option or stock bonus award amount (the “equity compensation award”) for each level of responsibility within our organization, subject to approval by the compensation committee. In arriving at the option component of the equity compensation award, we use a number of factors, including the grant date fair value of the option as determined by SFAS No. 123R and the percentage of total shares outstanding that each option would represent if exercised in full. Grants are made in the following three ways:

	•		New hires and promotions . During the first week of the third month of each calendar quarter we grant an equity compensation award to any employee who was hired or promoted during the preceding quarter (the grant to promoted employees being made only to the extent necessary to make their equity compensation award comparable to those made to others at the new level of responsibility).
	•		Annual grants . During the second two weeks of each October we make a grant equal to half the current applicable equity compensation award to each eligible employee.
	•		Special grants . During the final week of each June and December, we make special awards for exemplary individual performance to employees selected by the chief executive officer from a pool of candidates recommended by senior management.

     The board of directors or compensation committee, however, retains discretion, in appropriate circumstances, to provide a different amount of equity awards for both the new hire/promotion and the annual grants. We might, for example, increase the number of options above the specified amount if needed to retain an executive who would, upon leaving his current position, be required to forfeit a substantial unvested option or restricted stock position. We have not, and in the future do not intend to, time the award of any equity-based compensation to coincide with the release of favorable or unfavorable information about us.

     Our equity awards are issued as long-term compensation that generally vest over a period of four years. This is consistent with our philosophy of linking the financial interests of our named executive officers to that of stockholders. The long-term compensation balances the short-term compensation paid in the form of base salary and annual incentive awards. We strive to keep option grants at the same level as our cash and incentive compensation, i.e. , between the 25th and 50th percentiles of companies included in the Radford survey.

     For all of our equity awards, we establish the amount to be awarded to each of our named executive officers based upon the level of each position. As part of our goal of maintaining pay parity wherever possible, we tend to grant the same or similar amounts of options to executives with similar titles and levels of responsibility. Grants of awards under the 2002 plan must be approved by the board of directors or a committee (or subcommittee) consisting of two or more outside directors. For all named executive officers, except our chief executive officer and chairman, option amounts and terms are generally proposed by our chief executive officer, subject to ultimate approval by the board of directors or compensation committee. Option grants to our chief executive officer and chairman are determined solely by the board of directors or compensation committee.

     In our September 2006 employment agreement with Mr. Doll, we agreed to grant him two awards of options and stock bonuses, subject in each case to approval by our stockholders of an amendment to our 2002 plan to provide enough shares of common stock to permit the issuance of these awards. For a discussion of these provisions, see “— Narrative Disclosure to Summary Compensation and Grants of Plan-Based Awards Tables — Agreements with Our Named Executive Officers — Employment Agreement with David S. Doll.”

     Unlike options, stock bonus awards provide value to our named executive officers immediately upon grant and increase in value based upon increases in the market price for our common stock. Also, unlike base salary and annual cash incentive awards, stock bonus awards are designed to serve as compensation to reward long-term performance, as the awards do not fully vest until a period of seven years has elapsed. The vesting period of these stock bonus awards is substantially longer than the options we agreed to grant to Mr. Doll, which were subject to a four-year vesting period. As a result, the equity compensation to be awarded to Mr. Doll would effectively reward him for his performance over a substantially longer time frame than the option awards.

     Prior to agreeing to issue these awards, we had not issued stock bonus awards to any of our named executive officers, and, while we reserve the right to do so in the future, we presently do not have any intention to issue other stock bonus awards to our named executive officers. We also agreed to issue these awards even though

we have generally suspended the granting of equity awards to our executive officers and did not otherwise make such grants in 2007, as discussed above. We decided to take a different approach to equity awards under Mr. Doll’s employment agreement primarily for the following reasons:

	•		First, we determined that the executive having responsibility for our sales and marketing functions is a valuable asset to our company. Mr. Doll’s overall industry and sales experience allowed him to take on an increased amount of responsibility in his position, including business and product development and the growth of vital strategic relationships and alliance agreements’ partnerships.
	•		Second, we recognized that there is significant competition in our industry for employees with Mr. Doll’s experience. We also became aware that many of our competitors have been increasingly using stock bonuses as an inducement to attract, retain and motive their key employees. As a result, we believed that stock bonus awards would need to be a key element in any compensation package we offered Mr. Doll.
	•		Third, we believed that a central component of our ability to retain Mr. Doll as a key member of our management team was providing him with direct and tangible equity ownership in our company, which we could only do through stock bonus awards.

     We believe that our decision to grant these options and stock bonus awards to Mr. Doll as part of his employment agreement was consistent with many aspects of our overall compensation philosophy, including:

	•		Aligning Mr. Doll’s interests with those of our stockholders and rewarding him for positive performance — we chose equity-based compensation to provide Mr. Doll with an economic benefit that increased in value only if our share price increased, thus aligning his interests with those of our stockholders. Also, because we believed that Mr. Doll’s contributions would have a direct positive impact on our operating and financial success, it was our view that increases in value of these equity-based awards stemming from our financial performance would reward him for efforts that generated direct or indirect increases in stockholder value.
	•		Retaining and motivating Mr. Doll’s employment with us — we chose to grant equity awards with long-term vesting periods in an effort to retain his employment over an extended period of time. We also believed that the grant of equity awards that increased in value over time as our operating performance continued to improve would serve to encourage him to maintain positive performance with us in future years.
	•		Balancing long-term and short-term performance goals — because Mr. Doll’s equity awards were to vest over a period of four and seven years, we believed that they served to counterbalance his base salary and cash incentive awards, which rewarded him for his achievement of short-term performance goals.

     We agreed with Mr. Doll that if our stockholders did not approve the issuance of the equity awards contemplated in that agreement, he would be entitled to receive the “economic benefits” of such awards, as determined by the compensation committee. In doing so, we wanted to provide Mr. Doll with the economic equivalent of these awards and not penalize him if for some reason our stockholders did not approve the amendments to the 2002 plan to permit their issuance. We also agreed that, upon exercise of his options, we would reimburse Mr. Doll for the difference, if any, between the exercise price he ultimately pays (which will be equal to the fair market value of our common stock on the date the options are deemed granted under SFAS No. 123R) and the exercise price he would have paid had the options been granted on the date of the employment agreement. We wanted to prevent Mr. Doll from suffering any economic loss or hardship upon exercising the options because the 2002 plan did not, on the date of the employment agreement, have sufficient shares to permit the award of his options.

      401(k) Plan and Non-Qualified Deferred Compensation Plan Contributions

     Retirement plans, in general, are designed to provide executives with financial security after their employment has terminated and, through the incremental vesting of our matching contributions to such plans over time, provide a retentive element to the overall pay package. Our named executive officers are eligible to participate in the Impax 401(k) Profit Sharing Plan, which allows them to contribute a portion of their base salary and bonus to support their financial needs upon retirement. For 2007, we also contributed to each participant’s account an

amount equal to 50% of the amount contributed by the named executive officer, with our contribution not to exceed 3% of the participant’s annual total compensation. Our matching contributions to the 401(k) plan vest depending on the number of years the named executive officer has worked at our company, with all matching contributions vesting after the third year of service at the company. Amounts contributed to the 401(k) plan are invested in one or more investment fund options. Participants generally do not pay U.S. federal income tax on contributions to or earnings in the 401(k) plan until the participant makes withdrawals from his or her plan account.

     Our named executive officers also are eligible to participate in the Impax Laboratories, Inc. Executive Non-Qualified Deferred Compensation Plan, restated effective January 1, 2005. See “— Non-Qualified Deferred Compensation During Fiscal Year Ended December 31, 2007” and “— Narrative Disclosure to Non-Qualified Deferred Compensation Table.” For 2007, we made a matching contribution for each participant equal to 50% of the participant’s contribution, not to exceed 5% of the participant’s base pay and bonus per year. A participant’s account is notionally invested in one or more investment funds and the value of the account is determined with respect such investment allocations. We retain the discretion to reduce the level of matching contributions or eliminate them altogether, but we have not chosen to do so.

     These benefits are offered to provide financial security and peace of mind for our executives, and are consistent with our goal of attracting and retaining our executives. Because we do not provide either a qualified or a non-qualified defined benefit pension plan (often referred to as a SERP), we believe that the overall retirement plan benefits for our named executive officers are modest as compared to other public companies of our size. We also believe these contributions represent standard benefits that executive-level employees of public companies commonly receive. For these reasons, we do not take these matching contributions into consideration when setting other aspects of compensation for our executive officers.

      Employment Agreement with David S. Doll

     Stemming from the March 2006 decision of Barry R. Edwards to retire as our Chief Executive Officer, Mr. Edwards and Dr. Hsu decided that Mr. Doll, who was at the time our Senior Vice President, Sales and Marketing, would continue to play a key role as a part of our senior management team. Prior to this time, Mr. Doll did not have an employment agreement with us.

     As part of the succession-planning process, we believed it was important to retain continuity in the executive commercial development function, given the importance of that role and its direct impact upon our future success. To retain Mr. Doll’s services and to provide him with a level of employment security, we offered Mr. Doll the possibility of entering into an employment agreement with us, which he accepted. In the months that followed, we discussed with Mr. Doll the framework for an employment agreement, with Mr. Edwards and Dr. Hsu leading these discussions for us. On September 1, 2006, after discussions between the parties had been successfully concluded, we entered into a three-year employment agreement with Mr. Doll, pursuant to which he was promoted to the position of Executive Vice President, Commercial Operations.

      Post-Employment and Change-in-Control Benefits

     We entered into employment agreements with each of Dr. Hsiao and Dr. Hsu in 1999 and with Mr. Doll in 2006. See “— Narrative Disclosure to Summary Compensation and Grants of Plan-Based Awards Tables — Agreements with Our Named Executive Officers” for a summary of certain material terms of such agreements.

     As part of these employment agreements, we provide certain benefits upon:

	•		a termination of employment due to the executive’s death or disability;
	•		a termination of employment by us other than for cause, as defined in the employment agreement; or
	•		a termination of employment by the executive for good reason, as defined in the employment agreement, including upon a change in control.

     In the case of each employment agreement, the terms of these arrangements were set through the course of arms-length negotiations with each of the named executive officers. As part of these negotiations, the compensation committee analyzed the terms of the same or similar arrangements for comparable executives

employed by other companies in the Radford survey. This approach was used by the compensation committee in setting the amounts payable and the triggering events under the arrangements.

     Severance payments include a cash payment that is generally based upon the salary and annual incentive payment history of the named executive officer at issue. Severance benefits may also include the accelerated vesting of our matching contributions under the non-qualified deferred compensation plan, the accelerated vesting of stock options and stock bonus awards, and the extension of the exercisability of an award. We may also agree to “gross up” the amount of the executive’s severance payment to account for the executive’s excess parachute payment excise tax liability. The amount of this gross-up payment may be influenced by the value of options and stock bonus awards that vest on an accelerated basis.

     Generally speaking, we provide severance to our executives to give them financial peace of mind in the event they suffer an involuntary termination other than for cause. We believe that the risk or possibility of an involuntary termination or change in control creates uncertainty for named executive officers regarding their continued employment with us. These scenarios may include, among other things, a termination of employment or a change in an executive’s job location, position or duties, whether on an individual basis or due to an overall reduction in or change to our workforce, or a change in other members of senior management resulting from a change in control event. As a result, our severance benefits are linked to our compensation philosophy of encouraging the long-term retention of our executives.

     Severance benefits for a change in control are paid pursuant to a “single trigger”; that is, they are earned regardless of whether the executive has been terminated or demoted or has otherwise experienced any diminution in compensation or duties. We believe that a single trigger gives our executives a modest level of financial security and peace of mind in the event that we experience a change in control, regardless of whether the executive has suffered or will suffer any specific adverse employment circumstance.

     We believe that all of our severance and termination-related benefits are typical of those received by other executives in our industry in both structure and amount. See “— Potential Payments upon Termination or Change in Control” for a summary of these severance and change in control provisions, the amount of potential payments that our named executive officers might receive and the method by which these benefit levels were determined.

      Other Benefits and Perquisites

     Our named executive officers participate in a wide array of benefit plans that are available to all of our salaried employees generally, including medical, dental, life and long-term disability insurance plans. Most of these benefits provide financial security and peace of mind for employees and executives and are generally viewed as a standard part of basic employee benefits within our industry. We generally do not provide to our named executive officers any material compensation in the form of perquisites.

      Tax and Accounting Treatment of Compensation

      Section 162(m)

     Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, currently limits the deductibility for U.S. federal income tax purposes of certain compensation paid in any year by a publicly held corporation to its chief executive officer and any other employee whose compensation is required to be reported to stockholders by reason of being among the three most highly compensated officers. As a result of Section 162(m), we cannot deduct for U.S. federal income tax purposes any compensation paid to any of these employees in an amount over $1 million unless the compensation is “performance-based compensation” as defined under Section 162(m).

     Amounts we pay as base salary and annual cash incentive compensation do not qualify for the “performance-based compensation” exception. Although we intend that options and other awards issued under our 2002 plan not be subject to the $1 million limitation in reliance upon this exception, compliance with the performance-based compensation exception is subject to a number of very technical requirements. Although the deductibility of compensation we have paid to executive officers has not been impacted by Section 162(m) in 2007, there can be no assurance that we will be able to comply with all of these requirements in the future.

      Section 280G

     Under Section 280G of the Code, a 20% excise tax is imposed upon named executive officers and other executive officers or employees who receive an “excess parachute payment” upon a change in control. An excess parachute payment is deemed to be received to the extent that such a change-in-control payment exceeds an amount approximating three times the employee’s average annual compensation, determined by a five-year average. A company also loses its tax deduction for any excess parachute payments made.

     We attempt to structure our severance packages so that they do not trigger an excess parachute payment (or a corresponding loss of our tax deduction), but there is no guarantee that the severance arrangements we have entered into will not require such a payment if and when they are triggered. Our employment agreements typically do not require us to reimburse an executive officer for the amount of any excise tax owed as a result of an excess parachute payment, although we may voluntarily agree to provide such a reimbursement to an executive officer in appropriate circumstances.

           Section 409A

     Section 409A of the Code provides for the payment of additional taxes by our directors, officers and employees with respect to various deferred compensation arrangements we maintain, including:

	•		employment and severance agreements between us and our officers;
	•		our non-qualified deferred compensation plan; and
	•		other compensation arrangements we enter into with our directors, officers and employees.

     Generally, however, Section 409A of the Code does not apply to incentive stock options and nonqualified stock options that are granted at fair market value if no deferral is provided beyond exercise. Section 409A also does not apply to our stock bonus awards. In the event that a deferred compensation arrangement fails to comply with Section 409A in form or operation, an officer, director or employee may become subject to:

	•		the imposition of U.S. federal income tax, and potentially state and local income tax, on all amounts deferred in the tax year in which the amounts are deferred (or, if later, in the tax year when the receipt of the benefits is no longer subject to a substantial risk of forfeiture);
	•		a penalty tax of 20% of the includable amount (in addition to the regular income tax at ordinary income rates); and
	•		interest at the underpayment rate plus 1 percent from the time the amount was first deferred (or, if later, the tax year when the benefits are no longer subject to a substantial risk of forfeiture) until the time the amount is included in income.

     Deferred compensation arrangements may, in some cases, be amended to avoid the adverse tax consequences of Section 409A. Such amendments must be made no later than December 31, 2008. We are in the process of evaluating our deferred compensation plans, employment and severance agreements and other compensation arrangements covered by Section 409A. We intend to make appropriate changes to comply with the requirements of Section 409A and the accompanying regulations to ensure that there are no adverse tax consequences for our directors, officers and employees. We may be required to renegotiate some or all of these agreements or arrangements with our directors and executive officers or to make changes to our deferred compensation plan, to bring them into compliance with Section 409A.

           SFAS No. 123R

     Accounting rules and pronouncements govern how we value option and stock bonus awards that we make and when those awards are to be recognized as compensation expense on our consolidated financial statements. Under SFAS No. 123R, we calculate the full grant date fair value of awards using a variety of assumptions. This calculation is performed for accounting purposes, as an executive officer might never realize any value from the award. This may happen, for example, when the value of a share of stock on which the executive holds an option falls below the exercise price of the option and remains below the exercise price, rendering the option worthless to the executive. SFAS No. 123R also requires that companies recognize the compensation cost of a stock option or stock bonus award proportionately over the period that an employee is required to render service in exchange for a share-based payment.

     In the Summary Compensation Table on page 57, the dollar amounts shown in the “Option Awards” column represent the compensation expense recognized by us in 2007 for awards made prior to 2007. These amounts do not necessarily represent the value received by an executive officer during 2007. To date, the SFAS No. 123R expense has not been a significant factor in setting or changing our equity compensation grant practices.

Summary Compensation Table

     The following table sets forth information relating to all compensation awarded to, earned by or paid to the following individuals for all services rendered in all capacities to us during each of the fiscal years ended December 31, 2007 and December 31, 2006:

	•		all individuals serving as our principal executive officer;
	•		our principal financial officer; and
	•		our two most highly compensated executive officers in the fiscal year ended December 31, 2007 whose total compensation exceeded $100,000.