The following discussion contains certain forward-looking statements that reflect management's current views of future events and operations. This discussion should be read in conjunction with the following: (a) "Risk Factors' set out below and in our Annual Report on Form 10-K for the year ended December 31, 2006, which are supplemented by the discussion which follows;
(b) our audited consolidated financial statements and related notes which are included in our Annual Report on Form 10-K for the year ended December 31, 2006; and (c) our unaudited consolidated financial statements and related notes which are included in this report on Form 10-Q. Please see the sections entitled "Risk Factors" and "A Warning About Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with these statements.

I. OVERVIEW

Our Business

We are a vertically integrated pharmaceutical company that develops, manufactures, markets and sells branded prescription pharmaceutical products. To capitalize on opportunities in the pharmaceutical industry, we seek to develop, in-license, acquire or obtain commercialization rights to novel branded prescription pharmaceutical products in attractive markets.

Our corporate strategy is focused on three key therapeutic areas:
cardiovascular/metabolic, neuroscience, and hospital/acute care products. We believe each of our key therapeutic areas has significant market potential and our organization is aligned accordingly. We work to achieve organic growth by maximizing the potential of our currently marketed products through sales and marketing and product life-cycle management. We also work to achieve organic growth through the successful development of new branded pharmaceutical products. Additionally, we seek to achieve growth through the acquisition or in-licensing of novel branded pharmaceutical products in various stages of development and technologies that have significant market potential that complement our three key therapeutic areas. We may also seek company acquisitions which add products or products in development, technologies or sales and marketing capabilities to our key therapeutic areas or that otherwise complement our operations.

Utilizing our internal resources and a disciplined business development process, we strive to be a leader and partner of choice in bringing innovative, clinically-differentiated therapies and technologies to market in our key therapeutic areas.

Recent Developments

On September 6, 2006, we entered into a definitive asset purchase agreement and related agreements with Ligand Pharmaceuticals Incorporated ("Ligand") to acquire rights to AvinzaŽ (morphine sulfate extended release). AvinzaŽ is an extended release formulation of morphine and is indicated as a once-daily treatment for moderate to severe pain in patients who require continuous opioid therapy for an extended period of time. We completed our acquisition of AvinzaŽ on February 26, 2007, acquiring all the rights to AvinzaŽ in the United States, its territories and Canada. For additional information, please see Note 5, "Acquisitions, Dispositions, Co-Promotions and Alliances," in Part I, "Financial Statements."

On January 9, 2007, we obtained an exclusive license to certain of Vascular Solutions, Inc.'s ("Vascular Solutions") hemostatic products, including products which we expect to market as Thrombi-Padtm and Thrombi-GelŽ hemostats. The license also includes a product we expect to market as Thrombi-Pastetm, which is currently in development. Each of these products includes our Thrombin-JMIŽ product as a component. Vascular Solutions will manufacture for us the products covered by the license. For additional information, please see Note 5, "Acquisitions, Dispositions, Co-Promotions and Alliances," in Part I, "Financial Statements."

On April 19, 2007, we announced that we have positive top-line results from the Phase III clinical trial evaluating the efficacy and safety of our AltaceŽ diuretic fixed-dose combination product. We are evaluating the trial data and expect to present the findings in detail at an upcoming scientific conference.

II. RESULTS OF OPERATIONS

Three Months Ended March 31, 2007 and 2006

The following table summarizes total revenues and cost of revenues by operating
segment:


                                                                     For the Three Months
                                                                       Ended March 31,
                                                                     2007            2006
                                                                        (In thousands)

Total Revenues
Branded pharmaceuticals                                           $   449,087      $ 417,620
Meridian Medical Technologies                                          43,015         41,284
Royalties                                                              20,324         19,636
Contract manufacturing                                                  3,208          5,695
Other                                                                     396              -

Total revenues                                                    $   516,030      $ 484,235
Cost of Revenues, exclusive of depreciation, amortization and
impairments
Branded pharmaceuticals                                           $    86,874      $  65,391
Meridian Medical Technologies                                          18,440         19,247
Royalties                                                               2,443          2,370
Contract manufacturing                                                  3,004          5,396
Other                                                                     693              -

Total cost of revenues                                            $   111,454      $  92,404

The following table summarizes our gross to net sales deductions:

                                             For the Three Months
                                                Ended March 31,
                                              2007           2006
                                                (In thousands)

                 Gross Sales               $   634,839     $ 607,859
                 Commercial Rebates             48,938        56,278
                 Medicare Part D Rebates        14,966        11,168
                 Medicaid Rebates                8,718         8,712
                 Chargebacks                    23,645        29,390
                 Returns                        (1,254 )        (702 )
                 Trade Discounts/Other          24,018        19,028

                                               515,808       483,985
                 Discontinued Operations          (222 )        (250 )

                 Net Sales                 $   516,030     $ 484,235

Gross sales were higher in 2007 compared to 2006 primarily due to price increases and the acquisition of AvinzaŽ on February 26, 2007.

During January 2006, the Medicare Prescription Drug Improvement and Modernization Act became effective, which provides outpatient prescription drug coverage to senior citizens and certain disabled citizens in the United States. We have contracts with organizations that administer the Medicare Part D Program which require us to pay rebates based on contractual pricing and actual utilization under the plans. Initial enrollment in the Medicare Part D Program was open through the middle of the second quarter of 2006.

The following tables provide the activity and ending balances for our significant gross to net categories.

Accrual for Rebates, including Administrative Fees:

                                                               2007           2006

 Balance at January 1, net of prepaid amounts                $  53,765     $  126,240
 Current provision related to sales made in current period      72,088         79,690
 Current provision related to sales made in prior periods          534         (3,532 )
 Rebates paid                                                  (67,255 )     (115,998 )

Balance at March 31, net of prepaid amounts $ 59,132 $ 86,400

Rebates include commercial rebates and Medicaid and Medicare rebates.

During the first quarter of 2006, we paid approximately $129.3 million related to (i) the settlement agreements with the Office of Inspector General of the United States Department of Health and Human Services ("HHS/OIG") and the Department of Veterans Affairs, to resolve the governmental investigations related to our underpayment of rebates owed to Medicaid and other governmental pricing programs during the period from 1994 to 2002 and (ii) similar state settlement agreements. For a discussion regarding this settlement, please see "Settlement of Governmental Pricing Investigation" included in Note 8, "Commitments and Contingencies," in Part I, "Financial Statements." Of the $129.3 million paid in the first quarter of 2006, approximately $64.0 million reduced the rebate accrual and is reflected in "Rebates paid" in the table above.

In addition, during the first quarter of 2006, we delayed our regular periodic Medicaid rebate payments as a result of prior overpayments. During the second quarter of 2006, we began reducing our payments for Medicaid rebates to utilize overpayments made to the government related to Medicaid during the government pricing investigation in 2003, 2004 and 2005. During the period of the investigation, we made actual Medicaid payments in excess of estimated expense to avoid any underpayments to the government. As a result of refining the AMP and Best Price calculations in the third quarter of 2005, we discontinued the practice of making payments in excess of the amounts expensed. We expect to recover the remaining overpayments to the government and will continue to reduce cash payments in the future until this overpayment is fully recovered. For a discussion regarding this investigation, please see Note 8, "Commitments and Contingencies", in Part I, "Financial Statements." In 2007, the utilization of overpayments reduced our rebate payments by approximately $2.3 million and has therefore reduced "Rebates paid" in the table above.

Accrual for Returns (in thousands):


                                                 2007         2006

                  Balance at January 1         $ 42,001     $ 50,902
                  Current provision              (1,254 )       (702 )
                  Actual returns                 (6,295 )     (7,692 )

                  Ending balance at March 31   $ 34,452     $ 42,508

Our calculation for product returns reserves is based on historical sales and return rates over the period during which customers have a right of return. We also consider current wholesale inventory levels of our products. Because actual returns related to sales in prior periods were lower than our original estimates, we recorded a decrease in our reserve for returns in each of the first quarter of 2007 and the first quarter of 2006. During the first quarter of 2007, we decreased our reserve for returns by approximately $8.0 million and increased our net sales from branded pharmaceuticals, excluding the adjustment to sales classified as discontinued operations, by the same amount. The effect of the change in estimate on first quarter 2007 operating income was an increase of approximately $5.0 million. During the first quarter of 2006, we decreased our reserve for returns by approximately $8.0 million and increased our net sales from branded pharmaceuticals, excluding the adjustment to sales classified as discontinued operations, by the same amount. The "Accrual for Returns" table above reflects these adjustments as a reduction in the current provision. The

effect of the change in estimate on first quarter 2006 operating income was an increase of approximately $6.0 million.

Accrual for Chargebacks (in thousands):


                                                2007          2006

                 Balance at January 1         $  13,939     $  13,153
                 Current provision               23,645        29,390
                 Actual chargebacks             (26,557 )     (25,972 )

                 Ending balance at March 31   $  11,027     $  16,571

Branded Pharmaceuticals Segment


                                                       For the Three Months                Change
                                                         Ended March 31,                2007 vs. 2006
                                                       2007            2006            $             %
                                                          (In thousands)

Branded pharmaceutical revenue:
AltaceŽ                                             $   156,620      $ 158,848      $ (2,228 )       (1.4 )%
SkelaxinŽ                                               112,118         98,626        13,492         13.7
Thrombin-JMIŽ                                            63,975         58,197         5,778          9.9
AvinzaŽ                                                   9,399              -         9,399            -
LevoxylŽ                                                 22,057         30,955        (8,898 )      (28.7 )
SonataŽ                                                  23,853         21,267         2,586         12.2
Other                                                    61,065         49,727        11,338         22.8

Total revenue                                           449,087        417,620        31,467          7.5
Cost of revenues, exclusive of depreciation,
amortization and impairments                             86,874         65,391        21,483         32.9

Net sales from branded pharmaceutical products were higher in 2007 than in 2006 primarily due to price increases and the acquisition of AvinzaŽ on February 26, 2007. Based on inventory data provided to us by our customers, we believe that wholesale inventory levels of our key products, AltaceŽ, SkelaxinŽ, Thrombin-JMIŽ, AvinzaŽ, LevoxylŽ, and SonataŽ remain at normalized levels as of March 31, 2007. We estimate that wholesale and retail inventories of our products as of March 31, 2007 represent gross sales of approximately $180.0 million to $190.0 million. For a discussion regarding the potential risk of generic competition for AltaceŽ, SkelaxinŽ, and SonataŽ, please see Note 8 "Commitments and Contingencies," in Part I, "Financial Statements."

Sales of Key Products

AltaceŽ

Net sales of AltaceŽ decreased slightly in 2007 from 2006. We increased prices on AltaceŽ during the fourth quarter of 2006, which was offset by a decrease in prescriptions. Total prescriptions for AltaceŽ decreased approximately 4.9% in 2007 from 2006 according to IMS America, Ltd. ("IMS") monthly prescription data.

For a discussion regarding the risk of potential generic competition for AltaceŽ, please see Note 8, "Commitments and Contingencies" in Part I, "Financial Statements."

SkelaxinŽ

Net sales of SkelaxinŽ increased in 2007 from 2006 primarily due to a price increase taken in the fourth quarter of 2006 and a reduction in reserves for returns as discussed above. Total prescriptions for SkelaxinŽ increased approximately 0.3% in 2007 from 2006 according to IMS monthly prescription data. We do not believe net sales of SkelaxinŽ will continue to increase at the rate experienced in the first quarter of 2007.

For a discussion regarding the risk of potential generic competition for SkelaxinŽ, please see Note 8, "Commitments and Contingencies," in Part I, "Financial Statements."

Thrombin-JMIŽ

Net sales of Thrombin-JMIŽ increased in 2007 compared to 2006 primarily due to a price increase taken in the fourth quarter of 2006. We believe Thrombin-JMIŽ net sales in 2007 may not continue to increase at the rate experienced in the first quarter of 2007 due to the potential introduction of new competitors in the market in the second half of 2007.

AvinzaŽ

On September 6, 2006, the Company entered into a definitive asset purchase agreement and related agreements with Ligand Pharmaceuticals Incorporated ("Ligand") to acquire rights to AvinzaŽ (morphine sulfate extended release). AvinzaŽ is an extended release formulation of morphine and is indicated as a once-daily treatment for moderate to severe pain in patients who require continuous opioid therapy for an extended period of time. The Company completed its acquisition of AvinzaŽ on February 26, 2007, acquiring all the rights to AvinzaŽ in the United States, its territories and Canada. First-quarter 2007 net sales of AvinzaŽ reflect sales occurring from February 26, 2007 through March 31, 2007.

LevoxylŽ

Net sales of LevoxylŽ decreased in 2007 compared to 2006 primarily due to a decrease in prescriptions in 2007, partially offset by price increases taken in the fourth quarter of 2006. During the first quarter of 2006, net sales of LevoxylŽ benefited from a favorable change in estimate of approximately $7.0 million in the product's reserve for Medicaid rebates as a result of the government pricing investigation settlement. This benefit was substantially offset by increases in Medicaid rebate reserves for other products as a result of the settlement. Total prescriptions for LevoxylŽ were approximately 11.4% lower in 2007 than in 2006 according to IMS monthly prescription data. While prescriptions for this product may continue to decline in 2007, we believe the rate of any decline may be lower than that experienced in 2006.

SonataŽ

Net sales of SonataŽ were higher in 2007 than in 2006 primarily due to an increase in wholesale inventory levels of SonataŽ in 2007 and price increases taken in the fourth quarter of 2006, partially offset by a decrease in prescriptions during 2007 compared to 2006. Total prescriptions for SonataŽ decreased approximately 14.1% in 2007 from 2006 according to IMS monthly prescription data. The decrease in prescriptions during 2007 was primarily due to new competitors that entered the market in 2005. We do not believe net sales of SonataŽ will continue to increase at the rate experienced in the first quarter of 2007. We have experienced periodic stock-outs in our inventory of SonataŽ due to problems with production experienced by the third-party manufacturer of SonataŽ. Based on our conversations with the manufacturer, and our current levels of inventory and demand for the product, we do not currently anticipate further stock-outs. However, if we do experience additional stock-outs, they would likely negatively affect net sales of SonataŽ in future quarters. We are currently working to transfer the manufacture of SonataŽ to another manufacturer.

For a discussion regarding the risk of potential generic competition for SonataŽ, please see Note 8, "Commitments and Contingencies," in Part I, "Financial Statements."

Other

Net sales of other branded pharmaceutical products were higher in 2007 compared to 2006 primarily due to an increase in net sales of BicillinŽ and price increases which were partially offset by decreases in prescriptions. We completed construction of facilities to produce BicillinŽ at our Rochester, Michigan location and began commercial production in the fourth quarter of 2006 and replenished wholesale inventories of the product during the first quarter of 2007. Accordingly, we believe net sales of BicillinŽ may be lower in future quarters than that experienced in the first quarter of 2007. Additionally, most of our other branded

pharmaceutical products are not promoted through our sales force and prescriptions for many of these products are declining. Considering all of these factors, we do not believe net sales of other branded pharmaceutical products will continue to increase at the rate experienced in the first quarter of 2007.

Cost of Revenues

Cost of revenues from branded pharmaceutical products increased in 2007 from 2006 primarily due to an increase in royalties associated with SkelaxinŽ and AvinzaŽ.

Meridian Medical Technologies


                                                          For the Three Months               Change
                                                            Ended March 31,               2007 vs. 2006
                                                          2007             2006           $           %
                                                             (In thousands)

Meridian Medical
Technologies revenue                                   $    43,015       $ 41,284      $ 1,731         4.2 %
Cost of revenues, exclusive of depreciation,
amortization and impairments                                18,440         19,247         (807 )      (4.2 )

Revenues from Meridian Medical Technologies increased in 2007 compared to 2006 primarily due to increases in unit sales of EpipenŽ to Dey, L.P., as well as revenues derived from our acquisition of the rights to market and sell EpipenŽ in Canada that we purchased from Allerex Laboratory LTD on March 1, 2006, partially offset by decreases in unit sales of other products to the government. Most of our EpipenŽ sales are based on our supply agreement with Dey, L.P., which markets, distributes and sells the product worldwide, except for Canada where it is marketed, distributed and sold by us. Revenues from Meridian Medical Technologies fluctuate based on the buying patterns of Dey, L.P. and the government. Total prescriptions for EpipenŽ in the United States increased approximately 5.1% in 2007 compared to 2006 according to IMS monthly prescription data.

Royalties


                                                             For the Three Months               Change
                                                               Ended March 31,               2007 vs. 2006
                                                             2007             2006           $            %
                                                                (In thousands)

Royalty revenue                                           $    20,324       $ 19,636      $   688         3.5 %
Cost of revenues, exclusive of depreciation,
amortization and impairments                                    2,443          2,370           73         3.1

Revenues from royalties are derived primarily from payments we receive based on sales of AdenoscanŽ. We are not responsible for the marketing of this product and, thus, are not able to predict whether revenue from royalties will increase or decrease in future periods. For a discussion regarding the potential risk of generic competition for AdenoscanŽ, please see Note 8, "Commitments and Contingencies," in Part I, "Financial Statements."

Contract Manufacturing


                                                         For the Three Months                Change
                                                            Ended March 31,               2007 vs. 2006
                                                          2007            2006           $             %
                                                            (In thousands)

Contract manufacturing revenue                         $     3,208       $ 5,695      $ (2,487 )      (43.7 )%
Cost of revenues, exclusive of depreciation,
amortization and impairments                                 3,004         5,396        (2,392 )      (44.3 )

Revenues and cost of revenues from contract manufacturing decreased in 2007 compared to 2006 due to a lower volume of units manufactured for third parties.

Operating Costs and Expenses


                                                      For the Three Months                 Change
                                                        Ended March 31,                2007 vs. 2006
                                                      2007            2006             $             %
                                                         (In thousands)

Cost of revenues, exclusive of depreciation,
amortization and impairments                       $   111,454      $  92,404      $  19,050         20.6 %
Selling, general and administrative                    168,312        170,343         (2,031 )       (1.2 )
Research and development                                32,271        114,882        (82,611 )      (71.9 )
Depreciation and amortization                           35,678         34,365          1,313          3.8
Restructuring charges                                      460              -            460            -

Total operating costs and expenses                 $   348,175      $ 411,994      $ (63,819 )      (15.5 )%

Selling, General and Administrative Expenses


                                                      For the Three Months                 Change
                                                        Ended March 31,                2007 vs. 2006
                                                      2007            2006             $             %
                                                         (In thousands)

Selling, general and administrative, exclusive
of co-promotion fees                               $   122,354      $ 105,054      $  17,300         16.5 %
Co-promotion fees                                       45,958         65,289        (19,331 )      (29.6 )

Total selling, general and administrative          $   168,312      $ 170,343      $  (2,031 )       (1.2 )%

As a percentage of total revenues, total selling, general, and administrative expenses were 32.6% and 35.2% in 2007 and 2006, respectively.

Total selling, general and administrative expenses decreased in 2007 compared to 2006 primarily due to a decrease in co-promotion fees that we pay to Wyeth under the Amended and Restated Co-Promotion Agreement (the "Amended Co-Promotion Agreement"), partially offset by an increase in operating expenses associated with sales and marketing. While AltaceŽ net sales were consistent, the co-promotion fee decreased due to a lower co-promotion fee average rate during 2007 as a result of the Amended Co-Promotion Agreement. For additional discussion regarding the Amended Co-Promotion Agreement, please see "General" within the "Liquidity and Capital Resources" section below. For a discussion regarding net sales of AltaceŽ, please see "AltaceŽ" within the "Sales of Key . . .