DEVELOPMENT AND SUPPLY AGREEMENT





      AGREEMENT,  dated April 17,  2001,  is made  between PAR  PHARMACEUTICALS,

INC., a _____________  corporation,  maintaining its principal place of business

at One Ram Ridge  Road,  Spring  Valley,  New York 10977  ("PAR"),  DR.  REDDY'S

LABORATORIES  LIMITED, an Indian corporation,  maintaining its principal offices

at 7-1-27 Ameerpet, Hyderabad - 500 016, India, and REDDY-CHEMINOR,  INC., a New

Jersey  corporation,  maintaining  its  principal  office at 66 S. Maple Avenue,

Ridgewood, New Jersey 07450, U.S.A. (collectively "REDDY").



                                   WITNESSETH:



      WHEREAS,   REDDY  has   expertise   in  the   development   of   generic

pharmaceutical products; and



      WHEREAS,  PAR has  expertise in the  development,  marketing and sale of

such products in the United States; and



      WHEREAS, REDDY and PAR desire to collaborate in the development, marketing

and sale of certain generic pharmaceutical products; and



      WHEREAS, REDDY desires to manufacture and supply to PAR and PAR desires to

purchase exclusively from REDDY for sale in the Territory,  as defined below, by

PAR all of PAR's requirements for the Reddy Finished Products, as defined below;



      NOW, THEREFORE,  in consideration of the mutual promises,  covenants and

agreements hereinafter set forth, the parties agree as follows:



1.          DEFINITIONS.



      (a) "Affiliate"  means any  corporation or business entity  controlled by,

controlling,  or under common control with PAR or REDDY as the case may be. (For







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the purpose of this  definition,  "control" means direct or indirect  beneficial

ownership  of greater  than  fifty  percent  (50%) of the  voting  stock of such

corporation  or other  business  entity,  or a greater than fifty  percent (50%)

interest in the income of such  corporation  or other  business  entity,  or the

power to direct or cause the  direction of the  management  and policies of such

corporation or other business entity whether by ownership of voting  securities,

by contract or otherwise,  or such other  relationship as, in fact,  constitutes

control.)



      (b) "ANDA" means an Abbreviated  New Drug  Application  filed with the FDA

for a Reddy Finished Product or Par Finished Product in the United States.



      (c)   Applicable Percentage" means [*********************]



      (d)   "Bulk  Product"  means  either  REDDY's  or a third  party's  bulk

actives for Reddy Finished  Product or PAR's or a third party's bulk actives for

Par Finished Product.



      (e) "cGMP" means current good  manufacturing  practices for the methods to

be used in, and the  facilities  and controls to be used for,  the  manufacture,

storage and handling of each Reddy  Finished  Product and Par Finished  Product,

all as set forth from  time-to-time  by the FDA pursuant to the FD&C Act and the

rules and regulations promulgated thereunder (including specifically,  Title 21,

part 211 of the Code of Federal Regulations of the United States).



      (f)  "Commercial  Expenses"  means PAR's or  REDDY's,  as the case may be,

commercially   reasonable   costs  and  expenses  for  marketing,   advertising,

promoting,  and selling  (including  but not limited to costs and  expenses  for

launch,  sales force training and  materials,  samples,  conventions,  symposia,

marketing,  direct  mailing,  marketing  research,  public  relations,   printed

materials,  medical  information,  regulatory  activities and distribution) each

Reddy Finished  Product or Par Finished  Product,  determined in accordance with

PAR's or REDDY's  customary  accounting  policies and  practices and in a manner

consistent with U.S. generally accepted accounting principles.



      (g) "Competing Product" means, with respect to a particular Reddy Finished

Product or Par Finished Product,  a generic  pharmaceutical  product which is in





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the same dosage form, has the same active  ingredient,  the same strength and is

for the same  indication as the Reddy Finished  Product or Par Finished  Product

but which is  manufactured  and supplied by or purchased  and acquired  from any

Person other than REDDY or its Affiliates or PAR or its Affiliates,  as the case

may be.



      (h)  "Development  Costs"  means  the  commercially  reasonable  costs and

expenses of REDDY or PAR, as the case may be,  incurred in the  preparation  and

filing of a DMF for each Bulk Product and in  obtaining  the ANDA for each Reddy

Finished  Product  or Par  Finished  Product,  including  but  not  limited  to:

allocated costs for manufacturing,  personnel,  packaging,  stability,  testing,

analytical,   Bulk  Product   supplied  for  ANDA   submission   (calculated  at

Manufacturing Cost) and all costs relating to the development of finished dosage

including R&D, preformulation,  formulation,  bio-equivalence, ANDA preparation,

validation, issuance and submission.



      (i) "DMF" means the drug master  file for each Bulk  Product,  as the same

may be amended or supplemented from time to time.



      (j) "Exclusivity Period" means, with respect to any Reddy Finished Product

(or any  strength or dosage form of a Reddy  Finished  Product) or Par  Finished

Product (or any strength or dosage form of a Par Finished Product), the granting

of up to six (6) months of marketing  exclusivity  in the United States from the

FDA for being  first to file an ANDA with a patent  certification  for the given

Reddy  Finished  Product or Par  Finished  Product  enabling  PAR to market such

product during such period in the U.S. with no other generic competitor.



      (k)   "FDA" means the United States Food and Drug Administration.



      (l)   "FD&C Act" means the Federal Food,  Drug and Cosmetic Act of 1938,

as amended, and the regulations thereunder, including current good manufacturing

practice regulations, as the same may be amended or revised.







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      (m) "Form 483" means the  written  notice of  objectionable  practices  or

deviations from the regulations  that is prepared by the FDA investigator at the

end of an inspection.

1.



      (n)  "Group  2 Term"  means,  for each  Reddy  Group 2  Product,  the date

commencing upon the execution of this Agreement and ending on December 31, 2004.



      (o)   "Indemnified  Party" has the  meaning  set forth in Section  15(c)

hereof.



      (p)   "Indemnifying  Party" has the meaning  set forth in Section  15(c)

hereof.



      (q) "Intellectual  Property Costs" means REDDY's or PAR's, as the case may

be,  out-of-pocket  payments  to patent  counsel  (or other  experts,  including

outside  laboratories)  in connection with pre- or  post-marketing  patent work,

including patent litigation.



      (r) "Know-How" means all Reddy Finished  Product or Par Finished  Product,

as the case  may be,  related  technical  knowledge,  manufacturing  procedures,

expertise,  methods, protocols and current and accumulated experiences which any

party hereto acquires in connection with this Agreement and/or has acquired as a

result of scientific research,  practical experiences and otherwise which have a

demonstrated  usefulness in manufacturing,  obtaining and maintaining Regulatory

Approval,  including  but not  limited  to (i) plant  validation  protocols  and

specifications;  (ii)  process  validation  procedures;  (iii)  quality  control

procedures;  (iv) analytical methods and procedures; (v) bio-equivalence testing

protocols and  procedures;  (vi) cleaning  validation  protocols and procedures;

(vii) procedures for preparation of applications for Regulatory Approval; (viii)

ongoing regulatory compliance  procedures;  and (ix) galenical  formulations and

processes.



      (s) "Launch Date" means,  with respect to each Reddy  Finished  Product or

Par Finished  Product,  the date on which PAR makes its first commercial sale of

such Reddy  Finished  Product or Par  Finished  Product in the  Territory  to an

unrelated third party in an arm's length transaction but no later than the later

of:  thirty (30) days after the date on which all  regulatory  and  governmental

approvals for the manufacture,  delivery, sale and distribution in the Territory

have been  obtained  (including  Regulatory  Approval);  thirty  (30) days after





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applicable patent expiration  (including  General Agreement on Trade and Tariffs

extensions) or thirty (30) days after product exclusivity expiration.



      (t)  "Manufacturing  Cost" means the sum of (i) the  [*******************]

for either each Reddy Finished Product (other than Group 3 Products) incurred by

REDDY and its Affiliates,  or each Par Finished  Product incurred by PAR and its

Affiliates,  as the case may be,  calculated  separately for each Reddy Finished

Product or Par Finished  Product,  in each case  determined in  accordance  with

REDDY's or PAR's  customary  cost  accounting  policies and  practices  and in a

manner consistent with U.S. generally  acceptable  accounting  principles;  (ii)

[*******************]     of    such     [*******************]     (to     cover

[*******************]);  and  (iii)  all  transportation  and  related  costs to

deliver the Reddy Finished  Product or Par Finished  Product to its  destination

under Section 8 of this Agreement.  Manufacturing Cost for Reddy Group 3 Product

means  the   Manufacturing   Cost  as   described   above  plus  an   additional

[*******************] of such  Manufacturing  Cost.  If the manufacturing of any

Reddy  Finished  Product  or  Par  Finished  Product  or any  component  thereof

(including Bulk Product) is performed for REDDY or PAR, as the case may be, by a

third party (which is not an  Affiliate),  then amounts paid to such third party

in  connection  with the  manufacturing  of such Reddy  Finished  Product or Par

Finished Product or any component thereof (including Bulk Product) shall be

[*******************]  .



      (u)   "Net Margin" means [*********************].



      (v)   "Net Profit" means [*********************].



      (w) "Net Sales"  means that dollar  amount  determined  by  deducting  the

following items from the [*******************]  billed for that particular Reddy

Finished  Product or Par Finished  Product,  as the case may be, sold by PAR and

its Affiliates or REDDY and its Affiliates, as the case may be, in the Territory

to unaffiliated third parties in arms length transactions:



                  (i)   trade, quantity or cash discounts, service allowances;



                  (ii)  credits or allowances for the Reddy  Finished  Product

                        or Par  Finished  Product,  if  any,  given  or  made on

                        account  of  [*******************], returns,  bad debts,





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                        off-invoice promotional discounts, [******************],

                        [*******************], any and  all  federal,  state  or

                        local  government   rebates  or  discounts   whether  in

                        existence now or enacted at any time  hereafter,  volume

                        reimbursements,  and the gross  amount  billed  for that

                        rejected Reddy Finished  Product or Par Finished Product

                        or that Reddy Finished  Product or Par Finished  Product

                        recalled,  seized or  destroyed  (voluntarily  or at the

                        request  of  any  government   agency,   subdivision  or

                        department);



                  (iii) any tax,  excise  or  other  government  charge  upon or

                        measured  by  the  production,   sale,   transportation,

                        delivery  or use of that Reddy  Finished  Product or Par

                        Finished Product; and



                  (iv)  any surcharge,  levy, tax or assessment  mandated by any

                        federal,  state or local  government  or  administrative

                        agency to fund a  compensation  program or  reserve  for

                        persons  injured by that Reddy  Finished  Product or Par

                        Finished Product;



in each case determined in accordance  with PAR's,  REDDY's or any third party's

customary  accounting  policies and practices in a manner  consistent  with U.S.

generally accepted accounting principles.



      (x)   "Par Applicable Percentage" means [*********************].



      (y)   "Par Change in Control"  means the  acquisition by any third party

individual  or entity  (other than by Merck KGaA (but not a successor or assign)

or an  Affiliate of Merck KGaA (but not a successor or assign)) of more than 50%

(in any one  transaction or in any series of  transactions)  of the  outstanding

shares of capital  stock of  Pharmaceutical  Resources,  Inc.  or PAR having the

right to vote or generally to participate, in a manner similar to equity shares,

in the profits and losses of Pharmaceutical Resources, Inc. or PAR.



      (z)   "Par Finished Products" means [*********************].







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         (aa) "Par Group 1 Products" means [*********************].



         (bb) "Par Group 4 Products" means [*********************].



         (cc)  "Person"  means  an  individual,   partnership,   joint  venture,

association,  corporation,  company and any other form of business organization,

government  regulatory  or  governmental  agency,   commission,   department  or

instrumentality.



         (dd) "Promotional Expenses" means promotional payments or fees directly

related to a Reddy Finished  Product or Par Finished  Product paid to REDDY's or

PAR's customers, as the case may be.



         (ee) "Reddy Applicable Percentage" means [*********************].



         (ff) "Reddy Change in Control" means the acquisition by any third party

individual or entity of more than 50% (in any one  transaction  or in any series

of transactions) of the outstanding  shares of capital stock of REDDY having the

right to vote or generally to participate, in a manner similar to equity shares,

in the profits and losses of REDDY.



         (gg) "Reddy Finished Product" means [*********************].



         (hh) "Reddy Group 1 Products" means [*********************].



         (ii) "Reddy Group 2 Products" means [*********************].



         (jj) "Reddy Group 3 Products" means [*********************].



         (kk) Reddy Group 4 Products means [*********************].



         (ll) "Reddy Group 5 Products" means [*********************].



         (mm) "Reddy Group 6 Products" means [*********************].



         (nn)  "Regulatory   Approval"  means  any  ANDAs  or  other  approvals,

supplements, amendments, pre- and post-approvals, marketing authorizations based

upon such  approvals  (including  any  prerequisite  manufacturing  approvals or

authorizations related thereto) and labeling approval(s), technical, medical and

scientific licenses,  registrations or authorizations of any national, regional,

state or local regulatory agency,  department,  bureau,  commission,  council or





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other governmental  entity,  necessary for the manufacture,  distribution,  use,

import, or sale of Reddy Finished Products or Par Finished Products.



         (oo) "Specifications"  means the specifications  required to obtain the

ANDA of each Reddy  Finished  Product or Par Finished  Product  based on the NDA

specifications  of the  innovator  product and as  contained in the DMF for Bulk

Product   unless  changes  are  required  as  described  in  the  United  States

Pharmacopoeia,  as such  specifications may be amended at the request of the FDA

or by mutual agreement of the parties from time to time.



         (pp) "Technical  Information" means all information and expertise which

REDDY or PAR, as the case may be,  acquires in  connection  with this  Agreement

and/or has  acquired  which have a  demonstrated  usefulness  in  manufacturing,

packaging and labeling and/or obtaining and maintaining  Regulatory  Approval of

the Reddy  Finished  Products  or the Par  Finished  Products  pursuant  to this

Agreement,  including,  but not  limited  to, all  specifications,  manuals  and

computer  programs relating to manufacturing and similar materials and access to

the DMF of Bulk Product.



         (qq) "Term" means,  for each Reddy Finished Product (other than a Reddy

Group 2 Product)  or Par  Finished  Product,  the later to occur of (i) the date

commencing upon execution of this Agreement and ending seven (7) years after the

date of execution of this  Agreement or (ii) the date  commencing  on the Launch

Date of each Reddy Finished Product or Par Finished Product and ending three (3)

years after the Launch Date of such product.



         (rr) "Territory" means the United States, its territories,  possessions

and the Commonwealth of Puerto Rico.



         (ss) "Third Party Bulk Product" means a Bulk Product manufactured by an

entity other than REDDY or PAR, as the case may be.







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      2. DEVELOPMENT OF PRODUCTS.



         (a)  REDDY  shall  be  responsible  for the  development  of all  Reddy

Finished  Products to be supplied  by REDDY to PAR under this  Agreement.  REDDY

shall use commercially  reasonable efforts to develop each of the Reddy Finished

Products. All Development Costs and Intellectual Property Costs, including,  but

not limited to, initiation, preformulation development, formulation development,

scale-up and any legal costs and expenses  incurred in  connection  with a Reddy

Finished Product shall be the sole  responsibility  of REDDY.  Nothing contained

herein shall constitute a guarantee or warranty of REDDY that development of any

Reddy  Finished  Product will be commenced or continued,  that a submission  for

Regulatory  Approval  for such Reddy  Finished  Product will be filed within any

specific  time  period,  or that a Regulatory  Approval  for any Reddy  Finished

Product will be obtained.



         (b) REDDY shall prepare each  application  for Regulatory  Approval for

each Reddy Finished  Product and shall use  commercially  reasonable  efforts to

obtain  Regulatory  Approval.  REDDY shall hold all ANDAs for the Reddy Finished

Product in its own name,  provided that such  ownership  shall be subject to the

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