App Pharmaceuticals, Inc. - Quarterly Report (10-Q)

For the Three Months Ended March 31,

(in thousands, except per share data)

Number of shares excluded

Range of exercise prices per share

12.08 - $23.67

13.67 - $23.67

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2008

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

For the transition period from to

Commission file number 0-33407

APP Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)


Delaware		30-0431736
(State of Incorporation)		(I.R.S. Employer Identification No.)

1501 East Woodfield Road, Suite 300, East

Schaumburg, Illinois

60173-5837

(Address of principal executive offices)

(Zip Code)

(847) 969-2700

(Registrant’s telephone number, including area code)

N/A

(Former Name or Former Address, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

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

Large Accelerated filer þ Accelerated Filer ¨ Non-Accelerated Filer ¨

Indicate by check mark whether the registrant is a shell company (as determined by rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of May 6, 2008, the registrant had 160,274,219 shares of $0.001 par value common stock outstanding.

APP Pharmaceuticals, Inc.

INDEX


		Page
PART I. Financial Information

Item 1.	Financial Statements (Unaudited)	3

	Condensed consolidated balance sheets – March 31, 2008 and December 31, 2007	3

	Condensed consolidated statements of operations – Three months ended March 31, 2008 and 2007	4

	Condensed consolidated statements of cash flows – Three months ended March 31, 2008 and 2007	5

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	24

PART II. Other Information

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3.	Defaults Upon Senior Securities	35

Item 4.	Submission of Matters to a Vote of Security Holders	36

Item 5	Other Information	36

Item 6.	Exhibits	36

Signatures		37

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

APP Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets


	March 31, 2008			December 31, 2007
	(in thousands, except share data)
	(Unaudited)			(Note 1)
Assets
Current assets:
Cash and cash equivalents	$	60,837		$	31,788
Accounts receivable, net		65,303			85,209
Inventories		161,545			149,191
Prepaid expenses and other current assets		11,523			13,531
Current receivables from related parties		—			6,996
Income taxes receivable		5,648			—
Deferred income taxes		17,296			17,109

Total current assets		322,152			303,824
Property, plant and equipment, net		131,323			132,528
Intangible assets, net		455,659			463,154
Goodwill		160,239			160,239
Deferred financing costs and other non-current assets, net		17,727			17,842

Total assets	$	1,087,100		$	1,077,587

Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	34,450		$	36,502
Accrued liabilities		41,662			45,595
Current payables due to related parties		3,647			—
Fair value of interest rate swap		7,230			—
Current portion of long-term debt		8,125			5,000

Total current liabilities		95,114			87,097
Long-term debt		990,625			995,000
Deferred income taxes, non-current		69,788			71,011
Other long-term liabilities		4,483			4,250

Total liabilities		1,160,010			1,157,358
Stockholders’ deficit
Common stock - $0.001 par value; 350,000,000 shares authorized; 160,232,817 and 160,069,196 shares issued and outstanding in 2008 and 2007		160			160
Additional paid-in capital		(93,207	)		(96,357	)
Retained earnings		22,872			13,715
Accumulated other comprehensive (loss) income		(2,735	)		2,711

Total stockholders’ deficit		(72,910	)		(79,771	)

Total liabilities and stockholders’ deficit	$	1,087,100		$	1,077,587

See accompanying notes to condensed consolidated financial statements

APP Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended March 31,
	2008			2007
	(in thousands, except per share data)
Net revenue	$	148,079		$	140,268
Cost of sales		78,017			74,831

Gross profit		70,062			65,437
Operating expenses:
Research and development		12,330			9,964
Selling, general and administrative		21,020			22,061
Amortization of merger related intangibles		3,856			3,856
Separation related costs		391			352

Total operating expenses		37,597			36,233

Income from operations		32,465			29,204
Interest income and other		979			266
Interest expense		(16,716	)		(3,876	)

Income from continuing operations before income taxes		16,728			25,594
Provision for income taxes from continuing operations		7,571			11,977

Net income from continuing operations		9,157			13,617

Net loss from discontinued operations, net of taxes		—			(2,502	)

Net income	$	9,157		$	11,115

Basic net income (loss) per common share:
Continuing operations	$	0.06		$	0.09
Discontinued operations		—			(0.02	)

Net income per basic common share	$	0.06		$	0.07

Diluted net income (loss) per common share:
Continuing operations	$	0.06		$	0.08
Discontinued operations		—			(0.01	)

Net income per diluted common share	$	0.06		$	0.07

The composition of stock-based compensation included above is as follows:
Cost of sales	$	765		$	754
Research and development		285			154
Selling, general and administrative		1,965			3,124
Discontinued operations		—			5,688

	$	3,015		$	9,720

See notes to condensed consolidated financial statements.

APP Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended
	March 31, 2008			March 31, 2007
	(in thousands)
Cash flows from operating activities:
Net income from continuing operations	$	9,157		$	13,617
Net loss from discontinued operations, net of taxes		—			(2,502	)

Net income		9,157			11,115
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		4,492			6,230
Amortization		580			211
Amortization of product rights		4,109			4,110
Amortization of merger related intangibles		3,856			13,509
Stock-based compensation		3,015			9,720
Loss on disposal of property, plant and equipment		5			275
Excess tax benefit from stock-based compensation		(519	)		(307	)
Stock option grants/forfeitures		(264	)		—
Deferred income taxes		1,379			(5,455	)
Equity in net income of Drug Source Company, LLC, net of dividends received		—			(718	)
Changes in operating assets and liabilities:
Accounts receivable, net		19,906			1,999
Inventories		(12,354	)		(5,376	)
Prepaid expenses and other current assets		2,178			1,774
Non-current receivables from related parties		10,643			—
Deferred revenue		—			(9,844	)
Minimum royalties payable		—			10
Other non-current liabilities		71			(83	)
Income taxes payable		(5,648	)		(62,218	)
Accounts payable and accrued liabilities		(5,735	)		(5,252	)

Net cash provided by (used in) operating activities		34,871			(40,300	)
Cash flows from investing activites:
Purchases of property, plant and equipment		(3,301	)		(42,043	)
Purchases of other non-current assets		(500	)		(354	)

Net cash used in investing activities		(3,801	)		(42,397	)
Cash flows from financing activities
Proceeds from the exercise of stock options		312			942
Proceeds from issuance of senior secured credit agreement		—			153,000
Proceeds from the sale of stock under employee retirement and stock purchase plans		—			1,956
Notes payable		—			1,360
Excess tax benefit from stock-based compensation		519			307
Repayment of borrowings on unsecured credit facility		(1,250	)		(85,000	)
Payment of deferred financing costs		(606	)		—

Net cash (used in) provided by financing activities		(1,025	)		72,565
Effect of exchange rates on cash		(996	)		580

Net increase (decrease) in cash and cash equivalents		29,049			(9,552	)
Cash and cash equivalents, beginning of period		31,788			39,297

Cash and cash equivalents, end of period	$	60,837		$	29,745

See notes to condensed consolidated financial statements

APP PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(Unaudited)

(1)

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ended December 31, 2008 or for other future periods. The balance sheet information at December 31, 2007 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements. All material intercompany balances and transactions have been eliminated in consolidation and certain balances in prior periods have been reclassified to conform to the presentation adopted in the current period.

On November 13, 2007, we, APP Pharmaceuticals, Inc., formerly known as American Pharmaceutical Partners, Inc. and Abraxis Bioscience (“Old Abraxis”) separated into two independent publicly-traded companies: our company, which owns and operates the hospital-based business; and the other which owns and operates the proprietary business. We refer to the proprietary business following the separation as “New Abraxis,” which subsequently changed its name to Abraxis BioScience, Inc. We continue to operate the hospital-based business (which we refer to as “New APP” or “APP” following the separation) under the name APP Pharmaceuticals, Inc.

For accounting purposes, historical operating results of the proprietary business are now presented as discontinued operations and, accordingly, our financial statements, reflect this basis of accounting. Please refer to Note 2— Discontinued Operations - Spin-off of New Abraxis, for further details.

Principles of Consolidation

The unaudited condensed consolidated financial statements resulting from the November 13, 2007 spin-off of New Abraxis include: (a) the assets, liabilities and results of operations of APP Pharmaceuticals, Inc. and our operating subsidiary APP Pharmaceuticals, LLC and its wholly owned subsidiaries, Pharmaceutical Partners of Canada, Inc. and APP Pharmaceuticals Manufacturing, LLC; and (b) for periods prior to the spin-off, the historical operations of the proprietary business. The historical operating results of the proprietary business are now presented as discontinued operations. Please refer to Note 2— Discontinued Operations - Spin-off of New Abraxis.

Prior to our separation, the consolidated assets and liabilities include the results of Old Abraxis and its then wholly owned subsidiaries, Pharmaceutical Partners of Canada, Inc., APP Pharmaceuticals Manufacturing, LLC, Pharmaceutical Partners Switzerland, GmbH, VivoRx AutoImmune, Inc., Chicago BioScience, LLC and Transplant Research Institute, as well as the majority-owned subsidiary, Resuscitation Technologies, LLC, Cenomed BioSciences, LLC, and investment in Drug Source Company, LLC, which is accounted for using the equity method.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates may also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The effective date for adoption by our Company is the first quarter of 2009. We are currently assessing the impact that the adoption of SFAS 161 will have on our consolidated financial statements.

In January, 2008, the company adopted FASB Staff Position (FSP) FAS 157 which was issued in September, 2006. FAS 157 essentially redefines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies where other accounting pronouncements require or permit fair value measurements and its adoption was determined by the types of instruments carried at fair value in our financial statements at the time of adoption as well as the methods utilized to determine their fair values prior to adoption. The company adopted the fair value measurement guidance of SFAS No. 157 in the valuation of its interest rate swap, which we entered into on February 14, 2008. Refer to Note 6 – Fair Value Measurements .

In January, 2008, the company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected was recognized in earnings at each subsequent reporting date. The new standard did not impact the company’s condensed, consolidated financial statements, as the company did not elect the fair value option for any of the instruments existing as of the adoption date.

In December 2007, the FASB issued Statement No. 141(R), “Business Combination” (SFAS 141R) and Statement No. 160, “Accounting and Reporting of Noncontrolling Interest in Consolidated Financial Statements, an Amendment of ARB No. 51” (SFAS 160). These new standards will significantly change the accounting for and reporting of business combination transactions and noncontrolling (minority) interests consolidated financial statements. SFAS 141R and SFAS 160 are required to be adopted simultaneously and are effective with the first quarter of 2009. SFAS 141R and SFAS 160 could have a significant impact on our accounting for future business combinations and other business arrangements after the implementation of these statements.

In June 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) on EITF Issue No. 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities” (or “EITF 07-3”). EITF 07-3 states that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred or capitalized. Such amounts should be recognized as an expense as the related goods are delivered or the related services performed. If an entity does not expect the goods to be delivered or services to be rendered, the capitalized advance payment should be charged to expense. EITF 07-3 is effective for fiscal years beginning after December 15, 2007 and earlier application is not permitted. We occasionally enter into agreements for research and development of goods and service. EITF 07-3 is not expected to have a material effect on our results of operations or financial position.

(2)

Discontinued Operations – Spin-off of New Abraxis

On November 13, 2007, Old Abraxis was separated into two independent publicly-traded companies: our company, APP Pharmaceuticals, Inc., which owns and operates the hospital-based business; and the other which owns and operates the proprietary business. We refer to the proprietary business following the separation as “New Abraxis,” which subsequently changed its name to Abraxis BioScience, Inc. We continue to operate the hospital-based business (which we refer to as “APP” or “New APP” following the separation) under the name APP Pharmaceuticals, Inc. For accounting purposes, the historical operating and cash flow results of the proprietary business are presented as discontinued operations

Summarized financial information for discontinued operations is as follows:


	For the Three Months ended March 31,
	2008		2007
	(in thousands)
Net revenue	$	—	$	71,893
Loss before taxes		—		(8,282	)
Income tax benefit		—		(5,780	)
Net loss	$	—		(2,502	)

New APP and New Abraxis also entered into a series of agreements in connection with the separation, including a separation and distribution agreement, a transition services agreement, an employee matters agreement, a tax allocation agreement, a manufacturing agreement and various real estate leases. Refer to Note 6 – Related Party Transactions. Also, in

connection with the separation, we incurred $1 billion of indebtedness and, in addition, entered into a $150 million revolving credit facility that is currently unused. Refer to Note 5 – Long Term Debt and Credit Facility. APP is solely responsible for servicing this debt.

(3)

Earnings Per Share Information

Basic income per common share is computed by dividing net income by the weighted-average number of common shares outstanding. Dilutive income per common share is computed by dividing net income by the weighted-average number of common shares used for the basic calculations plus potentially dilutive shares for the portion of the year that the shares were outstanding, unless the impact is anti-dilutive. Potentially dilutive common shares resulted from outstanding stock options and restricted stock awards. Calculations of basic and diluted income per common share information are based on the following:


	Three months ended March 31,
	2008		2007
	(in thousands, except per share data)
Basic and dilutive numerator:
Income from continuing operations	$	9,157	$	13,617
Loss on discontinued operations		—		(2,502	)

Net income		9,157		11,115

Denominator:
Weighted average common shares outstanding—basic		160,273		159,356

Net effect of dilutive securities:
Stock options and restricted stock awards		950		1,000

Weighted average common shares outstanding—diluted		161,222		160,356


Income from continuing operations per common share—basic	$	0.06	$	0.09

Loss from discontinued operations per common share—basic		—		(0.02	)

Net income per common share—basic	$	0.06	$	0.07

Income from continuing operations per common share—diluted	$	0.06	$	0.08

Loss from discontinued operations per common share—diluted		—		(0.01	)

Net income per common share—diluted	$	0.06	$	0.07

For the three months ended March 31, 2008 and 2007, employee stock options for which the exercise price exceeded the average market price of our common stock in the respective periods were excluded from the computation of diluted income per common share as follows:

(4)

Inventories

Inventories are valued at the lower of cost or market as determined under the first-in, first-out, or FIFO method, as follows:


	For the Period Ending
	March 31, 2008						December 31, 2007
	Approved		Pending Regulatory Approval		Total Inventory		Approved		Pending Regulatory Approval		Total Inventory
	(in thousands)
Finished goods	$	80,527		—	$	80,527	$	58,787		—	$	58,787
Work in process		20,121		570		20,691		20,097		354		20,451
Raw materials		56,931		3,396		60,327		68,202		1,751		69,953

	$	157,579	$	3,966	$	161,545	$	147,086	$	2,105	$	149,191

Inventories consist of products currently approved for marketing and may include certain products pending regulatory approval. From time to time, we capitalize inventory costs associated with products prior to regulatory approval based on our judgment of probable future commercial success and realizable value. Such judgment incorporates our knowledge and best judgment of where the product is in the regulatory review process, our required investment in the product, market conditions, competing products and our economic expectations for the product post-approval relative to the risk of manufacturing the product prior to approval. In evaluating the market value of inventory pending regulatory approval as compared to its cost, we considered the market, pricing and demand for competing products, our anticipated selling price for the product and the position of the product in the regulatory review process. If final regulatory approval for such products is denied or delayed, we may need to provide for and expense such inventory.

At March 31, 2008 and December 31, 2007, inventory included $4.0 and $2.1 million respectively in cost relating to products pending FDA approval at our Melrose Park, Grand Island and Puerto Rico facilities.

We routinely review our inventory and establish reserves when the cost of the inventory is not expected to be recovered or our product cost exceeds realizable market value. In instances where inventory is at or approaching expiry, is not expected to be saleable based on our quality and control standards or for which the selling price has fallen below cost, we reserve for any inventory impairment based on the specific facts and circumstances. Provisions for inventory reserves are reflected in the unaudited condensed consolidated financial statements as an element of cost of sales with inventories presented net of related reserves.

(5)

Long-Term Debt and Credit Facility

On November 13, 2007, we, our operating subsidiary APP Pharmaceuticals, LLC (“New APP LLC”) and APP Pharmaceuticals Manufacturing, LLC, a wholly-owned subsidiary of New APP LLC (“P.R. Borrower” and together with New APP LLC, the “Borrowers”) entered into a senior secured credit agreement (as amended, the “Credit Agreement”) with certain lenders and Deutsche Bank AG New York Branch, as Administrative Agent. The Credit Agreement provides for two term loan facilities: a Term Loan A facility for $500 million and a Term Loan B facility for $500 million. The Credit Agreement also provides for a revolving credit facility of $150 million. A portion of the proceeds from the debt financing was used to repay our existing indebtedness and $700 million was contributed to New Abraxis immediately prior to the separation.

The term loan facilities mature on November 13, 2013, and the revolving credit facility matures on November 13, 2012. The Term Loan A facility amortizes based on the following schedule: 0% in 2008; 2.5% in 2009; 10% in 2010; 15% in 2011; 20% in 2012; and 52.5% in 2013. The Term Loan B facility amortizes 1% in each of the first five years, with a balloon payment due at maturity. Amounts drawn under the term loan facilities or revolving credit facility bear the following annual interest rates: for the Term Loan A facility and the revolving credit facility, a rate at either an adjusted LIBOR, plus a margin of 2.25%, or an alternate base rate plus a margin of 1.25%; and for the Term Loan B facility, a rate at either an adjusted LIBOR, plus a margin of 2.50%, or an alternate base rate plus a margin of 1.50%. The revolving credit facility includes a $40 million sub-limit for swingline loans and a $20 million sub-limit for letters of credit. The interest rate margins are subject to step downs based on, among other things, our total leverage ratio. The Credit Agreement contains a number of negative covenants restricting, among other things, indebtedness, liens, merger or transfer of substantially all assets of our company or the Borrowers, asset dispositions, distributions, dividends and repurchases of capital stock, prepayment or modification of certain other debt, acquisitions and investments, affiliate transactions, and limitations on dividends or other payments to subsidiaries or the parent company, APP Pharmaceuticals, Inc. We are required to comply with a senior secured leverage ratio test. The Credit Agreement contains customary events of default.

Beginning in December 2008, the Credit Agreement requires the Borrowers to prepay any outstanding loans, subject to specified exceptions, with (i) 50% of excess cash flow (with step downs to 0% based on our total leverage ratio), (ii) 100% of the net proceeds of non-ordinary course asset sales and any insurance or condemnation proceeds (with step downs to 75% based on our total leverage ratio), and (iii) 100% of the proceeds of any indebtedness not otherwise permitted to be incurred or issued under the Credit Agreement, subject to our total leverage ratio.

The obligations of New APP LLC under the term loan facilities and revolving credit facility are unconditionally guaranteed on a senior secured basis by our company and each direct and indirect wholly-owned domestic restricted subsidiary of New APP LLC (each, a “Subsidiary Guarantor”). The obligations of P.R. Borrower are unconditionally guaranteed by our company, New APP LLC and each future wholly-owned subsidiary of P.R. Borrower (each, a “P.R. Subsidiary Guarantor”). The obligations and guarantees of the Borrowers are secured by a first-priority security interest in substantially all tangible and intangible assets (including a pledge of capital stock, limited to 65% for pledges of stock of foreign subsidiaries) of our company, New APP LLC and each Subsidiary Guarantor and, in the case of P.R. Borrower, such assets of P.R. Borrower and P.R. Subsidiary Guarantor.

(6)

Fair Value Measurements

The company adopted SFAS 157 - “Fair Value Measurements” on January 1, 2008 for financial assets and liabilities measured on a recurring basis. SFAS 157 essentially redefines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies where other accounting pronouncements require or permit fair value measurements and its adoption is determined by the types of instruments carried at fair value in our financial statements at the time of adoption, as well as the methods utilized to determine their fair values prior to adoption.

In establishing a fair value, SFAS 157 sets a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The basis of the fair value measurement is categorized in three levels, in order of priority, as described below:

Level 1:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2:

Quoted prices in markets that are not active, or financial instruments for which all significant inputs are observable; either directly or indirectly;

Level 3:

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable; thus, reflecting assumptions about the market participants.

Assets and liabilities recorded at fair value are valued using quoted market prices, or under a market approach, using other relevant information generated by market transactions involving identical or comparable instruments:


			Basis of Fair Value Measurement
	Balance at March 31 2008		Quoted Prices in Active Markets for Identicle Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities:
Fair value of hedged long-term debt	$	7,230		—	$	7,230		—

Total Liabilities:	$	7,230	$	—	$	7,230	$	—

The company adopted the fair value measurement guidance of SFAS No. 157 in the valuation of its interest rate swap, which we entered into on February 14, 2008. Refer to Note 5 – Long Term Debt and Credit Facility . Changes in fair values of the interest rate swaps are recorded in comprehensive income in our balance sheet every period. The change in the fair value of our interest rate swap was recorded as a short term liability, with the corresponding offset to other comprehensive income. Refer to Note 10 – Other Comprehensive Income.

(7)

Related Party Transactions

Net receivables from related parties totaled $7.0 million at December 31, 2007, and net payable to related parties totaled $3.6 million at March 31, 2008. Net receivables and payables to related parties for both periods pertain to New Abraxis, who we spun-off on November 13, 2007. See below for a detailed discussion of these transactions with APP.

Transactions with New Abraxis

In connection with the separation, we entered into a number of agreements that govern the relationship between ourselves and New Abraxis for a period of time after the separation. The agreements were entered into while New Abraxis was still a wholly owned subsidiary of Old Abraxis. These agreements include (i) a tax allocation agreement, (ii) a dual officer agreement, (iii) an employee matters agreement, (iv) a transition services agreement, (v) a manufacturing agreement, and (vi) various real estate leases. Transactions relating to these agreements are summarized in the following table:


	Three Months Ended March 31,
	2008			2007
	(in millions)
Transition service expense	$	(0.2	)	$	—
Facility management fees		0.8			—
Net rental expense		(0.6	)		—
Margins on the manufacture and distribution of Abraxane ^®		0.3			—

(8)

Accrued Liabilities

Accrued liabilities consist of the following at March 31, 2008 and December 31, 2007:


	March 31, 2008		December 31, 2007
	(in thousands)
Sales and marketing	$	13,252	$	13,814
Payroll and employee benefits		14,790		12,357
Legal and insurance		7,048		10,213
Accrued separation costs		709		1,993
Accrued interest		2,593		4,024
Other		3,270		3,194

	$	41,662	$	45,595

(9)

Income Taxes

We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), on January 1, 2007. This interpretation clarifies what criteria must be met prior to the recognition of the financial statement benefit of a position taken in a tax return in accordance with FASB Statement No. 109, Accounting for Income Taxes. The effect of the implementation of FIN 48 was not material.

Our effective tax rate for the three months ended March 31, 2008 was 45.3%, as compared to 46.8% for the prior year comparable period. Our effective rate is higher than our statutory rate due to losses incurred by our Puerto Rico entity, which cannot be deducted in computing our U.S. taxable income.

We and our subsidiaries file income tax returns in the US Federal jurisdiction, Canada, Puerto Rico, and various state jurisdictions. We are subject to US federal income tax examinations for calendar years 2006 and 2007. We are also subject to Canadian income tax examinations for 2005 through 2007 tax years, and to Puerto Rican income tax examinations for 2006 and 2007 tax years. Additionally, we are subject to various state income tax examinations for the 2003 through 2007 tax years. We are currently under state income tax examinations in California, Illinois, Massachusetts and North Carolina for various tax years. There are no other open federal, state, or foreign government income tax audits at this time.

(10)

Comprehensive Income

Elements of comprehensive income, net of income taxes, were as follows:


	Three Months Ended March 31,
	2008			2007
	(in thousands)
Foreign currency translation adjustments	$	(1,005	)	$	43
Change in fair value of interest rate swap	$	(4,441	)	$	—
Unrealized gain on marketable equity securities		—			499

Other comprehensive (loss) gain, net of tax		(5,446	)		542
Net income		9,157			11,115

Comprehensive income	$	3,711		$	11,657

At March 31, 2008 and 2007, we had cumulative foreign currency translation loss adjustments of $1.0 million and $0 million, respectively. The cumulative foreign currency translation as of March 31, 2008 and 2007 was a gain of $1.7 million and $0.8 million, respectively. At March 31, 2008, we recognized of a change in fair value of our interest rate swap of $4.4 million. There was no interest rate swap in effect during 2007.

(11)

Contingencies

Litigation

We are from time to time subject to claims and litigation arising in the ordinary course of business. These claims have included assertions that our products infringe existing patents, product liability and also claims that the use of our products has caused personal injuries. We intend to defend vigorously any such litigation that may arise under all defenses that would be available to us. In the opinion of management, the ultimate outcome of proceedings of which management is aware, even if adverse to us, will not have a material adverse effect on our consolidated financial position or results of operations.

Regulatory Matters

We are subject to regulatory oversight by the United States Food and Drug Administration and other regulatory authorities with respect to the development and manufacturing of our products. Failure to comply with regulatory requirements can have a significant effect on our business and operations. Management has designed and operates a system of controls to attempt to ensure compliance with regulatory requirements.

(12)

Total Revenue By Product Line

Total revenues by product line were as follows:


	For the Three Months Ending March 31,
	2008		2007
Critical care	$	91,182	$	84,695
Anti-infective		42,960		39,780
Oncology		11,021		11,277
Contract manufacturing and other		2,916		4,516

Total revenue	$	148,079	$	140,268

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q and other documents we file with the Securities and Exchange Commission contain forward-looking statements, as the term is defined in the Private Securities Litigation Reform Act of 1995. In addition, we may make forward-looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls. Such forward-looking statements, whether expressed or implied, are subject to risks and uncertainties which can cause actual results to differ materially from those currently anticipated, due to a number of factors, which include, but are not limited to:

•

the market adoption of and demand for our existing and new pharmaceutical products;

•

our ability to maintain and/or improve sales and earnings performance;

•

the ability to successfully manufacture products in an efficient, time-sensitive and cost effective manner;

•

our ability to service our debt;

•

the impact on our products and revenues of patents and other proprietary rights licensed or owned by us, our competitors and other third parties;

•

our ability, and that of our suppliers, to comply with laws, regulations and standards, and the application and interpretation of those laws, regulations and standards, that govern or affect the pharmaceutical industry, the non-compliance with which may delay or prevent the sale of our products;

•

the difficulty in predicting the timing or outcome of product development efforts and regulatory approvals;

•

the availability and price of acceptable raw materials and components from third-party suppliers;

•

evolution of the fee-for-service arrangements being adopted by our major wholesale customers;

•

risks inherent in divestitures and spin-offs, including business risks, legal risks and risks associated with the tax and accounting treatment of such transactions;

•

inventory reductions or fluctuations in buying patterns by wholesalers or distributors; and

•

the impact of recent legislative changes to the governmental reimbursement system.

Forward-looking statements also include the assumptions underlying or relating to any of the foregoing or other such statements. When used in this report, the words “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict” and similar expressions are generally intended to identify forward-looking statements.

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, whether as a result of new information, changes in assumptions, future events or otherwise. Readers should carefully review the factors described in “Item 1A: Risk Factors” of Part II of this Form 10-Q and “Item 1A: Risk Factors” of our Form 10-K for the period ended December 31, 2007” and other documents we file from time to time with the Securities and Exchange Commission. Readers should understand that it is not possible to predict or identify all such factors. Consequently, readers should not consider any such list to be a complete set of all potential risks or uncertainties.

OVERVIEW

The following management’s discussion and analysis of financial condition and results of operations, or MD&A, is intended to assist the reader in understanding our company. The MD&A is provided as a supplement to, and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2007, including “Item 1: Business”; “Item 1A: Risk Factors”, “Item 6: Selected Financial Data”; and “Item 8: Financial Statements and Supplementary Data.”

Background

APP Pharmaceuticals, Inc, is an integrated pharmaceutical company that develops, manufactures and markets injectable pharmaceutical products. We believe that we are the only independent U.S. public company with a primary focus on the injectable oncology, anti-infective and critical care markets, and we further believe that we offer one of the most comprehensive injectable product portfolios in the pharmaceutical industry. We manufacture products in each of the three basic forms in which injectable products are sold: liquid, powder and lyophilized, or freeze-dried.

We began in 1996 with an initial focus on U.S. marketing and distribution of generic pharmaceutical products manufactured by others. In June 1998, we acquired Fujisawa USA, Inc.’s generic injectable pharmaceutical business, including manufacturing facilities in Melrose Park, Illinois and Grand Island, New York and our research and development facility in Melrose Park, Illinois. We also acquired additional assets in this transaction, including inventories, plant and equipment and abbreviated new drug applications that were approved by or pending with the FDA.

Our products are generally used in hospitals, long-term care facilities, alternate care sites and clinics within North America. Unlike the retail pharmacy market for oral products, the injectable pharmaceuticals marketplace is largely made up of end users who have relationships with group purchasing organizations, or GPOs, and/or specialty distributors who distribute products within a particular end-user market, such as oncology clinics. GPOs and specialty distributors generally enter into collective product purchasing agreements with pharmaceutical suppliers in an effort to secure more favorable drug pricing on behalf of their members.

We are a Delaware corporation that was formed in 2007 as successor to a Delaware and California corporation formed in 2001 and 1996, respectively. On April 18, 2006, we completed a merger with American BioScience, Inc., or ABI, our former parent. In connection with the closing of that merger, our certificate of incorporation was amended to change our original name of American Pharmaceutical Partners, Inc. to Abraxis BioScience, Inc. which we refer to as “Old Abraxis.” Old Abraxis operated in two distinct business segments: Abraxis BioScience, representing the combined operations of Abraxis Oncology and Abraxis Research; and Abraxis Pharmaceutical Products, representing the hospital-based operations.

On November 13, 2007, Old Abraxis separated into two independent publicly-traded companies, one holding the Abraxis Pharmaceutical Products business, focusing primarily on manufacturing and marketing our oncology, anti-infective and critical care hospital-based generic injectable products and marketing our proprietary anesthetic/analgesic products (which we refer to collectively as the “hospital-based business”), and the other holding the Abraxis Oncology and Abraxis Research businesses (which we refer to as the “proprietary business”). We refer to the proprietary business following the separation as “New Abraxis,” which subsequently changed its name to Abraxis BioScience, Inc. We continue to operate the hospital-based business (which we refer to as “New APP” or “APP”) under the name APP Pharmaceuticals, Inc.

New APP and New Abraxis have entered into a series of agreements, including a separation and distribution agreement, a transition services agreement, an employee matters agreement, a tax allocation agreement, a manufacturing agreement and various real estate leases. Also, in connection with the separation, we incurred $1 billion of indebtedness and, in addition, entered into a $150 million revolving credit facility that is currently unused. Approximately $276 million of the proceeds of this indebtedness was used to repay in full our prior revolving credit facility; approximately $12 million was used to pay fees and expenses related to the debt financing; and $700 million was contributed to New Abraxis. New APP is solely responsible for servicing the debt following the transactions. Refer to Note 2— Discontinued Operations - Spin-off of New Abraxis.

Recent Developments

Executive Appointments

On April 29, 2008, our board of directors promoted Thomas H. Silberg to president and chief executive officer, succeeding Patrick Soon-Shiong, M.D., who remains as chairman of our board of directors. Also, on April 29, 2008, our board of directors appointed Richard J. Tajak as executive vice president and chief financial officer, succeeding Lisa Gopala. These appointments were consistent with representations made to the Internal Revenue Service in connection with the receipt of the private letter ruling in the separation.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2008 and March 31, 2007

The following table sets forth the results of our operations for each of the three months ended March 31, 2008 and 2007, and forms the basis for the following discussion of our operating activities:

APP PHARMACEUTICALS, INC.

CONSOLIDATED RESULTS OF OPERATIONS

(in thousands, except per share amounts)


	Three months ended March 31,						Change Favorable (Unfavorable)
	2008			2007			$			%
Revenues
Critical Care	$	91,182		$	84,695		$	6,487		8	%
Anti-infective		42,960			39,780			3,180		8	%
Oncology		11,021			11,277			(256	)	-2	%
Contract manufacturing		2,916			4,516			(1,600	)	-35	%

Total revenue		148,079			140,268			7,811		6	%
Cost of sales		78,017			74,831			(3,186	)	-4	%

Gross profit		70,062			65,437			4,625		7	%

Percent to total revenue		*47.3*	%		*46.7*	%
Research and development		12,330			9,964			(2,366	)	-24	%
Selling, general and administrative		21,020			22,061			1,041		5	%
Amortization of merger related intangible assets		3,856			3,856			(0	)	0	%
Separation related costs		391			352			(39	)	-11	%

Total operating expenses		37,597			36,233			(1,364	)	-4	%

Percent to total revenue		*25.4*	%		*25.8*	%
Income from operations		32,465			29,204			3,261		11	%

Percent to total revenue		*21.9*	%		*20.8*	%
Interest income and other		979			266			713		268	%
Interest expense		(16,716	)		(3,876	)		(12,840	)	331	%

Income from continuing operations before income taxes		16,728			25,594			(8,866	)	-35	%
Income tax expense		7,571			11,977			4,406		37	%

Net income from continuing operations	$	9,157		$	13,617		$	(4,460	)	-33	%

Net loss from discontinued operations, net of taxes		—			(2,502	)		2,502

Net income	$	9,157		$	11,115		$	(1,958	)	-18	%

Basic income (loss) per common share:
Continuing operations	$	0.06		$	0.09
Discontinued operations		—			(0.02	)

Net income per common share	$	0.06		$	0.07

Diluted income (loss), per common share:
Continuing operations	$	0.06		$	0.08
Discontinued operations		—			(0.01	)

Net income per common share	$	0.06		$	0.07

Weighted-average common shares outstanding:
Basic		160,273			159,356
Diluted		161,222			160,356

Total Revenue

Total revenue for the three months ended March 31, 2008 increased $7.8 million, or 6%, to $148.1 million as compared to $140.3 for the same quarter in 2007. The 6% increase in total revenue for the three months ended March 31, 2008 over the prior year period was comprised of a 14.8% unit volume increase and a 9.3% decrease in unit prices.

Net revenues for our critical care products increased over the prior period by $6.5 million, or 8%, to $91.2 million for the three months ended March 31, 2008, due, in part, to increased heparin sales volume. Net revenue of anti-infective products for the three months ending March 31, 2008 increased by $3.2 million, or 8%, to $43.0 million from $39.8 million in the prior year period, due to higher volume as a result of market penetration. Net revenue of oncology products in the first quarter of 2008 decreased $0.3 million, or 2%, to $11.0 million primarily due to competitive pricing pressures. Contract manufacturing decreased in the first quarter of 2008 over the comparable period in the prior year by $1.6 million, to $2.9 million from $4.5 million for the same quarter in the prior year.

Gross Profit

Gross profit for the three months ended March 31, 2008 was $70.1 million, or 47.3% of total revenue, as compared to $65.4 million, or 46.7% of total revenue, in the same quarter of 2007. The increase in gross profit as a percentage of total revenue was due to favorable product mix and manufacturing efficiencies generated by the higher volumes. The three-month periods ended March 31, 2008 and 2007 each included the recognition of $4.1 million non-cash charge relating to the amortization of intangible product rights associated with a product acquisition.

Research and Development

Research and development expense for the three months ended March 31, 2008 increased $2.4 million, or 24%, to $12.3 million as compared to the same quarter in 2007. The increase was due primarily to increased development activity associated with our strategic initiatives and costs associated with the continued transfer of products to our Puerto Rico facility.

Selling, General and Administrative

Selling, general and administrative expense for the three months ended March 31, 2008 decreased $1.0 million to $21.0 million, or 14.2% of total revenue, from $22.1 million, or 15.7% of total revenue, for the same period in 2007. This decrease was due primarily to reductions in stock compensation costs and legal costs over the prior year.

Amortization, Merger and Separation Costs

The three months ended March 31, 2008 and 2007 included $3.9 million of merger related amortization, reflecting the merger between APP and ABI which occurred on April 18, 2006. The three months ended March 31, 2008 and 2007 also included $0.4 million in direct professional fees and transaction related costs relating to the separation of our proprietary business.

Interest Income and Other

Interest income and other consists primarily of interest earned on invested cash and cash equivalents, the impact of foreign currency on intercompany trading accounts and other financing costs. Interest income and other was $1.0 million for the three months ended March 31, 2008 and $0.3 million for the three months ended March 31, 2007.

Interest Expense

Interest expense increased to $16.7 million for the three months ended March 31, 2008, compared to $3.9 million for the three months ended March 31, 2007. The $12.8 million increase in interest expense was primarily due to the higher average debt levels associated with our $$998.8 million dollar credit facility.

Provision for Income Taxes

Our effective tax rate for the three month period ended March 31, 2008 was 45.3% as compared to 46.8% for the prior year comparable period.

Net Income

Net income for the three months ended March 31, 2008 was $9.2 million, $1.9 million below the $11.1 of net income for the same period in 2007. Results were directly impacted by higher interest expense associated with our new credit facility and higher debt levels.

LIQUIDITY AND CAPITAL RESOURCES

Overview

The following table summarizes key elements of our financial position and sources and (uses) of cash and cash equivalents as of the periods indicated as follows:


	March 31, 2008			December 31, 2007
	(in thousands)
Summary Financial Position:
Cash, cash equivalents	$	60,837		$	31,788

Working capital	$	227,038		$	216,727

Total assets	$	1,087,100		$	1,077,587

Total stockholders’ deficit	$	(72,910	)	$	(79,771	)


	For the Three Months Ended March 31,
	2008			2007
	(in thousands)
Summary of Sources and (Uses) of Cash and Cash Equivalents:
Operating activities	$	34,871		$	(40,300	)

Purchase of property, plant and equipment	$	(3,301	)	$	(42,043	)

Purchase of product license rights and other	$	(500	)	$	(354	)

Financing activities	$	(1,025	)	$	72,565

Sources and Uses of Cash

Operating Activities

Net cash provided by operating activities was $34.9 million for the three months ended March 31, 2008 as compared to cash used by operations of $40.3 million for the three month period ending March 31, 2007. This $75.2 million change in cash provided by operating activities for the 2008 period was due primarily to the payment of 2006 federal income taxes in the first quarter of 2007, as well as the timing of collection of outstanding trade receivables in the first quarter of 2008.

Investing Activities

Our investing activities have included capital expenditures necessary to expand and maintain our manufacturing capabilities and infrastructure and outlays necessary to acquire various product or intellectual property rights. Cash used in investing activities during the three months ended March 31, 2008 was $3.8 million. The three months ending March 31, 2007 includes $33.8 million relating to the acquisition of our manufacturing facility in Puerto Rico as well as approximately $8.2 million relating to the purchase of property, plant and equipment primarily as investment in our core manufacturing and development capabilities.

Financing Activities

Financing activities generally include borrowings under our credit facility, the issuance or repurchase of our common stock and proceeds from the exercise of employee stock options. Net cash used in financing activities was $1.0 million for the three months ended March 31, 2008, versus cash provided by financing of $72.6 for the three months ended March 31, 2007, which reflected net borrowings on our line of credit of $68.0 million.

Sources of Financing and Capital Requirements

We have historically funded our research and development activities through product license fees, including milestones, and borrowings, whereas our primary source of liquidity has been cash flow from operations.

Credit Agreement

facilities: a Term Loan A facility for $500 million and a Term Loan B facility for $500 million. The Credit Agreement also provides for a revolving credit facility of $150 million. A portion of the proceeds from the debt financing was used to repay our existing indebtedness and $700 million was contributed to New Abraxis immediately prior to the separation.

The Credit Agreement contains a number of negative covenants restricting, among other things, indebtedness, liens, merger or transfer of substantially all assets of our company or the Borrowers, asset dispositions, distributions, dividends and repurchases of capital stock, prepayment or modification of certain other debt, acquisitions and investments, affiliate transactions, and limitations on dividends or other payments to subsidiaries or the parent company, APP Pharmaceuticals, Inc. We are required to comply with a senior secured leverage ratio test. The Credit Agreement contains customary events of default.

Capital Requirements

Our future capital requirements will depend on numerous factors, including:

•

the obligations placed upon our company from our credit agreement discussed above, including any debt covenants related to those obligations;

•

working capital requirements and production, sales, marketing and development costs required to support our business;

•

the need for manufacturing expansion and improvement;

•

the transfer of products to our Puerto Rico manufacturing facility;

•

the requirements of any potential future acquisitions, asset purchases or equity investments; and

•

the amount of cash generated by operations, including potential milestone and license revenue.

We anticipate that cash and short-term investments, cash generated from operations and funds available under our credit facility will be sufficient to finance operations of our company, including ongoing, product development and capital expenditures for at least the next twelve months. In the event we engage in future acquisitions or capital projects, we may have to raise additional capital through additional borrowings or the issuance of debt or equity securities.

As described further above, we are responsible for servicing the debt of $1 billion incurred in connection with the separation. We expect to pay the principal and interest on the outstanding debt with funds generated by our operations. Our ability

to meet our debt service obligations will depend on our future performance, which will be affected by financial, business, economic and other factors, including potential changes in customer preferences, the success of product and marketing innovations and pressure from competitors. If we do not have enough money to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell assets or borrow more money. We may not be able to, at any given time, refinance this debt, sell assets or borrow more money on terms acceptable to us or at all, the failure to do any of which could have adverse consequences for our business, financial condition and results of operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates in our unaudited condensed consolidated financial statements are discussed below. Actual results could vary from those estimates.

Revenue Recognition

Product Revenue Recognition

We recognize revenue from the sale of a product and for contract manufacturing when title and risk of loss have transferred to the customer, collection is reasonably assured and we have no further performance obligation. This is typically when the product is received by the customer. At the time of sale, as further described below, we reduce sales and provide for estimated chargebacks, contractual allowances or customer rebates, product returns and customer credits and cash discounts. Our methodology used to estimate and provide for these sales provisions was consistent across all periods presented. Accruals for sales provisions are presented in our financial statements as a reduction of revenue and accounts receivable and, for contractual allowances, an increase in accrued liabilities. We regularly review information related to these estimates and adjust our reserves accordingly if, and when, actual experience differs from estimates.

We have internal historical information on chargebacks, rebates and customer returns and credits which we use as the primary factor in determining the related reserve requirements. As further described below, due to the nature of our injectable products and their primary use in hospital and clinical settings with generally consistent demand, we believe that this internal historical data, in conjunction with periodic review of available third-party data and updated for any applicable changes in available information provides a reliable basis for such estimates.

We periodically review the wholesale supply levels of our more significant products by reviewing inventory reports purchased or available from wholesalers, evaluating our unit sales volume, and incorporating data from third-party market research firms. Based on these activities, we attempt to keep a consistent wholesale stocking level of approximately two- to six-weeks across our hospital-based products. The buying patterns of our customers do vary from time to time, both from customer to customer and product to product, but we believe that historic wholesale stocking or speculative buying activity in our hospital-based distribution channels has not had a significant impact on our historic sales comparisons or sales provisions.

Sales Provisions

Our sales provisions totaled $263.2 million and $260.3 million for the period ended March 31, 2008 and 2007, respectively, and related reserves totaled $87.7 million and $125.1 million, at March 31, 2008 and December 31, 2007, respectively.

Chargebacks

Following industry practice, we typically sell our products to independent pharmaceutical wholesalers at wholesale list price. The wholesaler in turn sells our products to an end user, normally a hospital or alternative healthcare facility, at a lower contractual price previously established between us and the end user via a group purchasing organization, or GPO. GPO’s enter into collective purchasing contracts with pharmaceutical suppliers to secure more favorable product pricing on behalf of their end-user members.

Our initial sale to the wholesaler, and the resulting receivable, are recorded at our wholesale list price. However, as most of these selling prices will be reduced to a lower end-user contract price, at the time of sale revenue is reduced by, and a provision recorded for, the difference between the list price and estimated end-user contract price multiplied by the estimated wholesale units outstanding pending chargeback that will ultimately be sold under end-user contracts. When the wholesaler ultimately sells the product to the end user at the end-user contract price, the wholesaler charges us, a chargeback, for the difference between the

list price and the end-user contract price and such chargeback is offset against our initial estimated contra asset. The most significant estimates inherent in the initial chargeback provision relate to wholesale units pending chargeback and the ultimate end-user contract-selling price. We base our estimation for these factors primarily on internal, product-specific sales and chargeback processing experience, estimated wholesaler inventory stocking levels, current contract pricing, IMS data and our expectation for future contract pricing changes.

Our net chargeback reserve totaled $65.4 million and $101.2 million at March 31, 2008 and December 31, 2007, respectively. Due to information constraints in the distribution channel, it has not been practical, and has not been necessary, for us to capture and quantify the impact of current versus prior year activity on the chargeback provision. Information constraints within the distribution channel primarily relate to our inability to track product through the channel on a unit or specific lot basis. In addition, for the most part, we do not receive information from our customers with respect to what level of their sales are subject to chargeback. The lack of information on a specific lot basis precludes us from tracking actual chargeback activity to the period of our initial sale. As a result, we rely on internal data, external IMS data and management estimates in order to estimate the amount of product in the channel subject to future chargeback. The amount of product in the channel is comprised of physical inventory at the wholesaler and product that the wholesaler has yet to report as end user sales. We estimate yet to be reported end user sales based on a historical average number of days to process chargeback activities from the date of the end user sale. We also review current year chargeback activity to determine whether material changes in the provision relate to prior period sales; such changes have not been material to our statements of operations. A one percent decrease in our estimated end-user contract-selling prices would reduce total revenue for the quarter ended March 31, 2008 by $0.5 million and a one percent increase in wholesale units pending chargeback at March 31, 2008 would decrease total revenue for the three month period ending March 31, 2008 by $0.6 million.

Contractual Allowances, Returns and Credits, Cash discounts and Bad Debts

Contractual allowances, generally rebates or administrative fees, are offered to certain wholesale customers, GPOs and end-user customers, consistent with pharmaceutical industry practices. Settlement of rebates and fees may generally occur from one to 15 months from date of sale. We provide a general provision for contractual allowances at the time of sale based on the historical relationship between sales and such allowances. Upon receipt of chargeback, due to the availability of product and customer specific information on these programs, we then establish a specific provision for fees or rebates based on the specific terms of each agreement. Our reserve for contractual allowances totaled $9.8 million and $10.1 million at March 31, 2008 and December 31, 2007, respectively. A one percent increase in the estimated rate of contractual allowances to total revenue at March 31, 2008 would decrease net revenues by $0.7 million at that point in time. Contractual allowances are reflected in the financial statements as a reduction of total revenue and as a current accrued liability.

Consistent with industry practice, our return policy permits our customers to return products within a window of time before and after the expiration of product dating. We provide for product returns and other customer credits at the time of sale by applying historical experience factors generally based on our historic data on credits issued by credit category or product, relative to related sales and we provide specifically for known outstanding returns and credits. Our reserve for customer credits and product returns totaled $8.9 million and $8.8 million at March 31, 2008 and December 31, 2007, respectively. At March 31, 2008, a one percent increase in the estimated reserve requirements for customer credits and product returns would have decreased total revenue for the three month period ending March 31, 2008 by $1.4 million.

We generally offer our customers a standard cash discount on our hospital-based products for prompt payments and, from time-to-time, may offer a greater discount and extended terms in support of product launches or other promotional programs. A provision for cash discounts is established at the time of sale based on the terms of sale and adjusted for historical experience factors on the level of cash discount taken.

We establish a reserve for bad debts based on general and identified customer credit exposure. Our historic bad debt losses have been insignificant.

Inventories

Inventories consist of products currently approved for marketing and may include certain products pending regulatory approval. From time to time, we capitalize inventory costs associated with products prior to regulatory approval based on our judgment of probable future commercial success and realizable value. Such judgment incorporates our knowledge and best judgment of where the product is in the regulatory review process, our required investment in the product, market conditions, competing products and our economic expectations for the product post-approval relative to the risk of manufacturing the product prior to approval. If final regulatory approval for such products is denied or delayed, we may need to provide for and expense such inventory.

We routinely review our inventory and establish reserves when the cost of the inventory is not expected to be recovered or our product cost exceeds realizable market value. In instances where inventory is at or approaching expiry, is not expected to be saleable based on our quality and control standards or for which the selling price has fallen below cost, we reserve for any inventory impairment based on the specific facts and circumstances. In evaluating the market value of inventory pending regulatory approval as compared to its cost, we consider the market, pricing and demand for competing products, our anticipated selling price for the product and the position of the product in the regulatory review process. Provisions for inventory reserves are reflected in the financial statements as an element of cost of sales with inventories presented net of related reserves.

Expense Recognition

Cost of sales represents the costs of the products which we have sold and consists of labor, raw materials, components, packaging, quality assurance and quality control, shipping and manufacturing overhead costs and the cost of finished products purchased from third parties. In addition, for each of the three month periods ended March 31, 2008 and 2007, cost of sales included amortization of product rights purchased in June 2006 of $4.1 million.

Research and development costs are expensed as incurred or consumed and consist primarily of salaries and other personnel-related expenses, as well as depreciation of equipment, allocable facility, raw material and production expenses and contract and consulting fees. Research and development costs also include costs associated with our Puerto Rico activities prior to commercial production.

Selling, general and administrative expenses consist primarily of salaries, commissions and other personnel-related expenses, as well as costs for travel, trade shows and conventions, promotional material and catalogs, advertising and promotion, facilities, risk management and professional fees.

Stock-Based Compensation

We account for stock based compensation in accordance with FAS 123R, which requires the recognition of compensation cost for all share-based payments (including employee stock options) at fair value. We use the straight-line attribution method to recognize share-based compensation expenses over the applicable vesting period of the award. Options currently granted under our 2001 Stock Incentive Plan generally expire ten years from the grant date and vest ratably over a four year period while restricted stock units currently granted under that plan generally vest ratably over a four year period. Awards under the APP Pharmaceuticals, Inc. Restricted Stock Unit Plan (the “RSU Plan”) vested with respect to one half of the units on April 18, 2008 and will vest with respect to the remaining one half of the units on April 18, 2010. Excluding the effects of discontinued operations, pre-tax stock-based compensation costs for the three month period ended March 31, 2008 and 2007 were $3.0 million and $4.0 million, respectively.

To determine stock-based compensation, we use the Black-Scholes option pricing model to estimate the fair value of options granted under equity incentive plans and rights to acquire stock granted under our stock participation plan. Compensation expense related to equity awards of restricted stock units is based upon the market price on the date of the grant. Stock compensation expense charged to earnings on a straight-line basis over the applicable vesting period. Awards under the RSU Plan entitle the holders on each vesting date to convert the vested portion of their awards into that number of shares of our common stock equal to the value of the vested portion of the award divided by the lower of (i) the average closing price of our common stock over the three consecutive trading days ending on and including the second full trading day preceding the vesting date and (ii) $14.47 (which is the adjusted price following the separation). Accordingly, compensation expense related to the RSU Plan is based on the lower of the market price or $14.47 and is expensed under the liability method in accordance with FAS 123(R) on a straight-line basis over the applicable vesting period.

Income taxes

Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating loss and capital loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated financial statements in the period that includes the legislative enactment date.

In 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”), which provides specific guidance on the financial statement recognition, measurement, reporting and disclosure of uncertain tax positions taken or expected to be taken in a tax return. FIN 48 addresses the determination of whether tax benefits, either permanent or temporary, should be recorded in the financial statements.

As of December 31, 2007, the total amount of gross unrecognized tax benefits, which are reported in other liabilities in our unaudited condensed consolidated balance sheet, was $3.0 million. This entire amount would impact our effective tax rate over time, if recognized. In addition, we accrue interest and any necessary penalties related to unrecognized tax positions in our provision for income taxes.

Our effective tax rate for the three month period ended March 31, 2008 was 45.3% as compared to 46.8% for the prior year comparable period. Our effective rate is higher than our statutory rate due to losses incurred by our Puerto Rico entity, which cannot be deducted in computing of U.S. taxable income.

We or one of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. In the second quarter of 2007, the Internal Revenue Service (IRS) concluded an examination of our U.S. income tax returns for tax years 2004 and 2005. This resulted in our paying approximately $0.5 million of assessed tax resulting from our method of inventory capitalization. This amount was fully reserved. In addition, we recently received a “no adjustment” closing letter from the IRS in regard to an audit for our former previous parent company (American BioScience, Inc.) related to a 2002 net operating loss carry back to consolidated tax years 1997, 1998, 1999, 2000 and 2001. The Illinois Department of Revenue has commenced an audit of the Combined Unitary Tax Returns for tax years 2003 through 2005. The previous Illinois audit for tax years 2000, 2001, and 2002 resulted in a refund of approximately $2.3 million. In addition, we have received notice of intent to examine income tax returns from California (tax years 2004-2006), Massachusetts (2005-2006) and North Carolina (2003-2006). The California and Massachusetts audits began in the fourth quarter of 2007, and the North Carolina audit began in the first quarter of 2008. There are no other open federal, state, or foreign government income tax audits at this time.

Acquisitions

Our consolidated financial statements and results of operations reflect an acquired business after the completion of the acquisition. We account for acquired businesses using the purchase method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Amounts allocated to acquired in process research and development are expensed at the date of acquisition. When we acquire net assets that do not constitute a business under GAAP, no goodwill is recognized.

The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations. Accordingly, for significant items, we typically obtain assistance from third-party valuation specialists. The valuations are based on information available near the acquisition date and are based on expectations and assumptions that have been deemed reasonable by management.

Determining the useful life of an intangible asset also requires judgment, as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives. For example, the useful life of the right associated with a pharmaceutical product’s exclusive patent will be finite and will result in amortization expense being recorded in our results of operations over a determinable period. However, the useful life associated with a brand that has no patent protection but that retains, and is expected to retain, a distinct market identity could be considered to be indefinite and the asset would not be amortized.

Impairment of long-lived assets

We review all of our long-lived assets, including goodwill and other intangible assets, for impairment indicators at least annually and we perform detailed impairment testing for goodwill annually and for all other long-lived assets whenever impairment indicators are present. Examples of those events or circumstances that may be indicative of impairment include:

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A significant adverse change in legal factors or in the business climate that could affect the value of the asset, including, by way of example, a successful challenge of our patent rights resulting in generic competition earlier than expected.

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A significant adverse change in the extent or manner in which an asset is used, including, by way of example, restrictions imposed by the FDA or other regulatory authorities that affect our ability to manufacture or sell a product.

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A projection or forecast that demonstrates losses associated with an asset, including, by way of example, a change in a government reimbursement program that results in an inability to sustain projected product revenues or profitability or the introduction of a competitor’s product that results in a significant loss of market share.

The value of intangible assets is determined primarily using the “income method,” which starts with a forecast of all expected future net cash flows. Accordingly, the potential for impairment for intangible assets may exist if actual revenues are significantly less than those initially forecasted or actual expenses are significantly more than those initially forecasted. Some of the more significant estimates and assumptions inherent in the intangible asset impairment estimation process include: the amount and timing of projected future cash flows; the discount rate selected to measure the risks inherent in the future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset, including consideration of any technical, legal, regulatory, or economic barriers to entry as well as expected changes in standards of practice for indications addressed by the asset.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment to FASB Statement No. 133”. SFAS 161 expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” requiring qualitative disclosures about the objectives and strategies for using derivatives, quantitative disclosures about the fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The effective date for adoption by our Company is the first quarter of 2009. We are currently assessing the impact that the adoption of SFAS 161 will have on our consolidated financial statements.

In January, 2008, the company adopted FASB Staff Position (FSP) FAS 157 which was issued in September, 2006. SFAS 157 essentially redefines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies where other accounting pronouncements require or permit fair value measurements and its adoption was determined by the types of instruments carried at fair value in our financial statements at the time of adoption as well as the methods utilized to determine their fair values prior to adoption. The company adopted the fair value measurement guidance of SFAS No. 157 in the valuation of its interest rate swap, which we entered into on February 14, 2008. Refer to Note 6 – Fair Value Measurements.

In January, 2008, the company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected was recognized in earnings at each subsequent reporting date. The new standard did not impact the company’s condensed consolidated financial statements, as the company did not elect the fair value option for any of the instruments existing as of the adoption date.

In June 2007, the FASB ratified the consensus reached by the EITF on EITF Issue No. 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities” (or “EITF 07-3”). EITF 07-3 states that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred or capitalized. Such amounts should be recognized as an expense as the related goods are delivered or the related services performed. If an entity does not expect the goods to be delivered or services to be rendered, the capitalized advance payment should be charged to expense. EITF 07-3 is effective for fiscal years beginning after December 15, 2007 and earlier application is not permitted. We occasionally enter into agreements for research and development of goods and service. EITF 07-3 is not expected to have a material effect on our results of operations or financial position.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks associated with changes in interest rates and foreign currency exchange rates. Interest rate changes affect primarily our investments in marketable securities and our debt obligations. Changes in foreign currency exchange rates can affect our operations outside of the United States.

Foreign Currency Risk: We have operations in Canada and Puerto Rico; however, both revenue and expenses of those operations are typically denominated in the currency of the country of operations, providing a partial hedge. Nonetheless, our Canadian subsidiary is presented in our financial statement in U.S. dollars and can be impacted by foreign currency exchange fluctuations through both (i) translation risk, which is the risk that the financial statements for a particular period or as of a certain date depend on the prevailing exchange rates of the various currencies against the U.S. dollar, and (ii) transaction risk, which is the risk that the currency impact of transactions denominated in currencies other than the subsidiaries functional currency may vary according to currency fluctuations.

With respect to translation risk, even though there may be fluctuations of currencies against the U.S. dollar, which may impact comparisons with prior periods, the translation impact is included in accumulated other comprehensive income, a component of stockholders’ equity, and does not affect the underlying results of operations. Gains and losses related to transactions denominated in a currency other than the functional currency of the countries in which we operate are included in the consolidated statements of operations. As of March 31, 2008, there were no outstanding foreign currency hedge arrangements.

Investment Risk: The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our activities without increasing risk. Some of the securities that we invest in may have interest rate risk. This means that a change in prevailing interest rates may cause the fair value of the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the prevailing rate and the prevailing rate later rises, the fair value of the principal amount of our investment will probably decline.

To minimize this risk, we maintain an investment portfolio of cash equivalents consisting of high credit quality securities, including commercial paper, government and non-government debt securities and money market funds. We do not use derivative financial instruments. The average maturity of the debt securities in which we invest has been less than 90 days and the maximum maturity has been three months.

Interest Rate Risk: We are also exposed to changes in interest rates on our borrowings. On November 13, 2007 we entered into a credit agreement composed of two term loan facilities: a Term Loan A facility for $500 million and a Term Loan B facility for $500 million. The Credit Agreement also provides for a revolving credit facility of $150 million. The Term Loan A facility and the revolving credit facility, bear a rate at either an adjusted LIBOR, plus a margin of 2.25%, or an alternate base rate plus a margin of 1.25%; while the Term Loan B facility bears a rate at either an adjusted LIBOR, plus a margin of 2.50%, or an alternate base rate plus a margin of 1.50%. The interest rate margins are subject to step downs based on, among other things, our total leverage ratio.

On February 14, 2008, we entered into interest rate swap agreements with an aggregate notional principal amount of $990 million to pay interest at a fixed rate of 3.04% and to receive interest at variable rate of one-month LIBOR. The interest rate swaps expire in February 2009. We formally designated these swaps as a hedge of our exposure to variability in future cash flows attributable to the LIBOR interest payments due on the credit facilities. Changes in fair values of the interest rate swaps are recorded in comprehensive income in our balance sheet each period. Because the terms of the swap and the LIBOR debt coincide (notional amount, interest rate reset dates, and underlying index), there are no other basis differences and the likelihood of swap counterparty default is not probable, the hedge is expected to exactly offset changes in expected cash flows due to fluctuations in the LIBOR rate over the term of the swap agreements and there is no source of ineffectiveness. The effectiveness of the hedge relationship will be periodically assessed during the life of the hedge by comparing the current terms of the swap and the debt to assure they continue to coincide and through an evaluation of the continued ability of the counterparty to the swap to honor its obligations under the swap. As of March 31, 2008, $998.8 million was outstanding on our credit facility bearing interest at a weighted average interest rate of 5.875%. There was no outstanding balance on the revolving credit facility. If our interest rates were to increase 1%, our interest expense for the remainder of 2008 would increase $7.6 million based on our outstanding debt balances at March 31, 2008. We were in compliance with all covenants as of March 31, 2008.

ITEM 4.

CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures, as such term is defined under Exchange Act Rules 13a-15(e) and 15d-15(e), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act 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 management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives and in reaching a reasonable level of assurance we necessarily

are required to apply judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, with participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on their evaluation and subject to the foregoing, management concluded that our disclosure controls and procedures were effective as of March 31, 2008.

During our most recent fiscal quarter, there has not occurred any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

ITEM 1A.

RISK FACTORS

You should carefully consider the risks described below before investing in our publicly traded securities. The risks described below are not the only ones facing us. Our business is also subject to the risks that affect many other companies, such as competition and, general economic conditions. Additional risks not currently known to us or that we currently believe are immaterial also may impair our business operations and our liquidity.

Factors That May Affect Future Results of Operations

If we are unable to develop and commercialize new products, our financial condition will deteriorate.

Profit margins for a pharmaceutical product generally decline as new competitors enter the market. As a result, our future success will depend on our ability to commercialize the product candidates we are currently developing, as well as develop new products in a timely and cost-effective manner. We currently have over 30 ANDAs pending with the FDA and over 70 product candidates under development. Successful development and commercialization of our product candidates will require significant investment in many areas, including research and development and sales and marketing, and we may not realize a return on those investments. In addition, development and commercialization of new products are subject to inherent risks, including:

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failure to receive necessary regulatory approvals;

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difficulty or impossibility of manufacture on a large scale;

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prohibitive or uneconomical costs of marketing products;

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inability to secure raw material or components from third-party vendors in sufficient quantity or quality or at a reasonable cost;

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failure to be developed or commercialized prior to the successful marketing of similar or superior products by third parties;

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lack of acceptance by customers;

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impact of authorized generic competition;

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infringement on the proprietary rights of third parties;

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grant of new patents for existing products may be granted, which could prevent the introduction of newly-developed products for additional periods of time; and

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grant to another manufacturer by the FDA of a 180-day period of marketing exclusivity under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, as patents or other exclusivity periods for brand name products expire.

The timely and continuous introduction of new products is critical to our business. Our financial condition will deteriorate if we are unable to successfully develop and commercialize new products.

If sales of our key products decline, our business may be adversely affected.

Our top ten products comprised approximately 61% of our total revenue for the three month period ended March 31, 2008. Our key products could lose market share or revenue due to numerous factors, many of which are beyond our control, including:

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lower prices offered on similar products by other manufacturers;

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substitute or alternative products or therapies;

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development by others of new pharmaceutical products or treatments that are more effective than our products;

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introduction of other generic equivalents or products which may be therapeutically interchanged with our products;

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interruptions in manufacturing or supply;

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changes in the prescribing practices of physicians;

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changes in third-party reimbursement practices; and

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migration of key customers to other manufacturers or sellers.

Any factor adversely affecting the sale of our key products may cause our revenues to decline.

If we or our suppliers are unable to comply with ongoing and changing regulatory standards, sales of our products could be delayed or prevented.

Virtually all aspects of our business, including the development, testing, manufacturing, processing, quality, safety, efficacy, packaging, labeling, record-keeping, distribution, storage and advertising and promotion of our products and disposal of waste products arising from these activities, are subject to extensive regulation by federal, state and local governmental authorities in the United States, including the FDA and the Department of Health and Humans Services Office of Inspector General (OIG). Our business is also subject to regulation in foreign countries. Compliance with these regulations is costly and time-consuming.

Our manufacturing facilities and procedures and those of our suppliers are subject to ongoing regulation, including periodic inspection by the FDA and foreign regulatory agencies. For example, manufacturers of pharmaceutical products must comply with detailed regulations governing current good manufacturing practices, including requirements relating to quality control and quality assurance. We must spend funds, time and effort in the areas of production, safety, quality control and quality assurance to ensure compliance with these regulations. We cannot assure that our manufacturing facilities or those of our suppliers will not be subject to regulatory action in the future.

Our products generally must receive appropriate regulatory clearance before they can be sold in a particular country, including the United States. We may encounter delays in the introduction of a product as a result of, among other things, insufficient or incomplete submissions to the FDA for approval of a product, objections by another company with respect to our submissions for approval, new patents by other companies, patent challenges by other companies which result in a 180-day exclusivity period, and changes in regulatory policy during the period of product development or during the regulatory approval process. The FDA has the authority to revoke drug approvals previously granted and remove from the market previously approved products for various reasons, including issues related to current good manufacturing practices for that particular product or in general. We may be subject from time to time to product recalls initiated by us or by the FDA. Delays in obtaining regulatory approvals, the revocation of a prior approval, or product recalls could impose significant costs on us and adversely affect our ability to generate revenue.

Our inability or the inability of our suppliers to comply with applicable FDA and other regulatory requirements can result in, among other things, warning letters, fines, consent decrees restricting or suspending our manufacturing operations, delay of approvals for new products, injunctions, civil penalties, recall or seizure of products, total or partial suspension of sales and criminal prosecution. Any of these or other regulatory actions could materially adversely affect our business and financial condition.

State pharmaceutical marketing compliance and reporting requirements may expose us to regulatory and legal action by state governments or other government authorities.

In recent years, several states, including California, Vermont, Maine, Minnesota, New Mexico and West Virginia, in addition to the District of Columbia, have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs and file periodic reports on sales, marketing, pricing and other activities. Similar legislation is being considered in other states. Many of these requirements are new and uncertain, and available guidance is limited. We are

continuing to assess our compliance with these state laws. Unless we are in full compliance with these laws, we could face enforcement action and fines and other penalties and could receive adverse publicity, all of which could harm our business.

We may be required to change the labeling of our products if side effects or manufacturing problems are identified after the products are on the market.

If side effects are identified after any of our products are on the market, or if manufacturing problems occur, regulatory approval may be withdrawn and reformulation of products, additional clinical trials, changes in labeling of products, and changes to or re-approvals of our manufacturing facilities may be required, any of which could have a material adverse effect on sales of the affected products and on our business and results of operations. For example, a supplier recently initiated a recall of its heparin product due to increased adverse events associated with the product.

After any of our products are approved for commercial use, we or regulatory bodies could decide that changes to our product labeling are required. Label changes may be necessary for a number of reasons, including the identification of actual or theoretical safety or efficacy concerns by regulatory agencies or the discovery of significant problems with a similar product that implicates an entire class of products. Any significant concerns raised about the safety or efficacy of our products could also result in the need to reformulate those products, to conduct additional clinical trials, to make changes to our manufacturing processes, or to seek re-approval of our manufacturing facilities. Significant concerns about the safety and effectiveness of a product could ultimately lead to the revocation of its marketing approval. The revision of product labeling or the regulatory actions described above could be required even if there is no clearly established connection between the product and the safety or efficacy concerns that have been raised. The revision of product labeling or the regulatory actions described above could have a material adverse effect on sales of the affected products and on our business and results of operations.

The manufacture of our products is highly exacting and complex, and if we or our suppliers encounter production problems, our business may suffer.

Almost all of the pharmaceutical products we make are sterile, injectable drugs. We also purchase some such products from other companies. The manufacture of all our products is highly exacting and complex, due in part to strict regulatory requirements and standards which govern both the manufacture of a particular product and the manufacture of these types of products in general. Problems may arise during their manufacture due to a variety of reasons including equipment malfunction, failure to follow specific protocols and procedures and environmental factors. If problems arise during the production of a batch of product, that batch of product may have to be discarded. This could, among other things, lead to loss of the cost of raw materials and components used, lost revenue, time and expense spent in investigating the cause and, depending on the cause, similar losses with respect to other batches or products. If such problems are not discovered before the product is released to the market, recall costs may also be incurred. To the extent we experience problems in the production of our pharmaceutical products, this may be detrimental to our business, operating results and reputation. Additionally, we could incur additional costs if we fail to timely transfer products to our Puerto Rico manufacturing facility.

Our markets are highly competitive and, if we are unable to compete successfully, our revenue will decline and our business will be harmed.

The markets for injectable pharmaceutical products are highly competitive, rapidly changing and undergoing consolidation. Most of our products are generic injectable versions of brand name products that are still being marketed by proprietary pharmaceutical companies. The first company to market a generic product is often initially able to achieve high sales, profitability and market share with respect to that product. Prices, revenue and market size for a product typically decline, however, as additional generic manufacturers enter the market.

We face competition from major, brand name pharmaceutical companies as well as generic manufacturers such as Hospira, Inc., Bedford Laboratories, Baxter Laboratories (including Elkin-Sinn), SICOR Inc. (acquired by Teva Pharmaceuticals USA) and Mayne Pharma (acquired by Hospira, Inc.) and, in the future, increased competition from new, foreign competitors. Smaller and foreign companies may also prove to be significant competitors, particularly through collaboration arrangements with large and established companies. Many of our competitors have significantly greater research and development, financial, sales and marketing, manufacturing, regulatory and other resources than us. As a result, they may be able to devote greater resources to the development, manufacture, marketing or sale of their products, receive greater resources and support for their products, initiate or withstand substantial price competition, more readily take advantage of acquisition or other opportunities, or otherwise more successfully market their products.

Any reduction in demand for our products could lead to a decrease in prices, fewer customer orders, reduced revenues, reduced margins, reduced levels of profitability, or loss of market share. These competitive pressures could adversely affect our business and operating results.

We face uncertainty related to pricing and reimbursement and health care reform.

In both domestic and foreign markets, sales of our products will depend in part on the availability of reimbursement from third-party payors such as government health administration authorities, private health insurers, health maintenance organizations and other health care-related organizations. However, reimbursement by such payors is presently undergoing reform, and there is significant uncertainty at this time how this will affect sales of certain pharmaceutical products. There is possible U.S. legislation or regulatory action affecting, among other things, pharmaceutical pricing and reimbursement, including under Medicaid and Medicare, the importation of prescription drugs that are marketed outside the U.S. and sold at prices that are regulated by governments of various foreign countries.

Medicare, Medicaid and other governmental reimbursement legislation or programs govern drug coverage and reimbursement levels in the United States. Federal law requires all pharmaceutical manufacturers to rebate a percentage of their revenue arising from Medicaid-reimbursed drug sales to individual states. Generic drug manufacturers’ agreements with federal and state governments provide that the manufacturer will remit to each state Medicaid agency, on a quarterly basis, 11% of the average manufacturer price for generic products marketed and sold under abbreviated new drug applications covered by the state’s Medicaid program. For proprietary products, which are marketed and sold under new drug applications, manufacturers are required to rebate the greater of (a) 15.1% of the average manufacturer price or (b) the difference between the average manufacturer price and the lowest manufacturer price for products sold during a specified period.

Both the federal and state governments in the United States and foreign governments continue to propose and pass new legislation, rules and regulations designed to contain or reduce the cost of health care. Existing regulations that affect the price of pharmaceutical and other medical products may also change before any of our products are approved for marketing. Cost control initiatives could decrease the price that we receive for any product we develop in the future. In addition, third-party payers are increasingly challenging the price and cost-effectiveness of medical products and services and litigation has been filed against a number of pharmaceutical companies in relation to these issues. Additionally, significant uncertainty exists as to the reimbursement status of newly approved injectable pharmaceutical products. Our products may not be considered cost effective or adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an adequate return on our investment.

If we are unable to maintain our key customer arrangements, sales of our products and revenue would decline.

Almost all injectable pharmaceutical products are sold to customers through arrangements with group purchasing organizations, or GPOs, and distributors. The majority of hospitals contract with the GPO of their choice for their purchasing needs. We currently derive, and expect to continue to derive, a large percentage of our revenue from customers that are members of a small number of GPOs. Currently, fewer than ten GPOs control a large majority of sales to hospital customers.

We have purchasing arrangements with the major GPOs in the United States, including AmeriNet, Inc., Broadlane Healthcare Corporation, Consorta, Inc., MedAssets Inc., Novation, LLC, Owen Healthcare, Inc., PACT, LLC, Premier Purchasing Partners, LP, International Oncology Network, or ION, National Oncology Alliance, or NOA, and U.S. Oncology, Inc. In order to maintain these relationships, we believe we need to be a reliable supplier, offer a broad product line, remain price competitive, comply with FDA regulations and provide high-quality products. The GPOs through which we sell our products also have purchasing agreements with other manufacturers that sell competing products and the bid process for products such as ours is highly competitive. Most of our GPO agreements may be terminated on short notice. If we are unable to maintain our arrangements with GPOs and key customers, sales of our products and revenue would decline.

The strategy to license rights to or acquire and commercialize proprietary or other specialty injectable products may not be successful, and we may never receive any return on our investment in these product candidates.

We may license rights to or acquire or commercialize proprietary or other specialty injectable products or technologies. Other companies, including those with substantially greater financial and sales and marketing resources, will compete with us to license rights to or acquire or commercialize these products. We may not be able to license rights to or acquire these proprietary or other products or technologies on acceptable terms, if at all. Even if we obtain rights to a pharmaceutical product and commit to payment terms, including, in some cases, up-front license payments, we may not be able to generate product sales sufficient to create a profit or otherwise avoid a loss.

A product candidate may fail to result in a commercially successful drug for other reasons, including the possibility that the product candidate may:

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fail to receive necessary regulatory approvals;

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be difficult or uneconomical to produce in commercial quantities;

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be precluded from commercialization by proprietary rights of third parties; or

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fail to achieve market acceptance.

The marketing strategy, distribution channels and levels of competition with respect to any licensed or acquired product may be different from those of our current products, and we may not be able to compete favorably in any new product category.

Our chairman and entities affiliated with him own a significant percentage of our common stock and could exercise significant influence over matters requiring stockholder approval, regardless of the wishes of other stockholders.

As of March 31, 2008, our chairman and entities affiliated with him owned over 80% of our common stock. Accordingly, they have the ability to significantly influence all matters requiring stockholder approval, including the election and removal of directors and approval of significant corporate transactions such as mergers, consolidations and sales of assets. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control or impeding a merger or consolidation, takeover or other business combination, which could cause the market price of our common stock to fall or prevent our stockholders from receiving a premium in such a transaction. This significant concentration of stock ownership may adversely affect the market for and trading price of our common stock if investors perceive that conflicts of interest may exist or arise.

We depend heavily on the principal members of our management team, the loss of whom could harm our business .

We depend heavily on the principal members of our management team. Each of the members of the executive management team is employed “at will.” The loss of the services of any member of the executive management team may significantly delay or prevent the achievement of product development or business objectives.

To be successful, we must attract, retain and motivate key employees, and the inability to do so could seriously harm our operations.

To be successful, we must attract, retain and motivate executives and other key employees. We face competition for qualified scientific, technical and other personnel, which may adversely affect our ability to attract and retain key personnel. We also must continue to attract and motivate employees and keep them focused on our strategies and goals.

We depend on third parties to supply raw materials and other components and may not be able to obtain sufficient quantities of these materials, which will limit our ability to manufacture our products on a timely basis and harm our operating results.

The manufacture of our products requires raw materials and other components that must meet stringent FDA requirements. Some of these raw materials and other components are available only from a limited number of sources. Additionally, our regulatory approvals for each particular product denote the raw materials and components, and the suppliers for such materials, we may use for that product. Obtaining approval to change, substitute or add a raw material or component, or the supplier of a raw material or component, can be time consuming and expensive, as testing and regulatory approval is necessary. If our suppliers are unable to deliver sufficient quantities of these materials on a timely basis or we encounter difficulties in our relationships with these suppliers, the manufacture and sale of our products may be disrupted, and our business, operating results and reputation could be adversely affected.

Other companies may claim that we infringe their intellectual property or proprietary rights, which could cause us to incur significant expenses or prevent us from selling our products.

Our success depends in part on our ability to operate without infringing the patents and proprietary rights of third parties. The manufacture, use, offer for sale and sale of pharmaceutical products have been subject to substantial litigation in the pharmaceutical industry. These lawsuits relate to the enforceability, validity and infringement of patents or proprietary rights of third parties. Infringement litigation is prevalent with respect to generic versions of products for which the patent covering the brand name product is expiring, particularly since many companies which market generic products focus their development efforts on products with expiring patents. A number of pharmaceutical companies, biotechnology companies, universities and research institutions may have filed patent applications or may have been granted patents that cover aspects of our products or our licensors’ products, product candidates or other technologies.

Future or existing patents issued to third parties may contain claims that conflict with our products. We are subject to infringement claims from time to time in the ordinary course of our business, and third parties could assert infringement claims against us in the future with respect to our current products, products we may develop or products we may license. In addition, our patents and patent applications, or those of our licensors, could face other challenges, such as interference, opposition and reexamination proceedings. Any such challenge, if successful, could result in the invalidation of, or a narrowing of scope of, any such patents and patent applications. Litigation or other proceedings could force us to:

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stop or delay selling, manufacturing or using products that incorporate or are made using the challenged intellectual property;

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pay damages; or

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enter into licensing or royalty agreements that may not be available on acceptable terms, if at all.

Any litigation or interference proceedings, regardless of their outcome, would likely delay the regulatory approval process, be costly and require significant time and attention of key management and technical personnel.

Our inability to protect our intellectual property rights in the United States and foreign countries could limit our ability to manufacture or sell our products.

We rely on trade secrets, unpatented proprietary know-how, continuing technological innovation and patent protection to preserve our competitive position. Our patents and those for which we have or will license rights, may be challenged, invalidated, infringed or circumvented, and the rights granted in those patents may not provide proprietary protection or competitive advantages to us. We and our licensors may not be able to develop patentable products. Even if patent claims are allowed, the claims may not issue, or in the event of issuance, may not be sufficient to protect the technology owned by or licensed to us. Third-party patents could reduce the coverage of the patents licensed, or that may be license to or owned by us. If patents containing competitive or conflicting claims are issued to third parties, we may be prevented from commercializing the products covered by such patents, or may be required to obtain or develop alternate technology. In addition, other parties may duplicate, design around or independently develop similar or alternative technologies.

We may not be able to prevent third parties from infringing or using our intellectual property. We generally control and limit access to, and the distribution of, our product documentation and other proprietary information. Despite our efforts to protect this proprietary information, however, unauthorized parties may obtain and use information that we regard as proprietary. Other parties may independently develop similar know-how or may even obtain access to our technologies.

The laws of some foreign countries do not protect proprietary information to the same extent as the laws of the United States, and many companies have encountered significant problems and costs in protecting their proprietary information in these foreign countries.

The U.S. Patent and Trademark Office and the courts have not established a consistent policy regarding the breadth of claims allowed in pharmaceutical patents. The allowance of broader claims may increase the incidence and cost of patent interference proceedings and the risk of infringement litigation. On the other hand, the allowance of narrower claims may limit the value of our proprietary rights.

We may become subject to federal false claims or other similar litigation brought by private individuals and the government.

The Federal False Claims Act allows persons meeting specified requirements to bring suit alleging false or fraudulent Medicare or Medicaid claims and to share in any amounts paid to the government in fines or settlement. These suits, known as qui tam actions, have increased significantly in recent years and have increased the risk that a health care company will have to defend a false claim action, pay fines and/or be excluded from Medicare and Medicaid programs. Federal false claims litigation can lead to civil monetary penalties, criminal fines and imprisonment and/or exclusion from participation in Medicare, Medicaid and other federally funded health programs. Other alternate theories of liability may also be available to private parties seeking redress for such claims. A number of parties have brought claims against numerous pharmaceutical manufacturers, and we cannot be certain that such claims will not be brought against us, or if they are brought, that such claims might not be successful.

We may need to change our business practices to comply with changes to, or may be subject to charges under, the fraud and abuse laws.

We are subject to various federal and state laws pertaining to health care fraud and abuse, including the federal Anti-Kickback Statute and its various state analogues, the federal False Claims Act and marketing and pricing laws. Violations of these laws are punishable by criminal and/or civil sanctions, including, in some instances, imprisonment and exclusion from participation in federal and state health care programs such as Medicare and Medicaid. We may have to change our advertising and promotional business practices, or our existing business practices could be challenged as unlawful due to changes in laws, regulations or rules or due to administrative or judicial findings, which could materially adversely affect our business.

We may be required to defend lawsuits or pay damages for product liability claims.

Product liability is a major risk in testing and marketing biotechnology and pharmaceutical products. We may face substantial product liability exposure in human clinical trials and for products that we sell after regulatory approval. Historically, we have carried product liability insurance and we expect to continue to carry such policies. Product liability claims, regardless of their merits, could exceed policy limits, divert management’s attention and adversely affect our reputation and the demand for our products.

Future sales of substantial amounts of our common stock may adversely affect our market price.

In connection with our 2006 merger with ABI, we issued a significant number of shares of our common stock to a small number of former ABI shareholders. Although such shares are not immediately freely tradable, we have granted registration rights to the former ABI shareholders, including our chairman, to permit the resale of the shares of our common stock that they received in the merger. Future sales of substantial amounts of our common stock into the public market, or perceptions in the market that such sales could occur, may adversely affect the prevailing market price of our common stock.

Our stock price has been volatile in response to market and other factors.

The market price for our common stock has been and may continue to be volatile and subject to price and volume fluctuations in response to market and other factors, including the following, some of which are beyond our control:

•

the concentration of the ownership of our shares by a limited number of affiliated stockholders may limit interest in our securities;

•

variations in quarterly operating results from the expectations of securities analysts or investors;

•

revisions in securities analysts’ estimates or reductions in security analysts’ coverage;

•

announcements of technological innovations or new products or services by us or our competitors;

•

reductions in the market share of our products;

•

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

•

general technological, market or economic trends;

•

investor perception of our industry or prospects;

•

insider selling or buying;

•

investors entering into short sale contracts;

•

regulatory developments affecting our industry; and

•

additions or departures of key personnel.

Risks Relating to the Separation of New Abraxis from New APP

Debt incurred in connection with the separation could adversely affect our operations and financial condition.

We are leveraged as a result of the separation of New Abraxis. We have incurred $1 billion of indebtedness and have an additional $150 million revolving credit facility that is currently unused. $700 million of the proceeds of the indebtedness was contributed to New Abraxis in connection with the separation. Such indebtedness, coupled with the restrictions on our ability to issue equity securities due to the separation without jeopardizing the intended tax consequences of the separation, could have adverse consequences for our business, financial condition and results of operations, such as:

•

making more difficult the satisfaction of our obligations to our lenders, resulting in possible defaults on and acceleration of such indebtedness;

•

limiting our ability to obtain additional financing to fund growth, working capital, capital expenditures, debt service requirements, acquisitions or other cash requirements;

•

limiting our operational flexibility in planning for or reacting to changing conditions in our business and industry;

•

requiring dedication of a substantial portion of our cash flows from operations to make payments on our debt, which would reduce the availability of such cash flows to fund working capital, capital expenditures and other general corporate purposes;

•

limiting our ability to compete with companies that are not as leveraged, or whose debt is at more favorable interest rates and that, as a result, may be better positioned to withstand economic downturns; and

•

increasing our vulnerability to economic downturns and changing market conditions or preventing us from carrying out capital spending that is necessary or important to our growth strategy and efforts to improve operating margins.

We expect to pay our expenses and to pay the principal and interest on our outstanding debt with funds generated by our operations. Our ability to meet our expenses and debt service obligations will depend on our future performance, which will be affected by financial, business, economic and other factors, including potential changes in customer preferences, the success of product and marketing innovations and pressure from competitors. If we do not have enough money to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell assets or borrow more money. We may not be able to, at any given time, refinance our debt, sell assets or borrow more money on terms acceptable to us or at all, the failure to do any of which could have adverse consequences for our business, financial condition and results of operations.

The financing arrangements we entered into in connection with the separation contain restrictions and limitations that could impact our ability to operate our business.

Our agreements governing the indebtedness we incurred in connection with the separation contain covenants that, among other things, put limitations on our ability and/or one or more of our subsidiaries to dispose of assets, to incur additional indebtedness, to incur guarantee obligations, to pay dividends, to create liens on assets, to enter into sale and leaseback transactions, to make investments (including joint ventures), loans or advances, to engage in mergers, consolidations or sales of all or substantially all of their respective assets, to change the business conducted by us or engage in certain transactions with affiliates.

Various risks, uncertainties and events beyond our control could affect our ability to comply with the covenants contained in our debt agreements. Failure to comply with any of the covenants in our existing or future financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity of the debt under these agreements and to foreclose upon any collateral securing the debt. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might impair our ability to obtain other financing. We cannot assure you that we will be granted waivers or amendments to these agreements if for any reason we are unable to comply with these agreements or that we will be able to refinance our debt on terms acceptable to us, or at all.

Specifically, the terms of the debt agreement include covenants such as:

•

restrictions on acquisitions, which may limit our ability to make attractive acquisitions;

•

restrictions on investments, which may prevent us from investing in other companies or entering into joint ventures;

•

restrictions on guarantees, which may prevent us from providing commercially desirable credit support to suppliers, customers or other business partners; and

•

restrictions on incurrence of additional debt, which may further restrict our ability to make acquisitions or investments or to otherwise expand our business.

Such restrictions in our debt agreement may prevent us from taking actions that would be in the best interest of our business, and may make it difficult to successfully execute our business strategy or effectively compete with companies that are not similarly restricted.

We cannot assure you that we will be able to generate sufficient cash flow needed to service our indebtedness.

Our ability to make scheduled payments on our indebtedness and to fund planned capital expenditures will depend on our ability and that of our subsidiaries to generate cash flow in the future. Our future performance is subject to general economic, financial, competitive, legislative, regulatory and other factors, many of which are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available in an amount sufficient to enable us to service this debt and fund our other liquidity needs.

If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or seek to obtain additional equity capital, or refinance indebtedness or obtain additional financing. In the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of this anticipated debt and there can be no assurance that any of, or a combination of, such alternative measures would provide us with sufficient cash flows. In addition, such alternative measures could have an adverse effect on our business, financial condition and results of operations. In the absence of sufficient operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our anticipated debt service and other obligations or otherwise risk default under the agreements governing our anticipated indebtedness.

We may have potential conflicts of interest with New Abraxis.

Conflicts of interest may arise between New Abraxis and us in a number of areas relating to our past and ongoing relationships, including:

•

business opportunities that may be attractive to both New Abraxis and us;

•

manufacturing and transitional service arrangements we entered into with New Abraxis;

•

lease agreements we entered into with New Abraxis; and

•

employee retention and recruiting.

Our chairman, Patrick Soon-Shiong, M.D., is also the chief executive officer and chairman of the board of directors of New Abraxis. Dr. Soon-Shiong also beneficially owns approximately 80% of the outstanding capital stock of New Abraxis. Accordingly, he may experience conflicts of interest with respect to decisions involving business opportunities and similar matters that may arise in the ordinary course of our business, on the one hand, and the business of New Abraxis, on the other hand.

We expect to resolve potential conflicts of interest on a case-by-case basis, in the manner required by applicable law and customary business practices. In connection with the separation, we entered into an agreement with New Abraxis under which we and New Abraxis acknowledged and agreed that Dr. Soon-Shiong will have no obligation to present to our company any business or corporate opportunity that may come to his attention other than certain business opportunities relating to the manufacture or sale of products that either were manufactured and sold by the hospital-based products business prior to the separation or were the subject of an ANDA filed prior to the separation. Resolutions of some potential conflicts of interest are subject to review and approval by the audit committee of our board of directors or approval by another independent committee of our board of directors. We still may be unable, however, to resolve some potential conflicts of interest with New Abraxis and Dr. Soon-Shiong and, even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party.

We may be required to indemnify New Abraxis and may not be able to collect on indemnification rights from New Abraxis.

Under the terms of the separation and distribution agreement, New Abraxis agreed to indemnify us from and after the distribution with respect to all liabilities of Old Abraxis not related to its hospital-based products business and the use by us of any trademarks or other source identifiers owned by New Abraxis. Similarly, we have agreed to indemnify New Abraxis from and after the distribution with respect to all liabilities of Old Abraxis related to its hospital-based products business and the use by us of any trademarks or other source identifiers owned by us. Under the terms of the tax allocation agreement, New Abraxis agrees to indemnify us against all tax liabilities to the extent they relate to the proprietary products business, and we agreed to indemnify New Abraxis against all liabilities to the extent they relate to the hospital-based products business. In addition, New Abraxis agreed to indemnify us for any taxes resulting from a failure of the distribution to qualify as a tax-free distribution under Section 355 and Section 368(a)(1)(D) of the Internal Revenue Code, unless such failure results solely from specified acts of us after the distribution. Under the terms of the manufacturing agreement, New Abraxis agreed to indemnify us from any damages resulting from a third-party claim caused by or alleged to be caused by (i) New Abraxis’ failure to perform its obligations under the manufacturing agreement; (ii) any product liability claim arising from the negligence, fraud or intentional misconduct of New Abraxis or any of its affiliates or any product liability claim arising from New Abraxis’ manufacturing obligations (or any failure or deficiency in New Abraxis’ manufacturing obligations) under the manufacturing agreement; (iii) any claim that the manufacture, use or sale of Abraxane ^® or our pipeline products infringes a patent or any other proprietary right of a third party; or (iv) any recall, product liability claim or other third-party claim not arising from the gross negligence or bad faith of, or intentional misconduct or intentional breach of the manufacturing agreement by, us by reason of the $100 million limitation of liability described below. New Abraxis also agreed to indemnify us for liabilities that it becomes subject to as a result of its activities under the manufacturing agreement and for which it is not responsible under the terms of the manufacturing agreement. We agreed to indemnify New Abraxis from any damages resulting from a third-party claim caused by or alleged to be caused by (i) our gross negligence, bad faith, intentional misconduct or intentional failure to perform our obligations under the manufacturing agreement; or (ii) any product liability claim arising from the gross negligence or bad faith of, or intentional misconduct or intentional breach of the manufacturing agreement by, us. We generally will not have any liability for monetary damages to us or third parties in connection with the manufacturing agreement for damages in excess of $100 million in the aggregate. There are no time limits on when an indemnification claim must be brought and no other monetary limits on the amount of indemnification that may be provided. These indemnification obligations could be significant. Our ability to satisfy any of these indemnification obligations will depend upon the future financial strength of our company. We cannot determine whether we will have to indemnify New Abraxis for any substantial obligations after the separation. We also cannot assure you that, if New Abraxis becomes obligated to indemnify us for any substantial obligations, New Abraxis will have the ability to satisfy those obligations. Any indemnification payment by us, or any failure by New Abraxis to satisfy its indemnification obligations, could have a material adverse effect on our business.

If the holding company merger does not qualify as a reorganization under Section 368(a)(1) of the Internal Revenue Code, then Old Abraxis and Old Abraxis stockholders may be responsible for payment of significant U.S. federal income taxes, and if the distribution does not constitute a tax-free distribution under Section 355 of the Internal Revenue Code, then New APP and New APP stockholders may be responsible for payment of significant U.S. federal income taxes.

In connection with the separation, we received a private letter ruling from the Internal Revenue Service to the effect that (i) the merger of Old Abraxis into Abraxis BioScience, LLC, or the holding company merger, qualifies as a reorganization under Section 368(a)(1)(F) of the Internal Revenue Code and (ii) the contribution of Abraxis BioScience, LLC to New Abraxis, which we refer to as the “proprietary contribution,” the cash contribution and the distribution qualify as a reorganization under Section 368(a)(1)(D) of the Internal Revenue Code and, subject to the following sentence, the distribution qualifies for nonrecognition

treatment under Sections 355(a) and 361(c) of the Internal Revenue Code. The private letter ruling, however, does not address two requirements under Section 355 of the Internal Revenue Code on which the Internal Revenue Service will not rule (namely, that the distribution (a) is motivated, in whole or substantial part, by one or more corporate business purposes and (b) is not being used principally as a device for the distribution of the earnings and profits of New APP, New Abraxis or both). Thus, we received an opinion of Fried, Frank, Harris, Shriver & Jacobson LLP to the effect that these two requirements should be satisfied.

The private letter ruling and opinion of counsel are based, in part on assumptions and representations as to factual matters made by, among others, Old Abraxis, Dr. Soon-Shiong, his wife, and certain Old Abraxis stockholders, as requested by the Internal Revenue Service or counsel, which, if incorrect, could jeopardize the conclusions reached by the Internal Revenue Service and counsel. The private letter ruling does not address certain material legal issues that could affect its conclusions (including whether the distribution is motivated, in whole or substantial part, by one or more corporate business purposes, whether the distribution is being used principally as a device for the distribution of the earnings and profits of New APP, New Abraxis or both, and whether the distribution and any acquisition or acquisitions are part of a plan or series of related transactions under Section 355(e) of the Internal Revenue Code), and reserves the right of the Internal Revenue Service to raise such issues upon a subsequent audit. Opinions of counsel neither bind the Internal Revenue Service or any court, nor preclude the Internal Revenue Service from adopting a contrary position.

If the holding company merger does not qualify as a reorganization under Section 368(a)(1) of the Internal Revenue Code, each Old Abraxis stockholder who received New APP common stock in exchange for Old Abraxis common stock will recognize taxable gain or loss equal to the difference between the fair market value of the Old Abraxis common stock received and such stockholder’s basis in the Old Abraxis common stock exchanged therefor, and Old Abraxis will recognize taxable gain equal to the fair market value of its assets over their aggregate adjusted basis.

If the distribution does not qualify as a tax-free distribution under Section 355 of the Internal Revenue Code, New APP would recognize taxable gain equal to the excess of the fair market value of the New Abraxis common stock distributed to the Old Abraxis stockholders over New APP’s tax basis in the New Abraxis common stock. In addition, each Old Abraxis stockholder who receives New Abraxis common stock in the distribution would generally be treated as receiving a taxable distribution in an amount equal to the fair market value of the New Abraxis common stock received.

In the event that New APP recognizes a taxable gain in connection with the distribution because the distribution does not qualify as a tax-free distribution under Section 355 of the Internal Revenue Code, the taxable gain recognized by New APP would result in significant U.S. federal income tax liabilities to New APP. Under the Internal Revenue Code, New APP would be primarily liable for these taxes and New Abraxis would be secondarily liable. Under the terms of the tax allocation agreement among New APP, New APP LLC, New Abraxis and New Abraxis, LLC, New Abraxis will generally be required to indemnify New APP against any such taxes unless such taxes would not have been imposed but for an act of New APP or its affiliates, subject to specified exceptions. New Abraxis’ or New APP’s respective obligations to indemnify the other pursuant to the tax allocation agreement could have a material adverse effect on New APP and/or New Abraxis. In addition, these mutual indemnity obligations could discourage or prevent a third party from making a proposal to acquire either party.

The distribution may be taxable to New APP and New Abraxis if there is an acquisition of 50% or more of the outstanding common stock of New APP or New Abraxis.

Even if the distribution otherwise qualifies as a tax-free distribution under Section 355 of the Internal Revenue Code, under Section 355(e) of the Internal Revenue Code the distribution of New Abraxis common stock to Old Abraxis stockholders would result in significant U.S. federal income tax liabilities to New APP (but not New APP stockholders) if there is an acquisition of stock of New Abraxis or New APP as part of a plan or series of related transactions that includes the distribution and that results in an acquisition of 50% or more of the outstanding common stock of New Abraxis or New APP.

The process for determining whether a prohibited 50% or greater change in control has occurred under these rules is complex, inherently factual and subject to interpretation of the facts and circumstances of a particular case. If New Abraxis or New APP engages in a transaction involving the issuance or disposition or shares, or that otherwise creates a significant change in ownership, New APP would recognize taxable gain if such issuance, disposition or other change in ownership results in an acquisition of 50% or more of the outstanding common stock of New Abraxis or New APP. Furthermore, because a substantial portion of our stock and the stock of New APP will be held by or on behalf of a single stockholder, that stockholder will have the ability to cause or permit a prohibited change in the ownership of New APP or of New Abraxis to occur, which would also cause New APP to recognize a taxable gain under these rules. The private letter ruling and tax opinion obtained in connection with the separation does not address whether the distribution and any acquisition or acquisitions are part of a plan or series of related transactions under Section 355(e) of the Internal Revenue Code.

In the event that New APP recognizes a taxable gain in connection with the distribution because of an acquisition of 50% or more of the outstanding common stock of New Abraxis or New APP as part of a plan or series of related transactions that

includes the distribution, the taxable gain recognized by New APP would result in significant U.S. federal income tax liabilities to New APP. Under the Internal Revenue Code, New APP would be primarily liable for these taxes and New Abraxis would be secondarily liable. Under the terms of the tax allocation agreement between New APP and New Abraxis, New Abraxis will generally be required to indemnify New APP against any such taxes unless such taxes would not have been imposed but for an act of New APP or its affiliates, subject to specified exceptions. New Abraxis’s or New APP’s respective obligations to indemnify the other pursuant to the tax allocation agreement could have a material adverse effect on New APP and/or New Abraxis. There can be no assurance that New APP would be able to fulfill its obligations under the tax allocation agreement if New APP was determined to be responsible for these taxes. In addition, these mutual indemnity obligations could discourage or prevent a third party from making a proposal to acquire either party.

Actions taken by our chairman, his wife, or entities affiliated with him or one or more members of his family could adversely affect the tax-free nature of the distribution.

Sales of New Abraxis common stock or New APP common stock by Dr. Soon-Shiong, his wife, or entities affiliated with Dr. Soon-Shiong or one or more members of his family after completion of the distribution may adversely affect the tax-free nature of the distribution. Sales of New Abraxis common stock or New APP common stock by Dr. Soon-Shiong, his wife, or entities affiliated with Dr. Soon-Shiong or one or more members of his family after completion of the distribution might be considered evidence that the distribution was used principally as a device for the distribution of earnings and profits of New APP, New Abraxis or both, particularly if it were determined that the selling stockholder had an intent to effect such sale at the time of the distribution. The obligation of the parties to effect the separation was conditioned upon the receipt of an opinion of Fried, Frank, Harris, Shriver & Jacobson LLP to the effect that, among other requirements, the distribution is not being used principally as a device for the distribution of earnings and profits of New APP, New Abraxis or both. If sales of New Abraxis common stock or New APP common stock by Dr. Soon-Shiong, his wife, or entities affiliated with Dr. Soon-Shiong or one or more members of his family occur after completion of the distribution, the conclusions reached in the opinion may not apply. Dr. Soon-Shiong, his wife and the entities that hold shares of Old Abraxis common stock on behalf of Dr. Soon-Shiong or one or more members of his immediate family have provided a representation to the Internal Revenue Service in connection with the private letter ruling that they have no plan or intention to sell, transfer or otherwise dispose of any of the shares of New Abraxis common stock and New APP common stock they will hold after the distribution. Dr. Soon-Shiong, his wife and such entities provided a similar representation to counsel in connection with counsel’s opinion. If the Internal Revenue Service successfully asserted that the distribution was used principally as a device for the distribution of earnings and profits of New APP, New Abraxis or both, the distribution would not qualify as a tax-free distribution, and thus would be taxable to both New APP and the New APP stockholders (as a result of which New Abraxis would be required to indemnify New APP to the extent required under the tax allocation agreement). Furthermore, sales of New Abraxis common stock or New APP common stock by Dr. Soon-Shiong, his wife, or entities affiliated with Dr. Soon-Shiong or one or more members of his family after completion of the distribution could cause a prohibited change in the ownership of New Abraxis or New APP to occur within the meaning of Section 355(e) of the Internal Revenue Code, which would cause New APP to recognize a taxable gain.

In the event that New APP recognizes a taxable gain in connection with the distribution because the distribution does not qualify as a tax-free distribution under Section 355 of the Internal Revenue Code or because of an acquisition of 50% or more of the outstanding common stock of New Abraxis or New APP as part of a plan or series of related transactions that includes the distribution within the meaning of Section 355(e) of the Internal Revenue Code, the taxable gain recognized by New APP would result in significant U.S. federal income tax liabilities to New APP. Under the Internal Revenue Code, New APP would be primarily liable for these taxes and New Abraxis would be secondarily liable. Under the terms of the tax allocation agreement among New APP, New APP LLC, New Abraxis and New Abraxis LLC, New Abraxis will generally be required to indemnify New APP against any such taxes unless such taxes would not have been imposed but for an act of New APP or its affiliates, subject to specified exceptions. New Abraxis’s or New APP’s respective obligations to indemnify the other pursuant to the tax allocation agreement could have a material adverse effect on New APP and/or New Abraxis. There can be no assurance that New APP would be able to fulfill its obligations under the tax allocation agreement if New APP was determined to be responsible for these taxes. In addition, these mutual indemnity obligations could discourage or prevent a third party from making a proposal to acquire either party.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

The exhibits are as set forth in the Exhibit Index.

SIGNATURES

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.


APP PHARMACEUTICALS, INC.

By:		/s/ Richard J. Tajak
		Richard J. Tajak
		Executive Vice President and Chief
		Financial Officer
		(Principal Financial and Accounting Officer)

Date: May 12, 2008

Exhibit Index


Exhibit Number		Description

2.1		Agreement and Plan of Merger, dated as of November 27, 2005, by and among American Pharmaceutical Partners, Inc., American BioScience, Inc. (“ABI”) and, with respect to specified matters, certain ABI shareholders (Incorporated by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 29, 2005)

2.2		Agreement and Plan of Reorganization, dated as of November 13, 2007, by and among the Registrant, Abraxis BioScience, Inc. and Abraxis BioScience, LLC (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 13, 2007)

2.3		Separation and Distribution Agreement among the Registrant, Abraxis BioScience, LLC, APP Pharmaceuticals, LLC and Abraxis BioScience, Inc. (f/k/a New Abraxis, Inc.) (Incorporated by reference to Exhibit 2.3 to Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008)

3.1		Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 13, 2007)

3.2		Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 13, 2007)

4.1		Reference is made to Exhibits 3.1 and 3.2

4.2		Specimen Stock Certificate of the Registrant (Incorporated by reference to Exhibit 4.2 to Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008)

4.3		Registration Rights Agreement, dated April 18, 2006, by and among the Registrant and the ABI shareholders set forth therein (Incorporated by reference to Exhibit 4.4 to Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2006)

10.1		Separation and Distribution Agreement among the Registrant, Abraxis BioScience, LLC, APP Pharmaceuticals, LLC and Abraxis BioScience, Inc. (f/k/a New Abraxis, Inc.) (Incorporated by reference to Exhibit 2.3 to Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008)

10.2		Tax Allocation Agreement among the Registrant, Abraxis BioScience, LLC, APP Pharmaceuticals, LLC and Abraxis BioScience, Inc. (f/k/a New Abraxis, Inc.) (Incorporated by reference to Exhibit 10.2 to Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008)

10.3		Transition Services Agreement between the Registrant and Abraxis BioScience, Inc. (f/k/a New Abraxis, Inc.) (Incorporated by reference to Exhibit 10.3 to Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008)

10.4		Employee Matters Agreement among the Registrant, APP Pharmaceuticals, LLC, Abraxis BioScience, LLC and Abraxis BioScience, Inc. (f/k/a New Abraxis, Inc.) (Incorporated by reference to Exhibit 10.4 to Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008)

10.5*		Manufacturing Agreement between APP Pharmaceuticals, LLC and Abraxis BioScience, Inc. (f/k/a New Abraxis, Inc.) (Incorporated by reference to Exhibit 10.5 to Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008)

10.6		Lease Agreement between APP Pharmaceuticals, LLC and Abraxis BioScience, LLC for the premises located at 2020 Ruby Street, Melrose Park, Illinois (Incorporated by reference to Exhibit 10.6 to Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008)

10.7		Lease Agreement between APP Pharmaceuticals, LLC and Abraxis BioScience, LLC for the warehouse facilities located at 2045 N. Cornell Avenue, Melrose Park, Illinois (Incorporated by reference to Exhibit 10.7 to Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008)

10.8		Lease Agreement between APP Pharmaceuticals, LLC and Abraxis BioScience, LLC for the research and development facility located at 2045 N. Cornell Avenue, Melrose Park, Illinois (Incorporated by reference to Exhibit 10.8 to Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008)

10.9		Lease Agreement between Abraxis BioScience, LLC and APP Pharmaceuticals, LLC for the premises located at 3159 Staley Road, Grand Island, New York (Incorporated by reference to Exhibit 10.9 to Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008)


Exhibit Number		Description

10.10		Form of Indemnification Agreement between the Registrant and each of its executive officers and directors (Incorporated by reference to Registrant’s Registration Statement filed on Form S-1/A, file number 333-70900, filed with the Securities and Exchange Commission on November 20, 2001)

10.11		1997 Stock Option Plan (Incorporated by reference to the Registrant’s Registration Statement filed on Form S-1, file number 333-70900, filed with the Securities and Exchange Commission on October 3, 2001)

10.12		2001 Stock Incentive Plan, including forms of agreements thereunder (Incorporated by reference to the Registrant’s Definitive Proxy Statement on Form 14A filed with the Securities and Exchange Commission on April 29, 2005)

10.13		2001 Employee Stock Purchase Plan, including forms of agreements thereunder (Incorporated by reference to the Registrant’s Registration Statement filed on Form S-1, file number 333-70900, filed with the Securities and Exchange Commission on October 3, 2001)

10.14		Lease Agreement between Manufacturers Life Insurance Company (U.S.A.) and the Registrant for 1501 E. Woodfield Road, Suite 300 East Schaumburg, Illinois, known as Schaumburg Corporate Center (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 23, 2005)

10.15		Description of Non-Employee Director Cash Compensation Program (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 25, 2005)

10.16		Amended and Restated 2001 Non-Employee Director Option Program (Incorporated by reference to Exhibit 10.26 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 25, 2005)

10.17		Purchase and Sale Agreement, dated April 24, 2006, between the Registrant and Pfizer, Inc. (Incorporated by reference to Exhibit 10.26 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2006)

10.18*		Asset Purchase Agreement, dated April 26, 2006, between the Registrant and AstraZeneca UK Limited (Incorporated by reference to Exhibit 10.14 to the Registrant’s Quarterly Report on Form 10-Q/A filed with the Securities and Exchange Commission on August 10, 2006)

10.19*		Amended to the Asset Purchase Agreement, dated June 28, 2006, between the Registrant and AstraZeneca UK Limited (Incorporated by reference to Exhibit 10.15 to the Registrant’s Quarterly Report on Form 10-Q/A filed with the Securities and Exchange Commission on August 10, 2006)

10.20*		Manufacturing and Supply Agreement, dated June 28, 2006, between the Registrant and AstraZeneca LP. (Incorporated by reference to Exhibit 10.17 to the Registrant’s Quarterly Report on Form 10-Q/A filed with the Securities and Exchange Commission on August 10, 2006)

10.21*		Manufacturing and Supply Agreement, dated June 28, 2006, between the Registrant and AstraZeneca Pharmaceuticals LP. (Incorporated by reference to Exhibit 10.18 to the Registrant’s Quarterly Report on Form 10-Q/A filed with the Securities and Exchange Commission on August 10, 2006)

10.22		Retention Agreement, dated as of November 20, 2006, between the Registrant and Thomas H. Silberg (Incorporated by reference to Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2007)

10.23		Retention Agreement, dated as of November 20, 2006, between the Registrant and Frank Harmon (Incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2007)

10.24		Credit Agreement, dated November 13, 2007, among the Registrant, APP Pharmaceuticals LLC, APP Pharmaceuticals Manufacturing LLC and the other parties thereto, including an amendment thereto (Incorporated by reference to Exhibit 10.24 to Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008)

10.25†		Employment Agreement between the Registrant and Richard Tajak

31.1†		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2†		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1†		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002

32.2†		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002

*	Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission.