ALPHARMA INC.

INDEX

ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)

See notes to the consolidated condensed financial statements.

ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except per share data)
(Unaudited)

See notes to the consolidated condensed financial statements.

ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)

* Includes cash of $188 included within Assets of Discontinued Operations at December 31, 2005.

See notes to the consolidated condensed financial statements.

1.    General

      The accompanying consolidated condensed financial statements include all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, considered necessary for a fair presentation of the results for the periods presented. These financial statements should be read in conjunction with the consolidated financial statements of Alpharma Inc. and Subsidiaries included in the Company's 2005 Annual Report on Form 10-K. The reported results for the three-month period ended March 31, 2006 are not necessarily indicative of the results to be expected for the full year. Certain amounts have been reclassified to conform with current presentations.

Basis of Presentation:

2.    Discontinued Operations

     Sale of the Generics Business - On December 19, 2005, the Company sold its world-wide human generic pharmaceutical business to Actavis Group hf ("Actavis") on a debt free and cash-free basis, for $810,000.

     Sale of the ParMed Business - On March 31, 2006, the Company completed the sale of its generic pharmaceutical telemarketing distribution business, ParMed Pharmaceuticals Inc. for $40,100 in cash. The net after-tax gain on the sale, $25,814, is reported in results from discontinued operations in the Consolidated Statement of Operations, along with adjustments related to the disposal of the Generics Business.

The following table details selected financial information for the Generics Business and ParMed, which have been classified as "Discontinued Operations":

The assets and liabilities of discontinued operations, consisting of ParMed assets and liabilities held for sale at December 31, 2005 were, as follows:

3.     Liquidity and Capital Resources

     On December 23, 2005, the Company gave notice to the Trustees under both its 8.625% Senior Notes due 2011 ("Senior Notes") and 3% (6.875% yield) Convertible Senior Subordinated Notes due 2006 ("Convertible Notes") that it was irrevocably electing to redeem all such notes in accordance with the terms of the respective note indentures. On January 23, 2006, the Company paid off the balance due on both the Senior Notes and Convertible Notes, including principal and accrued interest of $386,251 and call premium in the amount of $18,894. The call premium is included in "Loss on extinguishment of debt" within the Consolidated Statement of Operations. In January 2006, the Company repaid all short-term debt outstanding at December 31, 2005 in the amount of $35,713.

     At March 31, 2006, the Company had $366,405 in cash and cash equivalents and no debt outstanding. Interest income earned on cash investments during the quarter ended March 31, 2006 was $4,876 and is classified as a component of Interest income, (expense), net in the Consolidated Statement of Operations.

4.      Stock-based Compensation

     The Company adopted Statement of Financial Accounting Standards No. ("SFAS 123R"), "Share-Based Payments," effective January 1, 2006. SFAS 123R requires the recognition of the fair value of stock-based compensation in net earnings. Stock-based compensation consists primarily of incentive stock options and restricted stock.

     Prior to January 1, 2006, the Company accounted for incentive stock options under the intrinsic value method described in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. The Company, applying the intrinsic value method, did not record stock-based compensation cost in net income because the exercise price of its stock options equaled the market price of the underlying stock on the date of grant. The Company has elected to utilize the modified prospective transition method for adopting SFAS 123R. Under this method, the provisions of SFAS 123R apply to all awards granted or modified after the date of adoption. In addition, the unrecognized expense of awards not yet vested at the date of adoption, determined under the original provisions of SFAS 123, will be recognized in net earnings in the periods after the date of adoption. The Company recognized stock-based compensation expense for incentive stock options for the three months ended March 31, 2006 in the amount of $658. The Company also recorded tax related benefits for the three months ended March 31, 2006 in the amount of $224.

     SFAS 123R requires the Company to present pro forma information for periods prior to the adoption, as if it had accounted for all stock-based compensation under the fair value method of that statement. For purposes of pro forma disclosure, the estimated fair value of stock options at the date of grant is amortized to expense over the requisite service period, which generally equals the vesting period. The following table illustrates the effect on net earnings and earnings per share as if the Company had applied the fair value recognition provisions of SFAS 123R to its stock-based compensation for the period indicated.

The Company estimated the fair value, as of the date of grant, of stock options outstanding in the plan using the Black-Scholes option pricing model with the following assumptions:

     The risk-free interest rates for 2006 and 2005 were based upon U.S. Treasury instrument rates with maturity approximating the expected term. The weighted average interest rate in 2006 amounted to 4.6%. The weighted average fair value of options granted during the quarter ended March 31, 2006 with exercise prices equal to fair market value on the date of grant was $15.48.

     In the first quarter of 2006, the approximate number of stock options granted, cancelled and exercised were 209,700, 268,300 and 478,400, respectively. The stock options outstanding at March 31, 2006, were approximately 1,900,000 with an aggregate intrinsic value of $11,632, a weighted average exercise price of $23.42 and a weighted average remaining contractual term of 5.85 years. The number of stock options exercisable at March 31, 2006, was approximately 1,300,000 shares with an aggregate intrinsic value of $6,217, a weighted average exercise price of $25.20 and a weighted average remaining contractual term of 4.66 years. The total intrinsic value of stock options exercised during the first quarter of 2006 and 2005 was $6,175 and $50, respectively.

     As of March 31, 2006, the total remaining unrecognized compensation cost related to non-vested stock options, net of forfeitures, amounted to approximately $5,400. The weighted average remaining requisite service period of the non-vested stock options was approximately 20 months.

     Compensation for restricted stock is recorded based on the market value of the stock on the grant date. Prior to January 1, 2006, the Company capitalized the full amount of the restricted stock as unearned compensation with an offset to additional paid-in capital. Effective January 1, 2006, the Company reversed the unamortized balance of $5,395 against additional paid-in capital. The fair value of restricted stock is amortized to expense over the requisite service period. The amortization expense related to restricted stock amounted to $839 and $766 in the three month periods ended March 31, 2006 and 2005, respectively.

     The Company's 2003 Omnibus Incentive Compensation Plan provided for the issuance of performance units that were valued based on the Company's Total Shareholder Return as compared to a market index of peer companies and the satisfaction of a free cash flow threshold. Each performance unit had a potential value between zero and $200. In conjunction with the sale of the Generics Business, which made the peer group comparison no longer relevant, the Company, terminated the performance unit plan effective December 18, 2005. The Company fixed the final payout for each outstanding performance unit at $100 per unit. At March 31, 2006, the total value of performance units outstanding related to employees of the continuing operations was $6,495. This amount, net of forfeitures, will be paid out at the end of the plan's original three year vesting periods: December 31, 2006 and 2007. This cost is being amortized to expense over the remaining service period. The Company recognized expense related to performance units for its continuing operations for the three months ended March 31, 2006 in the amount of $1,187.

5.      Inventories

     Inventories consist of the following:

   
6.      Long-Term Debt

There was no Long-term debt outstanding at March 31, 2006. At December 31, 2005, the following debt was outstanding:

     On December 23, 2005, the Company gave notice to the Trustees under both the Senior Notes and the Convertible Notes that it was irrevocably electing to redeem all such notes in accordance with the terms of the respective note indentures. On January 23, 2006, the Company paid off the balance due on both the 8.625% Senior Notes and Convertible Notes, including principal and accrued interest of $386,251 and call premium in the amount of $18,894. The call premium is included in the "Loss on extinguishment of debt" within the Consolidated Statement of Operations.

     On October 26, 2005, the Company entered into a five-year, Senior Secured Credit Facility with Bank of America N.A. consisting of a $175,000 asset-based, revolving loan facility and a $35,000 term loan. The Company used $119,122 of this facility to repay and retire the 2001 U.S. Bank Credit Facility in October 2005. The Senior Secured Credit Facility was subsequently fully paid down in December 2005 with the proceeds from the sale of the Generics business. The asset-based, revolving loan availability was reduced to $75,000 and the term loan was cancelled.

     The Senior Secured Credit Facility, which was amended and restated on March 10, 2006 to reflect the sale of the Generics Business, is secured by the accounts receivable, inventory and certain fixed assets of the U.S. subsidiaries of the Company. The amount that is available to the Company to be borrowed is determined monthly based upon the calculation of a Borrowing Base. As of March 31, 2006, there were no amounts outstanding under this Facility. The interest rate that the Company would pay on outstanding amounts is based upon a spread over LIBOR or Base Rate. The spread ranges between 1.25% to 2.00% over LIBOR and 0% to 0.50% over the Base Rate. The determination of the spread is based upon the amount of availability under the facility with a lower spread payable based upon greater availability. As long as the Company does not have average availability less than $15,000 over a consecutive 10 day period, there are no financial covenants. In the event that the Company were to breach the availability threshold, the Company would be subject to a minimum Fixed Charge Coverage Ratio of 1:1.

7.   Earnings Per Share

      Basic earnings per share is based upon the weighted average number of common shares outstanding. Diluted earnings per share reflect the dilutive effect of stock options and convertible debt, when appropriate.

      A reconciliation of weighted average shares outstanding from basic to diluted is, as follows:

      The amount of dilution attributable to stock options, determined by the treasury stock method, depends on the average market price of the Company's common stock for each period. For the three months ended March 31, 2006 and 2005, stock options to purchase 759,000 and 2,081,000 shares, respectively, were not included in the diluted EPS calculation because the option price was greater than the average market price of the Class A common shares.

     Intangible assets and accumulated amortization are summarized as follows:

     The changes in the carrying amount of goodwill attributable to the Company's reportable segments for the quarter ended March 31, 2006 are, as follows:

9.    Reorganization, Refocus and other Actions

     In connection with the reorganization and refocus of the Company to improve future operations, severance charges associated with workforce reductions and other facility closure and exit costs have been recorded. Severance charges not related to specific programs are not segregated from normal operations. The following table presents activity in the severance and closure and exit costs related accruals:

     The liabilities for accrued severance as of March 31, 2006 are reflected in accrued expenses. The Company expects to settle the majority of these liabilities over the next nine months, in cash.

     The liabilities for other closure and exit costs as of March 31, 2006 primarily relate to demolition costs, payments related to a discontinued product, lease obligations and other contractually committed costs associated with facility closures announced in 2002. The Company expects to settle these liabilities over the next nine months.

10.    Pension Plans and Postretirement Benefits:

U.S.:

     The net periodic benefit costs for the Company's pension plans and other postretirement plans are as follows:

     The Company expects to contribute approximately $4,100 to the U.S. pension plans in 2006. Through the first quarter, no contributions have been made.

Europe:

     The net periodic benefit costs for the Company's pension plans are, as follows:

     The Company expects to contribute approximately $2,200 to the European pension plans in 2006. Through the first quarter, no contributions have been made.

11.      Supplemental Data

12.      Reporting Comprehensive Income

      SFAS 130, "Reporting Comprehensive Income" requires foreign currency translation adjustments and certain other items to be included in other comprehensive income (loss). Included within Accumulated other comprehensive income (loss) as of March 31, 2006 are foreign currency translation adjustments and minimum pension liability.

13.     Transactions with A.L. Industrier ASA

      A.L. Industrier ASA ("ALI") is the beneficial owner of 100% of the outstanding shares of the Company's Class B Stock. The Class B Stock represents 21.7% of the total outstanding common stock as of March 31, 2006. ALI, a Norwegian company, is able to control the Company through its ability to elect more than a majority of the Board of Directors and to cast a majority of the votes in any non-class vote of the Company's stockholders.

     Effective January 1, 2005, the Company and ALI entered into an administrative services agreement whereby the Company provides limited administrative services to ALI. The agreement replaced and reduced amounts due under a previous agreement. The 2005 agreement provides for payment of a fixed yearly fee of approximately $60. In April 2006, the Company entered into an amendment to the administrative services agreement pursuant to which the agreement was extended through June 30, 2006, with a six-month fee of approximately $30.

14.     Business Segment Information

      The Company's businesses are organized in three reportable segments as follows: Branded Pharmaceuticals ("BP"), Active Pharmaceutical Ingredients ("API"), and Animal Health ("AH"). Each business has a segment manager who reports to the CEO.

      The operations of each segment are evaluated based on earnings before interest and taxes (operating income). Unallocated costs include corporate expenses for administration, finance, legal and certain unallocated expenses primarily related to stock-based compensation and other long-term incentive compensation, as well as certain costs related to the implementation of a company-wide enterprise resource planning system. Segment data includes immaterial inter-segment revenues which are eliminated in the consolidated accounts.

15.     Income Taxes

     The Company's effective tax rate ("ETR") is dependent on many factors including: a.) the impact of enacted tax laws in jurisdictions in which the Company operates; b.) the amount of earnings by jurisdiction, due to varying tax rates in each country; and c.) the Company's ability to utilize various tax credits.

     Based on the Company's assessment of the above factors, the tax rate for the full year is expected to approximate 35%. The ETR for continuing operations for the three months ended March 31, 2006 was 35%.

     The tax provision for the first quarter of 2005 included $8.6 million related to the repatriation of earnings under the American Jobs Creation Act. It also included a 30% effective tax rate for international operations, but no tax benefit for domestic losses because a full valuation allowance was maintained at that time against domestic deferred tax assets.

16.     Contingent Liabilities and Litigation

     The Company is involved in various legal proceedings, of a nature considered normal to its business. It is the Company's policy to accrue for amounts related to these legal matters if it is probable that a liability has been incurred and an amount is reasonably estimable.

     In the opinion of the Company, although the outcome of any legal proceedings cannot be predicted with certainty, the ultimate liability of the Company in connection with the following legal proceedings will not have a material adverse effect on the Company's financial position but could be material to the results of operations or cash flows in any one accounting period.

     In June 2002, the SEC notified the Company that it had commenced a formal investigation of the circumstances surrounding the 2000 and 2001 restatements of its financial statements. The SEC has engaged in deposition and document discovery.

     The Company is one of multiple defendants that have been named in several lawsuits which allege that one of its AH products causes chickens to produce manure that contains an arsenical compound which, when used as agricultural fertilizer by chicken farmers, degrades into inorganic arsenic and causes a variety of diseases in the plaintiffs (who allegedly live in close proximity to such farm fields). The Company has provided notice to its insurance carriers and its primary insurance carriers have responded by accepting their obligations to defend or pay the Companys defense costs, subject to reservation of rights to later reject coverage for these lawsuits. In addition, one of the Company's carriers has filed a Declaratory Judgment action in state court in which it has sought a ruling concerning the allocation of its coverage obligations to the Company among the Company's several insurance carriers and, to the extent the Company does not have full insurance coverage, to the Company. In addition, this Declaratory Judgment action requests that the Court rule that certain of the carrier's policies provide no coverage because certain policy exclusions allegedly operate to limit its coverage obligations under said policies.

     In addition to the potential for personal injury damages to the approximately 175 plaintiffs, the plaintiffs are asking for punitive damages and requesting that the Company be enjoined from the future sale of the product at issue. Discovery is substantially complete with respect to the first trial which is scheduled for September 2006. While the Company can give no assurance of the outcome of these matters, it believes that it will be able to present credible scientific evidence that its product is not the cause of any injuries the plaintiffs may have suffered. There is also the possibility of an adverse customer reaction to the allegations in these lawsuits as well as additional lawsuits in other jurisdictions where the product has been sold. Worldwide sales of this product were approximately $23,300 in 2004, $23,100 in 2005 and $5,900 in the first quarter of 2006.

     The Company is the subject of several tax claims which aggregate approximately $10,000 by the Brazilian authorities relating to the operations of the Companys Animal Health business in Brazil since 1999. The Company believes it has meritorious defenses and intends to vigorously defend its position against these claims.

     The environmental authorities having jurisdiction over the Copenhagen and Oslo plants of the Company have given the Company notice of revised waste discharge requirements which will require plant alterations or modifications for compliance. While the Company does not believe that the cost of these alterations or modifications will be material to the Company, the failure or inability to comply with applicable regulations and discharge requirements could result in administrative actions affecting production at these facilities which could be materially adverse to the Company.

     The Company is engaged in disputes with several suppliers, customers and distributors regarding certain obligations with respect to contracts under which the Company obtains raw materials and under which the Company supplies finished products. Given the fact that these disputes will most probably be resolved over more than one year, management does not believe that the disputes in the aggregate will be material to the Company's financial position. However, they could be material to the Company's results of operations or cash flows in the period in which resolution occurs.

     Any further responsibility for substantially all of the material contingent liabilities related to the Generics Business have has been transferred to Actavis or entities owned by Actavis; subject to certain representations or warranties made by the Company to Actavis as a part of the transaction to the extent such representations and warranties were incorrect. In addition, the Company has retained certain specified liabilities which the Company believes are not material to the Company and, it is possible that the Company may be held responsible for certain liabilities of the Generic Business transferred to Actavis in the event Actavis fails to or is unable to satisfy such liabilities.

     The Company and its subsidiaries are, from time to time, involved in other litigation arising out of the ordinary course of business. It is the view of management, after consultation with counsel, that the ultimate resolution of all other pending suits on an individual basis should not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.

Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except per share data)

Overview

     The Company is a global specialty pharmaceutical company that develops, manufactures and markets pharmaceutical products for humans and animals. Alpharma's businesses are organized in three business segments. The Company markets one branded pharmaceutical prescription product that is contract manufactured by a third party, a pain medication sold under the trademark KADIAN, in the U.S. The Company manufactures and markets a line of fermentation-based active pharmaceutical ingredients ("APIs") that are used primarily by third parties in the manufacturing of generic and branded pharmaceutical products. It also manufactures and markets animal health products in various formulations and dosage forms.

     On December 19, 2005, the Company sold its world-wide human generic pharmaceutical business (the "Generics Business") to Actavis Group hf ("Actavis") for $810 million in cash. On March 31, 2006, the Company completed the sale of its generic telemarketing distribution business, ParMed Pharmaceuticals, Inc. ("ParMed") for $40.1 million in cash. Both the Generics Business and ParMed are classified as discontinued operations in the consolidated financial statements (see note 2 to the consolidated condensed financial statements).

Alpharma's business segments are defined, as follows:

     Total revenues increased 28% for the quarter ended March 31, 2006 compared to the first quarter of 2005. Operating income was $27.0 million in 2006 compared to $18.0 million in 2005. Diluted earnings (loss) per share was $0.13 in 2006 compared to $(0.22) in 2005.

The following summarizes revenues and operating income by segment:

Revenues:

     BP revenues increased $14.2 million to $32.6 million in the first quarter of 2006, compared to $18.4 million in the first quarter of 2005. The revenue growth was primarily a result of increased prescriptions which contributed to first quarter 2006 volume increases of $10.6 million compared to 2005, as well as price increases which contributed $3.6 million of the revenue increase.

     Revenues in API increased $10.2 million to $45.2 million compared to $35.0 million in the first quarter of 2005. Revenues increased mainly as a result of increased volumes of $10.3 million, approximately half of which related to the timing of customer orders. The volume gains were partially offset by approximately $2.5 million of price decreases on certain products. First quarter 2006 API revenues also include approximately $3.5 million in sales to the purchaser of the Generics Business that in previous years were eliminated as intercompany sales. Translation of revenues into the U.S. dollar decreased API revenues by $1.1 million in comparison to the first quarter of 2005.

     AH revenues increased approximately 10% versus the first quarter of 2005 due primarily to higher volumes in U.S. livestock markets (6%) and increased international sales in the European and Asian markets (5%) partially offset by the impact of foreign exchange (1%).

Gross Profit:

      On a Company-wide basis gross profit increased $22.5 million in 2006 compared to the first quarter of 2005. As a percentage of sales, overall gross profit was 60.5% in 2006, versus 59.4% in 2005.

     The increase in gross profit dollars is the result of increased volumes in all three business segments, offset partially by pricing decreases in API.

Operating Expenses:

     On a consolidated basis, selling, general and administrative ("SG&A") expenses increased $12.1 million in 2006 as compared to the first quarter of 2005. As a percentage of revenues, SG&A expense declined from 39.6% in the first quarter of 2005 to 38.5% in 2006.

     Approximately $3.5 million of the increase in SG&A was across all three businesses for additional operational infrastructure and other expenses related to the sale of the Generics Business, and to support the Company's growth initiatives. Approximately $1.9 million of the increase was due to marketing campaigns and sales force expansions within BP, and $0.5 million related to AH distribution costs. In addition, corporate and unallocated expenses increased due to $0.7 million of stock option expense related to the implementation of SFAS 123R and charges of $2.4 million for senior management retention agreements and the discontinuance of the Company's performance unit plan.

      Research and development expenses increased $1.4 million in the first quarter of 2006 in comparison to 2005, due primarily to spending related to new product development in BP.

Operating Income:

      Operating income increased by $9.0 million. The change in operating income is summarized as follows:

Interest Income/(Expense), net:

     The Company reported net interest income of $2.8 million the first quarter of 2006 compared to net interest expense of $13.5 million in last year's first quarter. The change reflects the repayment of all outstanding debt in the first quarter of 2006 using proceeds from the sale of the Generics Business as well as the cash flow generated by the Company during 2005. An analysis of the components of interest income/(expense), net is, as follows:

Loss on Extinguishment of Debt:

     First quarter 2006 results include the payment of a call premium of $18.9 million and write-offs of deferred loan costs of $0.5 million associated with the repayment of the Company's remaining outstanding long-term debt in January 2006. In the first quarter of 2005, the Company prepaid $115 million of bank term debt which resulted in the write-off of deferred loan costs of $1.9 million.

Other Income (Expense), net:

      A detail of Other income (expense), net follows:

Tax Provision

     The Company's effective tax rate ("ETR") is dependent on many factors including: a.) the impact of enacted tax laws in jurisdictions in which the Company operates; b.) the amount of earnings by jurisdiction, due to varying tax rates in each country; and c.) the Company's ability to utilize various tax credits.

     Based on the Company's assessment of the above factors, the tax rate for the full year is expected to approximate 35%. The ETR for continuing operations for the three months ended March 31, 2006 was 35%.

     The tax provision for the first quarter of 2005 included $8.6 million related to the repatriation of earnings under the American Jobs Creation Act. It also included a 30% effective tax rate for international operations, but no tax benefit for domestic losses because a full valuation allowance was maintained at that time against domestic deferred tax assets.

     Cash flow from operations in 2006 was a use of $38.0 million compared to $47.4 million provided from operations in the first quarter of 2005. During the first quarter of 2006, the Company paid cash taxes of $36.7 million and additional cash payments of approximately $20.0 million related to the settlement of accrued expenses associated with the Generics Business disposition.

     Cash flow provided by investing activities for the first quarter of 2006 included the proceeds from the sale of ParMed of $40.1 million.

     The cash flow used in financing activities in the first quarter of 2006 was $426.3 million compared with $117.5 million last year. The use of funds in 2006 included $436.3 million related to the repayment of debt, including a call premium of $18.9 million. Financing activities in the first quarter of 2005 included $125.8 million of debt repayments.

     Working capital at March 31, 2006, was $428.3 million compared to working capital of $371.8 million at December 31, 2005. Working capital is defined as current assets less current liabilities. The increase in working capital is primarily related to decreases in accounts payable and accrued expenses ($37.5 million) and accrued and deferred income taxes ($28.1 million). These reductions primarily relate to the settlement of accrued expenses associated with the sale of the Generics Business and 2005 incentive compensation payouts, as well as taxes paid relative to the repatriation of earnings under the American Jobs Creation Act of 2004 and other tax payments.

    Stockholders' equity at March 31, 2006 was $965.6 million compared to $918.1 million at December 31, 2005. The increase in Stockholders' Equity in 2006 resulted primarily from the first quarter net earnings, including the gain on the sale of ParMed. At March 31, 2006, due primarily to the cumulative strengthening of the U.S. dollar against many other currencies, the Company reported Accumulated Other Comprehensive Income of $48.9 million compared to $47.9 million at December 31, 2005.

Quantitative and Qualitative Disclosure - This information is included in Item 7a of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

(a) Disclosure Controls and Procedures

     The Company has implemented and maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports the Company files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to the Company's President and Chief Executive Officer ("CEO") and Executive Vice President and Chief Financial Officer ("CFO") as appropriate to allow timely decisions regarding disclosure. The disclosure controls and procedures involve participation by various individuals in the Company having access to material information relating to the operations of the Company. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.

     The Company's CEO and CFO completed an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Rule 13a-15 as of March 31, 2006. Based on this evaluation, they concluded that the Company's disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2006 because of the material weakness described below.

(b) Management's Report on Internal Control over Financial Reporting

      Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is a process that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company,
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the board of directors of the Company, and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

      Management performed an assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, utilizing the criteria described in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). The objective of this assessment was to determine whether the Company's internal control over financial reporting was effective as of December 31, 2005.

     A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. In its assessment of the effectiveness of internal control over financial reporting as of December 31, 2005, the Company determined that there were deficiencies in its internal controls over the accounting for income taxes and that these deficiencies constituted a material weakness, as described below.

     The sale of the Company's Generics Business in the fourth quarter of 2005 required the Company to effect numerous transactions related to the disposition and to recast its financial statements to separately present results from continuing and discontinued operations. This included disaggregating income tax accounts between continuing and discontinued operations, accounting for taxes associated with the sale transaction and the repatriation of earnings, and evaluating and adjusting valuation allowances that had been provided in prior years for certain US deferred tax assets. The fourth quarter accounting for income taxes required significant reliance upon external tax professionals and senior financial internal review and oversight, due to the complexities of the issues involved. The integration and oversight of the work of these service providers reduced the timeliness and accuracy of recording the final tax provisions and related entries in the year-end closing process and the preparation of tax footnote disclosures. The Company concluded that this reliance principally on outside providers and internal detective controls reduced the effectiveness of the internal controls over tax accounting processes. Accordingly, the Company concluded that a material weakness existed at December 31, 2005 in that it did not maintain effective internal control over financial reporting for income taxes, based on the criteria in "Internal Control - Integrated Framework" issued by the COSO.

(c)    Changes in Internal Control over Financial Reporting

     While management believes the enhanced control procedures implemented in 2005 served to strengthen its internal controls over income tax accounting, these enhanced procedures did not contemplate a transaction of the magnitude and complexity of the December 19, 2005 sale of the Generics Business.

     Because the December 19, 2005 sale of the Generics Business has simplified the Company, the tax accounting complexities and workload created by the fourth quarter 2005 transactions described above have been reduced. The Company believes that the combination of the completion of the sale of the Generics Business and expanded internal resources and oversight of the work of external tax service providers will serve to remediate the material weakness related to the accounting and financial reporting of income taxes during 2006.

     Other than as described above, there have not been any other changes in the Company's internal control over financial reporting during the quarter ended March 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Statements made in this Form 10-Q, are forward-looking statements made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. Information on other significant potential risks and uncertainties not discussed herein may be found in the Company's filings with the Securities and Exchange Commission including its Form 10-K for the year ended December 31, 2005.

PART II. OTHER INFORMATION

See Note 16 to the Company's Consolidated Condensed Financial Statement included in Part 1 of this Report for a discussion of material developments in the Company's legal proceedings.

Item 6. Exhibits

(a)      Exhibits

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.