This annual report contains "forward-looking statements", or statements that are based on current expectations, estimates, and projections rather than historical facts. The Company offers forward-looking statements in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may prove, in hindsight, to have been inaccurate because of risks and uncertainties that are difficult to predict. Many of the risks and uncertainties that the Company faces are included under the caption "Risk Factors".

     Alpharma is a global specialty pharmaceutical company that develops, manufactures and markets pharmaceutical products for humans and animals. The Company markets one branded pharmaceutical prescription product that is contract manufactured by a third-party, a pain medication sold under the trademark KADIAN, in the U.S. Alpharma manufactures and markets a line of fermentation-based active pharmaceutical ingredients and one chemically synthesized active pharmaceutical ingredient (collectively "APIs") that are used primarily by third parties in the manufacturing of finished dose products. The Company manufactures and markets animal health products in over 100 formulations and dosage forms. The Company presently conducts business in more than 80 countries and has approximately 1,400 employees in over 20 countries. For the year ended December 31, 2006, the Company generated revenues of approximately $653.8 million from its continuing operations. Revenues from discontinued operations totaled $17.1 million in 2006, and related to the Company's former generics pharmaceutical telemarketing distribution business which was sold on March 31, 2006.

     The Company is incorporated in Delaware. The Company was originally organized as A.L. Laboratories, Inc., a wholly owned subsidiary of Apothekernes Laboratorium A.S., a Norwegian healthcare company (the predecessor company to A.L. Industrier ASA; formerly Alpharma's controlling stockholder). In 1994, the Company acquired the complementary human pharmaceutical and animal health business of its parent company and subsequently changed its name to Alpharma Inc. to operate worldwide as one corporate entity.

     Until December 28, 2006, A.L. Industrier ASA ("Industrier") beneficially owned all of the outstanding shares of the Company's Class B common stock, or approximately 22% of the Company's total common stock as of such date. Through its ownership of the Class B common stock, Industrier had voting power that provided it with effective control of the Company. On December 28, 2006, two of the Company's wholly owned subsidiaries purchased 100% (11,872,897 shares) of the outstanding shares of the Company's Class B common stock from Industrier at a price of $25.50 per share. Including related fees, the cost of the repurchase was approximately $307.4 million, which was paid using available cash on hand. Following the Class B share repurchase, control of the Company now rests in the holders of the Class A shares acting by the majority applicable under Delaware law and the Company's charter documents.

     On December 19, 2005, the Company sold its world-wide human Generics pharmaceutical business (the "Generics Business"), excluding ParMed Pharmaceuticals Inc. ("ParMed"), its Generics pharmaceutical telemarketing distribution unit, to Actavis Group hf ("Actavis") for cash in the amount of $810 million. The form of this transaction included the sale of all of the Company's subsidiaries that were, as of the closing of the transaction, engaged solely in the human genericsbusiness ("Generics Business") and a transfer of the assets and liabilities related to the Generics Business from those subsidiaries of the Company that, as of the closing of the transaction, engaged in both the Generics Business and other businesses of the Company.

     As a result of the transactions, substantially all of the material liabilities (including without limitation, claims, lawsuits and other contingent liabilities) of the Generics Business were transferred to Actavis or entities owned by Actavis. The Company made certain representations and warranties to Actavis regarding the Generics Business as a part of the transaction, and subject to certain limitations, agreed to indemnify Actavis to the extent that such representations and warranties were incorrect. In addition, the Company retained liability for certain specified liabilities which the Company believes are not, in the aggregate, material to the Company and may be held responsible for certain liabilities of the Generics Business transferred to Actavis in the event that Actavis fails to or is unable to satisfy such liabilities. The financial statements contained in this Report present the Generics Business as a discontinued operation.

     More than half of the proceeds of the transaction that were received as consideration for the non-US assets of the Generics Business were repatriated to the United States under the American Jobs Creation Act of 2004. Beginning in the first quarter of 2005, and through to January 23, 2006, the Company repaid all of its outstanding debt.

     On March 31, 2006, the Company sold ParMed, its Generics pharmaceutical telemarketing distribution business, to Cardinal Health for cash in the amount of $40.1 million. ParMed is presented in the financial statements contained in this Report, as a discontinued operation.

    As such, throughout this Report, "Discontinued Operations" refers to the Generics Business and ParMed. For further information on the Discontinued Operations, see the discussion of Discontinued Operations in Item 7 of this Report, and see Note 3 to the Consolidated Financial Statements included in Item 8 of this Report.

     The Company operates in the human and animal pharmaceuticals industries. After giving effect to the Discontinued Operations, for financial reporting purposes it has three businesses within these industries: Pharmaceuticals ("Pharmaceuticals", formerly Branded Pharmaceuticals), Active Pharmaceutical Ingredients ("API") and Animal Health ("AH").

     The following table shows the revenues and operating income or loss of each of the Company's business segments and Discontinued Operations for the past three years:

1. API 2006 operating income includes a $7.8 million curtailment gain related to freezing a Norwegian defined benefit pension plan.
2. AH 2004 results include a $10.0 million charge to write down the carrying value of its former Aquatics business assets to fair value.
3. Discontinued operations results in 2004 include a charge of $260 million to write down the value of goodwill associated with the US Generics Pharmaceutical business.

     For additional financial information concerning the Company's business segments see Note 21 to the Consolidated Financial Statements included in Item 8 of this Report.

     The Company maintains an Internet website at www.alpharma.com. The Company makes available free of charge on its website its annual report on Form 10-K, its quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended, as soon as practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission.

PHARMACEUTICALS ("Pharmaceuticals")

     Product Lines. KADIAN is an extended release morphine product which, until June 2006, F.H. Faulding & Co. Limited (now a wholly-owned subsidiary of Mayne Nickless Limited) licensed to Pharmaceuticals pursuant to a perpetual, royalty-free license. During the second quarter of 2006, Mayne Nickless Limited assigned the patent rights to Pharmaceuticals. On October 27, 2006, the Company received FDA approval for KADIAN 80 mg dosage strength and launched this line extension in the fourth quarter of 2006. On February 27, 2007, the Company received FDA approval for KADIAN 200mg dosage strength.

The Company's Pharmaceuticals business is actively working on the development of a new pain product which, if successful, would include a technology designed to deter abuse. During the third quarter of 2006, Pharmaceuticals reported positive results from a Phase II efficacy and pharmacokinetic trial for the investigational abuse deterrent extended-release morphine product. The goal of the study was to demonstrate that the Company's proprietary abuse-deterrent technology for long-acting opioids does not impact the safety or efficacy of the product. This goal was achieved. Pharmaceuticals has commenced Phase III activities on this new product and, assuming a successful Phase III outcome, is targeting a New Drug Application (NDA) filing in the first half of 2008. The Company expects significant research and development investment in 2007 and 2008 in support of its abuse-deterrent opioid product development programs. See "Research, Product Development and Technical Activities" and "Risk Factors - The Company's products and future products are based on technologies in areas where third parties hold numerous patents".

In response to a general inquiry by the FDA regarding alcohol interaction with opioids, the Company has conducted in vivo studies to evaluate the interaction of alcohol consumption with KADIAN. The results indicate that the concomitant use of tested levels of alcohol with KADIAN has no significant impact on mean morphine blood levels. The Company provided this data to the FDA. Based upon its review, the FDA has indicated that the KADIAN label will not require any further modifications.

     Competition. Pharmaceuticals operates in a highly competitive, price-sensitive market. The Company's Pharmaceuticals product competes with pain management products manufactured by Generics pharmaceutical manufacturers and worldwide research-based brand drug companies. As the Company expands its Pharmaceuticals portfolio product line, it expects to encounter continued competition.

     Pharmaceuticals' principal competitors are: King Pharmaceuticals, Janssen Pharmaceutica, Endo Pharmaceuticals, Purdue Pharma and Generics competitors generally.

     Product Lines. The Company's API business markets and sells 14 APIs, primarily antibiotics. These APIs constitute the active substances in certain pharmaceuticals for the treatment of some skin, throat, intestinal and systemic infections. The Company is a leading producer of bacitracin, polymyxin, and vancomycin, all of which are important pharmaceutical-grade antibiotics. The Company's API business also manufactures other antibiotic active substances such as tobramycin, colistin and colistin methsulfate, and amphotericin B, a parenteral grade antifungal. The primary applications for the API products are injectable and specialized topical and human surgical finished product applications. API owns European marketing authorizations for vancomycin vial and capsule finished products which are manufactured (using the Company's active substance) and distributed for the Company by third parties.

The Company has several growth initiatives related to API. API has initiated a program of new product launches that began in 2005 with the launch (commercial sale of product) of tobramycin and continued with the launch of fluticasone and teicoplanin in non-regulated markets in the third quarter of 2006 and mupirocin acid in the fourth quarter of 2006. The Company intends to continue to invest in and develop its API pipeline and expects to launch two additional products before the end of 2007. In addition, in the second quarter of 2006, API reached agreement with Hisun Pharmaceutical Co., Ltd., a Chinese supplier, that, subject to regulatory approvals, is expected to enable the Company to increase the manufacturing capacity of one of its current major products, vancomycin, over the next three years. During the third quarter of 2006, the Company commenced the sale of vancomycin manufactured at the Hisun facility into limited markets, and began enhancing the site's manufacturing processes in preparation for regulatory approvals. Another of API's main expansion initiatives is forward integration into the injectable finished product form of several of its APIs. The Company is in the process of expanding its Copenhagen facility to meet capacity requirements for this new initiative. Potential sources for additional new products are API's internal research and development, co-development projects with third parities, partnerships and in-licensing. See "Risk Factors -. The Company depends on development, manufacture and marketing of new products for its future success" and "The Company could have difficulties in developing and integrating strategic alliances, co-development opportunities and other relationships".

     In February 2003, the Company's API business implemented a significant price increase for two of its products in certain geographical markets and, during 2005 and 2006, reduced the price significantly with respect to one of such products. The Company anticipates that further price reductions are possible on both of these products.

     Facilities. The Company manufactures its API products in its plants in Oslo, Norway, which also manufactures products for AH, Copenhagen, Denmark and Budapest, Hungary. Each plant includes fermentation, specialized recovery and purification equipment. To support the production of vancomycin, the Company substantially expanded its production capacity at its Copenhagen facility and, in 1998, acquired its facility in Budapest, Hungary. An expansion of manufacturing processes and capacity at the Budapest facility was substantially completed in 2004. The expansion of the Budapest facility cost a total of approximately $9 million and doubled the capacity of the facility for vancomycin and established capacity for the production of three additional products in the facility. The Company completed two expansion projects at its Copenhagen facility in 2004 for an aggregate cost of approximately $32 million. One of these projects significantly increased the capacity of the Copenhagen facility for vancomycin. Additionally, the Copenhagen facility is currently being expanded to accommodate API's initiative to expand into the injectable finished product form of several of its APIs. The Oslo, Copenhagen and Budapest facilities have been classified as acceptable by the FDA as manufacturers of certain sterile and non-sterile bulk antibiotics. Such FDA classification, subject to compliance with applicable FDA rules, allows imports of the products manufactured at these facilities into the U.S. market and into most European markets. (See "Information Applicable To All Business Segments - Environmental Compliance" for a discussion of environmental matters related to the Copenhagen, Oslo and Budapest facilities and "Government Regulation - FDA Compliance" for a discussion of the Company's FDA inspection results at the same three facilities.)

     Competition. In sales to large and small customers, price, quality and service are the determining factors. The Company believes that its fermentation and purification expertise and established reputation provide it with a significant advantage in these antibiotic products. Competition has increased in recent years on certain of its products, most notably from Asian-based companies. API's principal competitors are: Abbott Laboratories, Bristol-Myers Squibb Company, Xinxhang-Zheijiang, Sandoz (LEK), Teva (Biogal), World Yanghen, Shanghai Pioneed and Livzon - Fuzhou.

     Geographic Markets. The Company's API business sells its products in the U.S. and other areas of the world. For the year ended December 31, 2006, sales in North America of API products represented approximately 52% of the Company's API business' total revenues.

     Product Lines. The Company's principal animal health business is based on a portfolio of anti-infective animal health products that are added to the feed and water of livestock and poultry. This market is comprised of three primary categories: antibiotics, anticoccidials and antibacterials.

Antibiotics. The Company's MFAs and water-soluble products are used to prevent and/or treat diseases and maintain health in poultry, swine and cattle. The Company is the world's largest supplier of bacitracin and chlortetracycline for use in animal feeds. The Company's major AH antibiotic products include:

Anticoccidials. These products are used to prevent coccidiosis, a condition caused by an intestinal parasite that affects growth in poultry and cattle. The Company believes it is the world's second largest supplier of anticoccidials and the Company's major products include:

Antibacterials. These products are used to prevent disease in poultry and swine. The Company is the world's largest supplier of antibacterials for use in animal feeds and the Company's major products include:

     In addition to the Company's antibiotic, anticoccidial and antibacterial products, it also sells water soluble vitamins, minerals and electrolytes that are used as nutritional supplements for poultry, swine and cattle. AH's main expansion initiative is to focus on new products from its research and development activities, the purchase of businesses or individual products from third parties, co-development and in-licensing and to expand the geographic reach of its current product line with new registrations in new jurisdictions. See "Risk Factors - The Company depends on development, manufacture and marketing of new products for its future success" and "Risk Factors - The Company could have difficulties in developing and integrating strategic alliances, co-development opportunities and other relationships".     

     Animal drugs must be reviewed and receive registration from the FDA for marketing in the United States and approval or registration by similar regulatory agencies in other countries. Regulatory approvals for products to be used in food producing animals are complex due to the possible impact on humans.

     Approval also must be granted in the U.S. for the use of an animal drug in combination with other animal drugs in feeds. Such combination approval generally requires the cooperation of other manufacturers to consent to authorize the FDA to refer to such manufacturer's New Animal Drug Application (or NADA) in support of the Company's regulatory submissions. This consent is necessary to obtain approval from the FDA for more than one animal drug to be included in a given animal drug animal feed at the same time. To date, the Company has been successful in obtaining the cooperation of third parties to seek combination approval for many of its products. Generally, the Company does not enter into written agreements with other manufacturers and does not pay any money to other manufacturers to obtain such consent. These combination clearances significantly extend the reach and potential market share of the Company's products and provide a considerable competitive advantage. Presently, the Company has sponsored a total of approximately 100 combination approvals in the U.S.

  Acquisitions and Divestitures.

     In September 2004, in order to relieve itself of future obligations for certain payments, the Company entered into an agreement with Natinco N.V., the licensor of certain technology related to Reporcin, a product intended to improve meat quality, which substantially limited the geographic area in which the Company can market the product. While at the 1999 purchase of the rights to manufacture and market Reporcin, it was the Company's intent to build a global market for the product, sales have not been material to the AH business and the Company intends to discontinue sales once product presently in inventory has been sold.

     In July 2004, the Company sold assets relating to its Aquatic Animal Health Business to the senior management of the business for approximately $4.4 million. In connection with this transaction, AH received a final earn-out payment in December 2006 of approximately $1.9 million. Additionally, in March 2004, the Company sold its AH distribution company to IVS Animal Health Inc. for approximately $17.0 million.

Facilities.

The Company produces its Animal Health products in several manufacturing facilities. BMD is produced and blended at the Company's Chicago Heights, Illinois facility, which contains a modern fermentation and recovery plant. Albac is manufactured at the Oslo, Norway facility, which is managed by API. AH has entered into agreements, which are subject to Chinese regulatory approval, to purchase two facilities in China. It intends to move the manufacturing of Albac to one of these facilities and to formulate certain other products at the second facility. The majority of soluble antibiotics and vitamins are formulated in AH's Longmont, Colorado facility. Feed grade chlortetracycline is produced at AH's Willow Island, West Virginia facility in addition to being purchased from foreign suppliers. It is then blended at either Company-owned or independent blending facilities. In 2004, the Company received FDA approval to commence manufacturing lasalocid sodium at its Willow Island facility for sales in the U.S. Now, in addition to manufacturing chlortetracycline, the Willow Island facility also produces lasalocid for use in the U.S. as well as many other parts of the world. Bio-Cox is blended in AH's Van Buren, Arkansas facility, as well as at a third-party location, and Avatec and Bovatec are blended at the Salisbury, Maryland facility, as well as at a third-party location. The 3-Nitro product line is manufactured using the Company's technology at a third-party facility. Decoquinate, the active ingredient used in Deccox, is manufactured, using the Company's technology, at a facility owned and operated by a third-party. In June of 2003, the blending of Deccox was moved from the Company's Lowell, Arkansas facility to the Company's Chicago Heights facility. Process improvement and manufacturing development is done primarily at AH's Chicago Heights and Willow Island facilities.

     In addition, the Company makes significant use of third-party facilities (some of which are in low-cost countries) in the manufacture of its AH products and anticipates that this use will continue to increase in the future.

     Competition. The Company competes in a highly competitive market on the basis of brand name customer service, and price. Some of the Company's competitors in the animal health industry offer a wide range of products with various therapeutic and production enhancing qualities. Some of AH's principal competitors include Eli Lilly and Company (Elanco), Pennfield and Phibro Animal Health. Due to the Company's strong market position in MFAs and its experience in obtaining requisite FDA approvals for combination claims, the Company believes it enjoys a competitive advantage in marketing MFAs under the FDA approved combination clearances. However, no assurances can be given that third parties will continue to cooperate in seeking combination approval for the Company's products, and the Company continues to expect additional new entrants in the generics medicated animal feed additive market in the foreseeable future.

     Geographic Markets. The Company sells more than half of its animal health products in the U.S. and has a growing presence in Europe, Latin America and Asia.

     Sales, Distribution and Customers. The Company's animal health products in the U.S., Europe, Canada, Mexico, Brazil and other selected markets are sold through a staff of approximately 100 technically trained sales and technical service and marketing employees, many of whom are veterinarians and nutritionists. The Company has sales offices in the U.S., Canada, Mexico, Chile, Argentina, Thailand, China, Brazil, France and Belgium. In the remainder of the world, AH's products are sold primarily through the use of distributors and sales companies. Sales are made principally to commercial animal feed manufacturers, wholesalers and integrated cattle, swine and poultry producers. Although AH is not dependent on any one customer, the customer base for AH products is in a consolidation phase. Therefore, as consolidation continues, the Company may become more dependent on certain individual customers as these customers increase their size and market share.

     Research and development is important to each of the Company's continuing business segments. The Company's research, product development and technical activities in the Pharmaceuticals business are directed toward developing proprietary drug delivery systems, line extensions and new pain products with abuse deterrent technology. The Company's API business performs research and development activities on chemical synthesis, fermentation and purification technologies intended to permit the introduction of additional products. The Company is focusing its AH product development spending on activities complementary to in-licensing and co-developing technologies through arrangements with third parties.

     Most technical product development for Pharmaceuticals is conducted in its Piscataway, New Jersey site, though some technical product development in 2007 will continue to be conducted in Elizabeth, New Jersey in laboratories leased from Actavis. The Company conducts its technical product development activities for AH at its facilities in Willow Island, West Virginia; Chicago Heights, Illinois; Fort Lee, New Jersey; and contract research organizations. The Oslo, Norway and Copenhagen, Denmark facilities are used for API research and development. Independent research facilities in the U.S. and Europe are used for all business segments.

     Research and development expenses, excluding Discontinued Operations, were $44.4 million, $26.9 million and $25.4 million in 2006, 2005 and 2004, respectively.  In 2007, the Company intends to increase its spending on research and development by approximately $30 to $35 million. Most of this increased spending will be for the development of Pharmaceuticals' investigational abuse-deterrent pain product platform. Research and development activities are inherently speculative. Investments in research and development do not always result in the successful development of a product. Accordingly, it should not be assumed that potential products in the Company's pipeline will be successfully commercialized.

     The evolving and complex nature of regulatory requirements (including the possibility of future changes in statutes or regulations), the broad authority and discretion of the FDA and analogous state and foreign agencies, and the generally high level of regulatory oversight results in a continuing possibility that from time to time the Company will be adversely affected by regulatory actions despite the Company's efforts to achieve and maintain compliance with all regulatory requirements. As a result of actions the Company has taken to respond to the progressively more demanding regulatory environment in which the Company operates, the Company has spent, and will continue to spend, significant funds and management time on regulatory compliance.

     U.S. Product Marketing Authority and Protection from Generic Competition. KADIAN is the subject of an approved New Drug Application, or NDA, which has been reviewed by the FDA for both safety and effectiveness. The Agency has the continuing authority to consider the safety and effectiveness of all drugs subject to an approved NDA and, in appropriate circumstances, to order labeling changes, changes in or restrictions upon the drug's use or a cessation of the drug's sale and marketing. (See "Risk Factors - The FDA is considering the potential effects of KADIAN if taken with alcohol".) Third parties may offer a generic variation of a branded product that is the subject of an NDA if the genericproduct is the subject of an Abbreviated New Drug Application, or ANDA, and be approved by the FDA prior to marketing.

     All applications for regulatory approval of generic drug products subject to ANDA requirements must contain data relating to product formulation, raw material suppliers, stability, manufacturing, packaging, labeling and quality control, among other information. ANDAs also must contain data demonstrating the bioequivalence of the generic drug to the branded drug. In addition to meeting the above requirements for an ANDA, a generic version of KADIAN will not be approved by the FDA until the earlier of the expiration of the last to expire Orange Book (the FDA publication that lists, among others, patents protecting the active ingredient, formulation, and methods of use of a drug product) patents applicable to KADIAN (March 23, 2010 and April 13, 2010) or the date upon which a third-party is able to demonstrate in the manner provided by law that either the Company's KADIAN patents are invalid or the generic equivalent product does not infringe the KADIAN patents. Under the Hatch-Waxman Act, which amended both the Patent Code and the Federal Food, Drug and Cosmetics Act, procedures were codified and expanded with respect to applications for obtaining FDA approval for generic versions of patented drugs; including the institution of a statutory 30-month stay on the FDA authority to issue an ANDA commencing from the date a patent holder files a lawsuit challenging the generic applicants assertion of brand patent invalidity or non-infringement. (See "Risk Factors --The Company's branded drug product, KADIAN, may experience general generic competition".)

Most of the Company's animal health products are regulated by the FDA or equivalent regulatory authorities around the world, similarly to the human pharmaceuticals, while other animal health products are regulated primarily by individual States. Although the Company markets some generic animal drug products that are subject to FDA requirements similar to those as applicable to its human generic pharmaceutical products, many of its animal drug products are considered to be branded or pioneer animal drug products. Like their human counterparts, pre-marketing approval under stringent FDA rules for their testing, development, and manufacture is required for animal drugs, as well as for any changes in label claims, specifications or manufacturing sites that occur post-approval. The passage of the Animal Drug User Fee Act in late 2003 and its successful implementation by the FDA's Center for Veterinary Medicine has made review times more predictable; however changing regulatory requirements and policies continue to make the timing of such approvals difficult to predict. Despite the difficulty and delays brought about by this situation, the Company has been successful in obtaining such approvals. As with human pharmaceutical products, FDA inspection and record keeping requirements as well as debarment provisions apply to the Company's animal health products.

     Legislative bills are introduced in the U.S. Congress and individual states from time to time, some of which, if adopted, could have an adverse effect on AH's business. However, in the past, such bills that could have had a material adverse effect have not had sufficient support to become law. The animal health industry is actively engaged in the legislative process.

     EU Product Marketing Authority. EU legislation requires that veterinary products used for medicinal purposes must have a marketing authorization before they are placed on the market in the EU. The criteria upon which grant of an authorization is assessed are quality, safety and efficacy. Demonstration of safety and efficacy in particular requires clinical trials, which are subject to the standards codified in the EU guideline on Good Clinical Practice; however certain countries granted membership in the EU as of May 1, 2004 may, until a given date specified for each country, individually authorize the continued marketing of products that do not qualify for marketing authorization under EU law if such products were approved by the individual country prior to being granted EU membership. Analogous governmental and agency approvals are required in other countries where the Company conducts business. If the Company fails to obtain such marketing authorizations, or fails to obtain them in a timely manner, it could have a material adverse effect on the business, financial condition and results of operations of the Company's AH business.

     Generic medicinal products for veterinary use may be authorized in the EU through abridged authorization applications. For example, the EU marketing authorization applications do not need to contain results of tests and results of pre-clinical and clinical trials, provided that certain conditions are met, and, in particular, that the "original" medicinal product has been authorized in the EU for not less than 8 years in a Member State of the Community. A generic veterinary medicinal product authorized pursuant to the abridged procedure may not be placed on the market until 10 years have elapsed from the initial authorization of the reference product. This 10-year period may be extended to 13 years in the case of veterinary medicinal products for fish or bees or other species designated following certain requirements. To qualify for abridged dossiers, the product must be considered to be a generic of a reference medicinal product. A generic medicinal product is a medicinal product which has the same qualitative and quantitative composition in active substances, the same pharmaceutical form as the reference medicinal product, and whose bioequivalence to the reference medicinal product has been demonstrated by appropriate studies. Different salts, esters, ethers, isomers, mixtures of isomers, complexes, or derivatives of an active substance are considered to be the same active substance, unless they differ significantly in properties with respect to safety and/or efficacy. In such cases, additional information demonstrating the safety and/or efficacy of the various salts, esters, or, derivatives of an authorized substance must be supplied by the applicant. However, results of safety and residue tests or pre-clinical tests or clinical trials are not required if the applicant can demonstrate that the active substances of the veterinary medicinal product have been in well-established veterinary use within the EU for at least 10 years, with recognized efficacy and an acceptable level of safety. If the Company fails to satisfy the conditions for the use of abridged authorization applications for new products being developed by the Company, the process for the approval of such products could take significantly longer and cost substantially more to the Company. generic feed additive products in the EU used to promote animal health (specifically anticoccidial products) and nutrition are regulated under different legislation than veterinary pharmaceuticals (Regulation 1831/2003). Applications for generic feed additives require the same types of data necessary to obtain authorization of the original product.

     
     The European Union and a number of non-EU countries banned the use of four antibiotics to promote growth in food producing animals effective July 1, 1999, and extended this ban to the remaining approved growth- promoting antibiotics effective on January 1, 2006. In the list of products banned in 1999, only one, bacitracin zinc, was manufactured and marketed by the Company. The Company's attempt to reverse or limit the EU ban that affects the Company's Albac product was not successful. Similar actions to ban or severely restrict the use in animals of antibiotics have been taken by EU trading partners or are being contemplated. (See "Risk Factors - An expansion of the ban of the use of antibiotics used in food-producing animals could result in a decrease in the Company's total sales".). None of the products banned in 2006 are manufactured or marketed by the Company.

     Other Product Marketing Authority. Requirements similar to those in the U.S. and EU apply to the granting of manufacturing and marketing authorizations for veterinary products in Asia and Africa. Therefore, the Company must comply with local requirements that may be, but are not always, similar to those described above prior to receiving approvals for products in Asia and Africa.

The EU requires that before a medicinal product can be manufactured and assembled, each company that carries out such an operation must hold a manufacturer's license and the manufacture and assembly must be in accordance with the marketing authorization and cGMP. It also requires that active substances used in medicinal products for human and veterinary use be manufactured following EU guidelines on good manufacturing practice. The EU follows the same international guidance with respect to cGMPs for APIs as the FDA. In addition, the EU has expanded its ability to conduct cGMP inspections of active substance manufacturers. The EU cGMP guidelines do not affect the ability of the responsible national competent authorities to establish specific registration requirements regarding active substances regarding active substances manufactured and/or marketed as such in their territory.

While the Elizabeth, New Jersey plant is a part of the Discontinued Operations and is no longer the direct responsibility of the Company, its regulatory status continues to be important to the Company since it is the location where KADIAN is manufactured. Between November 2002 and January 2003, the FDA conducted a routine general inspection at the Elizabeth plant. As a result of this inspection, the FDA issued inspection observations listing deviations from cGMP's (a "483 Report") on January 15, 2003. A comprehensive response was submitted on February 5, 2003. The FDA performed a follow-up inspection in late 2003 and issued another 483 Report citing continued deficiencies in compliance with FDA regulations. The Company was informed that the FDA performed a cGMP inspection at the Elizabeth plant during 2006. The Company understands that the inspection did not result in Actavis' inability to manufacture KADIAN. However, the details of the inspection and the discussions between Actavis and the FDA are not publicly available. (See "An interruption in the supply of KADIAN would be materially adverse to the Company's operations" under Risk Factors).

In October 2004, May 2005 and September 2005, the Company received 483 Reports with respect to its API facilities in Oslo, Norway, Copenhagen, Denmark and Budapest, Hungary, respectively, that recorded observed deviations from cGMPs. The Company responded to the FDA and the FDA determined that all three responses were satisfactory. As a result, all three facilities have the right to manufacture products for sale in the United States. The Company has received 483 Reports from time to time in the past for it U.S. AH plants, all of which the Company believes it has adequately addressed. The Company received no 483 Reports in 2006 for its API and AH plants.

     Potential Liability for Current Products. Continuing studies of the proper utilization, safety, and efficacy of pharmaceuticals and other health care products are being conducted by the industry, government agencies and others. These studies, which increasingly employ sophisticated methods and techniques, can question the utilization, safety and efficacy of previously marketed products, including the Company's products, and in some cases have resulted, and may in the future result, in the discontinuance of their marketing and give rise to claims for damages from persons who believe they have been injured as a result of their use. While the Company believes that it is unlikely that an adverse finding in any single study regarding any of the Company's products will result in such regulatory measures without further findings, publicity raised by such a study could cause some of the Company's customers to decrease or stop their use of such product, resulting in an adverse affect on the sales of such product.

   
     Controlled Substances Act. The Company developed, and sells KADIAN which is a "controlled substance", as defined in the Controlled Substances Act. The Controlled Substance Act establishes certain security, personnel, reporting, record keeping and import and export requirements administered by the Drug Enforcement Administration ("DEA"), a division of the Department of Justice. The Company is registered by the DEA to distribute controlled substances; Actavis, the toll manufacturer of KADIAN, holds the DEA registration to manufacture KADIAN. The DEA has a dual mission: law enforcement and regulation. The DEA deals with the control of abusable substances and the equipment and raw materials used in making them. The DEA shares enforcement authority with the Federal Bureau of Investigation, another division of the Department of Justice. The DEA's regulatory responsibilities are concerned with the control of licensed handlers of controlled substances, and with the substances themselves, equipment and raw materials used in their manufacture and packaging, in order to prevent such articles from being diverted into illicit channels of commerce. The Company is not under any restrictions for noncompliance with the foregoing regulations, but there can be no assurance that restrictions or fines will not be imposed on the Company in the future.

Under current law, all pharmaceutical manufacturers must rebate to state governments a percentage of the average manufacturer's price based on sales of outpatient drug products reimbursed under state Medicaid programs. The required rebate rate for manufacturers of brand products is currently the greater of 15.1% of the Average Manufacturer Price (AMP) per unit to the retail pharmacy class of trade for each product at the unit level or the difference between the AMP and the Company's best price, as adjusted by the CPI-U based on launch date and current quarter AMP to any non-governmental customer.

Pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003, effective on January 1, 2006, the federal government began providing a prescription drug benefit to plan beneficiaries under Medicare Part D. It is difficult to predict the impact the Medicare prescription drug coverage benefit will have on pharmaceutical companies. Usage of pharmaceuticals may increase as a result of the expanded access to medicines afforded by the new Medicare prescription drug benefit. The drug benefit is administered by private sector plan sponsors who are responsible for negotiating with pharmaceutical manufacturers to obtain favorable pricing on behalf of plan beneficiaries. As a result, the purchasing power of plan sponsors may create pricing pressure which could offset any potential increase in sales.

During 2005, the environmental authorities having jurisdiction over the Copenhagen and Oslo API manufacturing facilities gave the Company notice of revised waste discharge levels. The Company believes it has taken the actions necessary to comply with the requirements, including certain plant alterations and modifications at a cost not material to the Company. The environmental authorities have not yet confirmed whether the Company's actions are in compliance with the requirements outlined in the notice.

Additionally, in 2006 a criminal fine was levied against the Company's Oslo API facility based on allegations that certain of the discharge activities at the facility were in breach of applicable regulations. The Company is in discussions with the local authorities regarding this fine. The failure or inability to comply with applicable regulations could result in further criminal or civil actions affecting production at these facilities which could be materially adverse to the Company.

     Although many major capital projects typically include a component for environmental control, including the Company's current expansion projects, no material expenditures specifically for environmental control are expected to be made during 2007. However, the Company has implemented an integrated environmental health and safety management system across most of its operations, and the Company may incur significant expenses, including potential fines or penalties, if in the operation of such system the Company discovers environmental conditions or past non-compliance at the Company's facilities. In addition, the discovery of previously unknown contamination or the imposition of new clean-up requirements at sites at which the Company is currently undertaking environmental remediation could require the Company to incur costs or become the basis of new or increased liabilities that could have a material adverse effect on the Company's business, financial condition or results of operations.

     In connection with the sale of the Discontinued Operations, the Company has retained responsibility to comply with ISRA, a New Jersey statute that requires investigation, and if necessary, environmental remediation, in connection with the transfer of the Elizabeth manufacturing facility to Actavis. Since the state has not yet commented upon the results of the Company's investigation, no estimate of the cost of this procedure is possible; however, the Company knows of no facts from which it would reasonably conclude that the cost of this procedure would be material to the Company.

     In April 2005, the Company revised its quarterly financial statements for the first three quarters of 2004 to disaggregate its US Human Pharmaceuticals business into two reportable segments; U.S. Generics Pharmaceuticals and Branded Pharmaceuticals, which had previously been reported as one segment. In May 2005, the Company revised its 2004 annual and interim financial statements and its 2003 annual and third quarter financial statements to reclassify certain of its outstanding debt as current liabilities and to amend disclosures related to the Company's compliance with certain of its debt covenants at December 31, 2004 and 2003.

     As of December 31, 2006, the Company had approximately 1,400 employees, comprised of approximately 700 in the U.S. and 700 outside of the U.S. One U.S. plant is subject to collective bargaining agreements and two of the Company's European facilities have works councils and are subject to national and multi-national labor agreements. The Company believes its relations with all of these employee units are satisfactory. In each of February 2004 and December 2005, the Company experienced two-day work stoppages at its Copenhagen plant over union membership issues. There were no work stoppages at any of the Company's plants during 2006.

     The following is a list of the names and ages of all of the Company's corporate executive officers, indicating all positions and offices with the Registrant held by each such person and each such person's principal occupation or employment during the past five years.

     The Company's future success is largely dependent upon its ability to develop, manufacture and market commercially successful new products. Generally, the successful commercial marketing of the Company's products depends on completing the following steps in a time frame to allow the Company to be among the first to market a particular product:

• developing and testing the product;

• proving that the product is safe and effective; and

• filing for and receiving regulatory approvals to manufacture and sell the product in a timely manner.

     Delays in the development, manufacture or marketing of new products will impact the Company's expenses and revenues. The Company cannot be sure that any product presently going through the process set forth above, or which may be chosen by the Company to enter this process in the future, will result in the timely and profitable commercial launch of a new product.

     The Company, in its continuing businesses, expended approximately $44.4 million and $26.9 million on research and development efforts in 2006 and 2005, respectively, and expects to increase these expenditures by approximately $30 to $35 million in 2007, principally for the development of additional products in Pharmaceuticals. Such research and development expenditures will reduce the Company's earnings in the short term. Further, the Company cannot be sure that its research and development expenditures will, in the long term, result in the commercialization of products, including a new pain product, which prove to be economically successful.

     The U.S. and other governments regularly review manufacturing operations, including API's plants in Oslo, Copenhagen and Budapest and AH's plants in Oslo and the US, where products for the U.S. market are, or are intended to be, manufactured. These reviews have in the past and may in the future result in regulatory concerns requiring a response by the Company. Failure to adequately address these concerns could have a material adverse effect on the Company, including product approval delays, reduced production and production interruptions, among other things. The significance of the effect of any such failures depends on the severity of the remedy chosen by the government agency. Non-compliance with applicable requirements can result in fines, recall or seizure of products, suspension of production or distribution and debarment of individuals from providing services to drug companies in any capacity or debarment of the Company from obtaining new drug approvals, resulting in current charges to income and the potential for future loss of income and increased operating expenses. In recent years, besides stepped up enforcement of cGMP requirements, the federal government has utilized equitable disgorgement as a means of enforcing compliance with the FDA's cGMP regulations. There can be no assurance that the FDA would not seek to impose similar sanctions on the Company and any such sanction could have a significant effect on the Company's business and operations.

     In addition, continuing studies of the proper utilization, safety and efficacy of pharmaceuticals and other health care products are continually being conducted by the industry, government agencies (including studies required to be performed from time to time by the pharmaceutical company marketing a particular drug) and others. These studies, which increasingly employ more sophisticated methods and techniques, can question the safety and efficacy of currently marketed products and in some cases have resulted, and may in the future result, in the discontinuance of their marketing and, in certain countries, give rise to claims for damages from persons who believe they have been injured as a result of their use.

     The Company cannot predict whether the present bacitracin zinc ban will be expanded. If any one of the following occur: (i) the EU, countries within or outside the EU or meat importers act to prevent the importation of meat products from countries that allow the use of bacitracin-based products, (ii) there is an expansion of the zinc bacitracin ban to additional countries, such as the U.S., where the Company has material sales of bacitracin-based products, (iii) a similar ban is instituted relating to other antibiotic feed additives sold by the Company in the U.S. or in one or more other countries where the Company has material sales, or (iv) there is an increase in public pressure to discontinue the use of antibiotic feed additives, the resultant loss of sales could be material to the Company's financial condition, cash flows and results of operations. The Company cannot predict whether this antibiotic resistance concern will result in expanded regulations or public pressure adversely affecting other antibiotic-based animal health products previously sold by the Company in the jurisdictions where the ban has been imposed or in other countries in which those products are presently sold.

     Discussions of the antibiotic resistance issue continue actively in the U.S. Various sources have published reports concerning possible adverse human effects from the use of antibiotics in food animals. Some of these reports have asserted that major animal producers, some of whom are the Company's customers or the end-users of its products, are reducing the use of antibiotics. In July 2005, the FDA announced a restriction on the distribution and use of a medicated feed additive due to concerns regarding antibiotic resistance in humans. While the Company does not market this drug, this ruling would be significant if its conclusions were expanded to the medicated feed additives sold by the Company. It is uncertain what additional actions, if any, the FDA may take for approved animal drug products. However, the FDA has established a rating system to be used to compare the risks associated with the use of specific antibiotic products in food producing animals, including those sold by the Company. While the Company does not believe that the presently proposed risk assessment system would be materially adverse to its business, it is subject to change prior to adoption or to later amendment. The sales of the Company's AH segment are principally antibiotic-based products for use with food producing animals; therefore, the future loss of major markets, including the U.S., or negative publicity regarding this use of antibiotic based products, could have a negative impact on the Company's sales and income.

     Should the government find, or the public perceive, a risk to human health from consumption of food producing animals which utilize the Company's products (such as Avian flu) or as a by-product to the raising of such animals (such as the "Chicken Litter" litigation referred to in Item 3 of this Report), there may be a decline in either the sale of such food products, which would result in a decrease in the use of the Company's products, or a decrease in the use of the Company's products in the growing of such food producing animals.

     The Company currently purchases many of its raw materials and a number of its finished products from single suppliers and many of its products are manufactured at a single facility; including KADIAN, which is manufactured by Actavis at its Elizabeth, New Jersey facility. While the Company relies on single source suppliers for many of its raw materials and for a number of its finished products, it relies on different suppliers for different raw materials and finished products. Any interruption in the supply of these materials or products or an adverse event at the facilities that manufacture and blend the Company's products, could decrease sales of the affected products. In this event, the Company may seek to enter into agreements with third parties to purchase raw materials or products or to lease or purchase new manufacturing facilities. The Company may be unable to find a third-party willing or able to provide the necessary products or facilities suitable for manufacturing pharmaceuticals on terms acceptable to the Company. If the Company had to obtain substitute materials or products, the Company would require additional regulatory approvals, as approvals are specific to a single product produced by a specified manufacturer. The use of new facilities, similarly, would require regulatory approvals. Any significant interruption of supply from the Company's sole source raw material suppliers or third-party manufacturing facilities that are related to products that generate more than $5.0 million in gross profits or any adverse event at any of its manufacturing facilities could have a material adverse effect on the Company's operations. Five raw materials used in Company products that each generated more than $5.0 million in gross profits in 2006 came from sole source suppliers. The sole source suppliers that provided these raw materials were: Bayer Crop Science, Cambrex Corporation, DSM Fine Chemicals Inc., Kaken Pharmaceuticals Co, Ltd, and Second Pharma Co., Ltd (formerly Beijing #2). Additionally, four finished product sole source suppliers supplied finished products generating more than $5.0 million in gross profits in 2006 including Actavis, the supplier of KADIAN.

See "An interruption in the supply of KADIAN would be materially adverse to the Company's operations" below.

     Seven products (Pharmaceuticals' KADIAN, AH's CTC, BMD and Lacalocid and API's vancomycin, polymyxin and bacitracin) in the aggregate constituted approximately 75% of the Company's 2006 sales and gross profits. The loss of significant sales of any one or more of such products for any reason, including any of the risks related to such products described in this Report, would have a material adverse effect upon the Company.

     The Company sells its AH and API products in many countries that are susceptible to significant foreign currency fluctuations. Sales of the Company's API products are generally denominated in U.S. dollars, eliminating the direct exposure to currency fluctuations, but increasing credit risk if the local currency devalues significantly and it becomes more expensive for customers to purchase U.S. dollars required to pay the Company.

     The industries in which the Company sells its products are highly competitive and many of the Company's competitors are affiliated with entities which are substantially larger and have greater financial, technical and marketing resources than the Company possesses.

     In certain countries, because of the Company's size and product mix, the Company may not be able to capitalize on changes in competition and pricing as fully as the Company's competitors. In recent years, have been new entrants in the generic medicated animal feed additive market, particularly in the United States. Additionally, the Company's API business may be subject to increased competitive challenges, particularly with respect to those products for which the Company implemented significant price increases during 2003.

The Company's branded drug product, KADIAN, may experience general genericcompetition.

     The Company's branded drug product line may face challenges from genericcompetitors. The Company has three patents that cover KADIAN (expiring in either 2010 or 2011), two of which could be subject to paragraph IV challenges prior to their expiration date, though there have been no such challenges to date. The Company cannot offer any assurance that it will be able to successfully defend its patent position or utilize the statutory 30-month stay on FDA approval of the generic ANDA, since either result is dependent upon the Company being able to meet the statutory requirements for filing a lawsuit challenging the generic product based upon a bona fide belief that the generic product infringes one or more of the KADIAN patents. The existence of such belief cannot be determined until the Company has the opportunity to review the relevant paragraph IV filing. Upon entry of a generic equivalent in the market, the Company's branded product could lose substantial sales and the price could materially decline.

Certain of the Company's products, including its abuse deterrent technology, are based on technologies in areas where third parties hold numerous patents. As a result, other companies may hold patents which may be used to challenge the Company's freedom to manufacture and sell its products in the relevant jurisdictions. If such challenges are successful, the Company may be prevented from selling its products or required to license relevant patents and pay significant fees or royalties to third parties. Licenses may not be available on favorable terms to the Company. Alternatively, the Company may have to defend an infringement action and challenge the validity of third-party patents in court, a costly and time consuming process. The defense of such suits could result in unfavorable outcomes or could cause the Company to abandon its defense of such a suit and abandon and withdraw the relevant product(s). If the Company does not obtain a license in such a case, or if it is found liable for infringement and is unable to have such patents declared invalid or unenforceable, the Company may be liable for significant monetary damages, may encounter significant delays in bringing products to market, or may be precluded from manufacturing, using, or selling these products.

The Company's policies regarding sales returns, allowances and chargebacks, and marketing programs adopted by wholesalers and other customers, may reduce the Company's revenue in future fiscal periods.

     Based on industry practice in the U.S., brand manufacturers such as the Company have return policies, rebates paid to commercial and government entities in connection with sales made to enrollees in certain health plans, and chargebacks to wholesale customers in connection with sales they make to certain categories of customers, such as hospitals or group purchasing organizations. Although the Company establishes reserves based upon its prior experience and certain other information which reflect the Company's best estimate of the impact that these policies will have in subsequent periods, actual results could differ from these estimates and impact the Company's financial results.

     The Company seeks to obtain liability and direct damage insurance to protect it from liability due to accidents, product liability and other claims that arise in the course of doing business. While, based upon historical claims levels, the Company believes its present insurance is adequate for current and projected operations, insurance that the Company seeks to obtain in the future to protect itself against these potential liabilities may be inadequate, unobtainable or prohibitively expensive. A materially adverse result in the AH litigation relating to its 3-Nitro product (See "Legal Proceedings - Chicken Litter Litigation") could result in insurance coverage which is not adequate to cover the risk of that litigation or future lawsuits. The Company is subject to renewal of most of its insurance policies each year and changes are anticipated at each renewal. In recent years, the Company has experienced increases in its insurance costs and certain coverage reductions, including coverage exclusions pertaining to 3-Nitro and certain other products that it now manufacturers or may manufacture in the future. The Company's inability to obtain and maintain sufficient insurance coverage on reasonable terms could materially adversely affect the Company's business, financial condition and results of operations.

     The Company intends to pursue product-specific licensing, marketing agreements, co-development opportunities and other partnering arrangements. The Company may also pursue selective product and company acquisitions. The Company cannot be sure that it will be able to locate suitable partners for these transactions. In addition, assuming the Company identifies suitable partners, the process of effectively entering into these arrangements involves risks that the Company's management's attention may be diverted from other business concerns and that the Company may have difficulty integrating the new arrangements into its existing business. In addition, certain transactions could adversely impact earnings as the Company incurs development and other expenses related to the transactions and the Company could incur debt to complete these transactions. Debt instruments could contain contractual commitments and covenants that could adversely affect the Company's cash flow and its ability to operate its business.

Non-compliance with environmental waste discharge regulations could adversely affect production at two European plants of the Company.

     During 2005, the environmental authorities having jurisdiction over the Copenhagen and Oslo API manufacturing facilities gave the Company notice of revised waste discharge levels. The Company believes it has taken the actions necessary to comply with the requirements, including certain plant alterations and modifications at a cost not material to the Company. The environmental authorities have not yet confirmed whether the Company's actions are in compliance with the requirements outlined in the notice.

Additionally, in 2006 a criminal fine was levied against the Company's Oslo API facility based on allegations that certain of the discharge activities at the facility were in breach of applicable regulations. The Company is in discussions with the local authorities regarding this fine. The failure or inability to comply with applicable regulations could result in further criminal or civil actions affecting production at these facilities which could be materially adverse to the Company.

A loss of members of the Company's senior management team and other highly qualified employees could adversely affect the Company's business.

The Company's success is dependent on attracting and retaining highly qualified management, scientific and sales personnel. The strategic change in the Company and the relocation of the Company's headquarters could impact the Company's ability to retain key employees. The loss of key personnel, or the Company's failure to attract and retain highly skilled employees in a timely fashion, could adversely impact the implementation of its business strategy.

     In April 2005, the Company revised its financial statements for the first three quarters of 2004 to disaggregate its U.S. Generics Pharmaceuticals (USG) and Branded Pharmaceuticals (BP) businesses as separate reportable segments. In May 2005, the Company revised its 2004 financial statements to change the classification of certain of its outstanding debt as current liabilities and to amend disclosures related to the Company's compliance with certain of its debt covenants at December 31, 2004 and 2003.

     The Company has made significant investments to enable it to comply with Section 404 of the Sarbanes-Oxley Act of 2002 (the "Act"). Compliance with Section 404 of the Act was first required as of December 31, 2004. The Company has undergone a significant effort to document, test, and assess its internal controls. At December 31, 2004, the Company identified four material weaknesses in its internal control over financial reporting: (i) ineffective internal controls to ensure the completeness and accuracy of customer discount reserves and certain accrual accounts at the Company's USG business; (ii) ineffective internal controls to ensure the completeness and accuracy of income tax accounts, including deferred tax assets and liabilities, taxes payable and income tax expense; (iii) ineffective internal controls over the determination of proper segment disclosures; and (iv) ineffective controls to ensure the appropriate review and monitoring of its compliance with certain of its debt covenants.

     During 2005, the Company implemented actions to remediate the four material weaknesses identified at December 31, 2004. The Company believes the actions it took in 2005 and the enhanced control procedures it implemented served to remediate the four material weaknesses identified at December 31, 2004. However, at December 31, 2005, the Company identified a material weakness in its internal controls over financial reporting for income taxes related specifically to the timeliness and accuracy of tax accounting related to the disposition of the Generics Business and related fourth quarter transactions. In addition, management identified, and developed remediation plans to address certain other control deficiencies which were not material weaknesses at December 31, 2005. During 2006, the Company took actions and remediated the material weakness related to the financial reporting for income taxes.

Management performed an assessment of its internal control over financial reporting as of December 31, 2006, utilizing the criteria described in the "Internal Control- Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on that assessment, the Company concluded that, at December 31, 2006, its internal control over financial reporting was effective.

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

In future years, there are no assurances that the Company will not have material weaknesses that would be required to be reported or that the Company will be able to comply with the requirements of Section 404 of the Act. A significant material weakness or the failure to meet the requirements of Section 404 could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of the Company's financial statements.

     The Company's corporate offices and principal production and technical development facilities are located in the U.S., Norway and Denmark. The Company also owns or leases offices and warehouses in the U.S. and elsewhere.

______________________________

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

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

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

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

     In addition to the potential for personal injury damages to the approximately 175 plaintiffs, the plaintiffs are asking for punitive damages and requesting that the Company be enjoined from the future sale of the product at issue. In September 2006, in the first trial, which was brought by two plaintiffs, the Circuit Court of Washington County, Arkansas, Second Division, entered a jury verdict in favor of the Company. The plaintiffs are appealing the verdict. The court has ruled that future trials are on hold pending the outcome of the appeal. While the Company can give no assurance of the outcome of these matters, it believes that it will be able to continue to present credible scientific evidence that its product is not the cause of any injuries the plaintiffs may have suffered. There is also the possibility of an adverse customer reaction to the allegations in these lawsuits, as well as additional lawsuits in other jurisdictions where the product has been sold. Worldwide sales of this product were approximately $23.3 million in 2004, $23.1 million in 2005 and $22.2 million in 2006.

     The Company is the subject of tax claims by the Brazilian authorities relating to sales and import taxes which aggregate approximately $10.0 million. The claims relate to the operations of the Company's AH business in Brazil since 1999. The Company believes it has meritorious defenses and intends to vigorously defend its position against these claims.

Additionally, in 2006 a criminal fine was levied against the Company's Oslo API facility based on allegations that certain of the discharge activities at the facility were in breach of applicable regulations. The Company is in discussions with the local authorities regarding this fine. The failure or inability to comply with applicable regulations could result in further criminal or civil actions affecting production at these facilities which could be materially adverse to the Company.

On February 28, 2007, the Company received a subpoena from the U.S. Department of Justice requesting certain documents relating to KADIAN. The subpoena did not disclose any allegations underlying this request. The Company intends to cooperate with the Department.

Other Commercial Disputes

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

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

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

     Not applicable.

Market Information

    The Company's Class A Common Stock is listed on the New York Stock Exchange ("NYSE"). Information concerning the 2006 and 2005 sales prices of the Company's Class A Common Stock is set forth in the table below.

    As of December 31, 2006 and February 28, 2007 the Company's stock closing price was $24.10 and $26.36, respectively.

    As of February 12, 2007, there were 1,133 holders of record of the Company's Class A Common Stock. Record holders of the Class A Common Stock include Cede & Co., a clearing agency which held approximately 98% of the outstanding Class A Common Stock as a nominee. On December 28, 2006, the Company purchased 100% of the outstanding shares of the Company's Class B common stock from A.L. Industrier. Including related fees, the cost of the repurchase was approximately $307.4 million. The cost of the share repurchase is included in Treasury Stock. Following the Class B share repurchase, control of the Company now rests in the holders of the Class A shares acting by the majority applicable under Delaware law and Company's charter documents.

    Through the third quarter of 2006, the Company declared consecutive quarterly cash dividends on its Class A and Class B Common Stock since the third quarter of 1984. Declared dividends per share in 2006 and 2005 were $0.135 and $0.18, respectively. Effective in the fourth quarter of 2006, the Company discontinued its dividend.

See Item 12 of this Report.

     The following is a summary of selected financial data for the Company and its subsidiaries. The data for each of the three years for the periods ended December 31, 2006 have been derived from, and all data should be read in conjunction with, the audited consolidated financial statements of the Company, included in Item 8 of the Report. On December 19, 2005, the Company sold its Generics Business and on March 31, 2006, the Company sold its ParMed Business (see Note 3 to the consolidated financial statements). Both of these businesses are reported as Discontinued Operations. The following selected financial data is presented for continuing operations only. All amounts are in thousands, except per share data.

1. Includes a call premium of $18.9 million and the write-off of deferred loan costs of $0.5 million, associated with the repayment of the Company's remaining outstanding debt in January 2006. The results for 2006 also include a net pre-tax pension curtailment gain.
2. Includes the reversal of a deferred tax valuation allowance of $52.1 million, taxes of $28.6 million on the repatriation of cash earnings from controlled foreign corporations and pre-tax charges of $8.0 million for extinguishment of debt, primarily related to the write-off of deferred loan costs resulting from the prepayment of debt.
3. Includes a $10.0 million charge to write down the carrying value of the former AH Aquatics business assets to fair value.
4. Includes loss resulting from the extinguishment of $200 million 12 1/2% notes and the related issuance of $220 million of 8 5/8% notes. The extinguishment resulted in the expensing of $22.2 million in placement fees and the recognition of $6.2 million of deferred debt expense.
5. Includes charges related to de-leveraging activities of $51.1 million, charges for reorganization, refocus and other actions of $49.0 million, and impairment charges of $103.1 million.

Item 7.  Management's Discussion and Analysis of Financial Conditions and Results of Operations

Overview

          Alpharma is a global specialty pharmaceutical company that develops, manufactures and markets pharmaceutical products for humans and animals. The Company markets one branded pharmaceutical prescription product that is contract manufactured by a third-party; a pain medication sold under the trademark KADIAN, in the U.S. Alpharma manufactures and markets a line of fermentation-based active pharmaceutical ingredients and one chemical synthesis based active pharmaceutical ingredient (collectively "APIs") that are used primarily by third parties in the manufacturing of generic and branded pharmaceutical products. The Company manufactures and markets animal health products in over 100 formulations and dosage forms. The Company presently conducts business in more than 80 countries and has approximately 1,400 employees in over 20 countries.

For the year ended December 31, 2006, the Company generated revenues of approximately $653.8 million from its continuing operations, and $17.1 million related to the Company's former generic pharmaceutical telemarketing distribution business which was sold on March 31, 2006.

On December 19, 2005, the Company sold its world-wide human generic pharmaceutical business (the "Generics Business"), excluding ParMed Pharmaceuticals Inc. ("ParMed"), its generic pharmaceutical telemarketing distribution unit, to Actavis Group hf ("Actavis") for cash in the amount of $810 million. On March 31, 2006, the Company sold ParMed for cash in the amount of $40.1 million.

The Generics Business and ParMed (collectively, the "Discontinued Operations"), are classified as discontinued operations in the Company's financial statements at December 31, 2006 and 2005 and for the three years ended December 31, 2006. See Discontinued Operations for further discussion and analysis.

     Until December 28, 2006, A.L. Industrier ASA ("Industrier") beneficially owned all of the outstanding shares of the Company's Class B common stock, or approximately 22% of the Company's total common stock as of such date. Through its ownership of the Class B common stock, Industrier had voting power that provided it with effective control of the Company. On December 28, 2006, the Company purchased 100% (11,872,897 shares) of the outstanding shares of the Company's Class B common stock from Industrier at a price of $25.50 per share. Including related fees, the cost of the repurchase was approximately $307.4 million, which was paid using available cash on hand. Following the Class B share repurchase, control of the Company now rests in the holders of the Class A shares acting by the majority applicable under Delaware law and the Company's charter documents.

The main factors affecting the Pharmaceuticals business, (formerly the Branded Pharmaceuticals business) are:

Pharmaceuticals realizes significant gross profit margins on its sales of KADIAN; but competes in a highly competitive market, and is subject to potential challenges from generic equivalents. The Company's business plan includes significant investments in research and development spending associated with the development of a next-generation pain product with abuse deterrent characteristics. Pharmaceuticals has experienced improved profitability as a result of a number of factors, including product prescription growth.

·    API markets globally primarily 14 antibiotic API's that are generally used by third-parties in the manufacture of finished dose pharmaceutical products. API realizes strong gross profit margins and has experienced and expects continuing increased global competition on its products and associated pricing pressure. For the year ended December 31, 2006, API had product sales of $168.7 million and operating income of $51.8 million. Operating income in 2006 was favorably impacted by a $7.8 million curtailment gain related to freezing a Norwegian defined benefit pension plan.

The main factors affecting the Animal Health (AH) business are:

·    The Company's AH business is a global leader in the development, registration, manufacturing and marketing of medicated feed additives ("MFAs") and water soluble vitamin type substances for food producing animals; including poultry, cattle, and swine. Agricultural markets have historically had low growth rates. In addition, demand for the Company's products has been and could be reduced by bans or restrictions on the use of antibiotics used in food-producing animals. Material changes in animal production input prices (ie. corn) may have a negative effect on the sales of product. Significant flock/herd health (avian flu outbreak, BSE etc) may impact the companies sales of product. AH has increased its revenues and profitability through expanding and enhanced market positions, new products, new indications for existing products, and cost-reduction and other productivity improvement initiatives. For the year ended December 31, 2006, AH had product sales of $346.9 million and operating income of $71.5 million.

     The following summarizes significant events and transactions for the past three years:

●  In December 2006, the Company acquired all of the outstanding Class B shares for $307.4 million.

●  In December 2006, the Company froze its Norwegian and U.S. pension plans, replacing them with enhanced defined contribution plans, and realizing a net pre-tax curtailment gain of $7.5 million. 

● In the fourth quarter of 2006, Company's Pharmaceuticals business initiated its pivotal Phase III clinical trials for its abuse-deterrent extended release opioid.

●  In September 2006, the Company announced positive results from a Phase II multi-dose clinical efficacy and pharmacokinetic trial for its abuse-deterrent, extended release opioid.

● In June 2006, the Company's API business announced that it had reached an agreement with a Chinese manufacturer to expand its capacity to manufacture Vancomycin.

●  In March 2006, the Company sold ParMed, its generic pharmaceutical telemarketing business, to Cardinal Health Inc. for $40.1 million.   

● In March 2006, the US asset-based loan agreement was amended and restated to reduce the facility to $75 million.

●  In January 2006, the Company paid all of its outstanding debt using available cash, including proceeds from the sale of its Generics Business in December 2005.

●   In December 2005, the Company sold its global Generics Business to Actavis Group hf for $810 million.

●   In December 2005, the Company gave notice to the Trustee's under both the Senior Notes and the Convertible Notes that it was irrevocably electing to redeem all such notes in accordance with the terms of the respective note indentures.

●   In October 2005, the Company entered into a new $210 million US asset-based loan agreement. Proceeds from this new loan facility were used to pay off and cancel all outstanding amounts due under the Company's 2001 U.S. Bank Credit Facility.

●   In the fourth quarter of 2005, the Company reversed its deferred tax valuation allowance given its current and expected profitability, resulting in a tax benefit of $52.1 million.

●   The Company repatriated cash in 2005 under the provisions of the American Jobs Creation Act of 2004. The 2005 tax provision includes approximately $28.6 million related to this cash repatriation.

●   In the fourth quarter of 2004, the Company adjusted its deferred tax valuation, primarily to set up a full valuation allowance for all U.S. deferred taxes. This resulted in a charge of $59.5 million.

●   The Company sold its Aquatic Animal Health Group ("Aquatic") in July of 2004 and recorded a pretax loss of approximately $10.0 million.

●   In May and August 2004, the Company amended the 2001 U.S. Bank Credit Facility to allow flexibility in complying with the covenants and permit the repayment of the mortgage notes and the convertible subordinated notes.

●   In the first half of 2004, the Company prepaid $75.0 million of the 2001 U.S. Bank Credit Facility's term loans, $32.0 million of mortgage notes payable in Norwegian Kroner and $24.5 million of 5.75% convertible subordinated notes.

●   The Company purchased the outstanding 50% of Wynco LLC ("Wynco") equity subsidiary and subsequently sold the entire company within the first quarter of 2004.

     Total revenue increased $100.2 million or 18.1% for the year ended December 31, 2006 compared to 2005. Foreign exchange had a slight favorable impact on revenues for the year. Operating income was $95.6 million in 2006 compared to $94.8 million in 2005. Diluted earnings per share was $1.11 in 2006 compared to $1.17 in 2005. Results for the year ended December 31, 2006, included the payment of a call premium of $18.9 million and the write-off of deferred loan costs of $0.5 million, associated with the repayment of the Company's remaining outstanding debt in January 2006. The results for 2006 also included a net pre-tax curtailment gain from the freezing of the Norwegian and U.S. pension plans of $7.5 million. 2005 results included the reversal of a deferred tax valuation allowance of $52.1 million, taxes of $28.6 million on the repatriation of earnings from controlled foreign corporations and pre-tax charges of $8.0 million for extinguishment of debt, primarily related to the write-off of deferred loan costs resulting from the prepayment of debt.

The following table sets forth revenues and operating income by segment:

N/M - Not meaningful

The following summarizes revenues and operating income by segment:

     Pharmaceuticals revenues increased $36.6 million, or 36.0%, to $138.2 million in 2006 compared to $101.6 million in 2005. The revenue growth was primarily a result of increased year-over-year prescriptions which contributed to volume increases of $17.5 million and higher price realization which contributed $19.1 million of the year over year increase. Included in the net volume gain is the impact of a reduction in wholesaler inventory levels in 2006 from approximately three months at the end of the fourth quarter of 2005, to approximately one and a half months at the end of the fourth quarter of 2006.

     Overall, the Company's gross profit increased $45.6 million in 2006 compared to 2005. As a percentage of sales, gross profit was 58.4% in 2006, versus 60.7% in 2005

The increase in gross profit dollars is the result of increased volumes in all three business segments and favorable price realization in Pharmaceuticals. The lower gross profit percentage is primarily a result of low margin sales of API products that, in 2005, were reported as sales by the Company's divested Generics Business. In addition, the decline in gross profit percentage reflects lower gross margins in the API business attributable to lower pricing on certain products and increased costs associated with new product development, geographic expansion, and certain asset write-downs.

On a consolidated basis, SG&A expenses increased $36.7 million in 2006 as compared to 2005. As a percentage of revenues, SG&A expense was 38.2% in 2006 versus 38.5% in 2005.

     The majority, or $26 million of the year-over-year increase, was across all three businesses for additional operational infrastructure to support the Company's growth initiatives and also reflects higher distribution costs in 2006. The remainder of the increase relates primarily to costs related to senior management retention and transition, and the discontinuance of the Company's performance unit plan, offset partially by a favorable insurance recovery. In addition, stock option expense contributed $2.4 million of the year-over-year increase in SG&A and foreign exchange had a favorable impact of $1.1 million to the year-over-year change in SG&A expenses.

Research and development expenses increased $17.5 million, or 64.9%, in 2006 compared to 2005. As a percentage of revenues, R&D expenses amounted to 6.8% in 2006 compared to 4.9% in 2005. The increase in R&D is due almost exclusively to Pharmaceutical's new product development spending.

     Asset impairments and other amounted to a net $8.3 million gain in 2006 compared to a loss in 2005 of $1.2 million. The gain in 2006 primarily consists of a net curtailment gain of $7.5 million from the freezing of the Norwegian and U.S. pension plans. Also included in 2006 results was a gain of $1.9 million realized from a contractual settlement related to an AH business disposed in 2004, partially offset by a charge of $1.1 million related to a prior year contract dispute.

     The increase/(decrease) in operating income is summarized as follows:

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

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

      The tax provision for continuing operations for the year ended December 31, 2006 was $32.5 million, representing an effective tax rate of 35%.

     Income taxes for 2005 amounted to a benefit of $18.4 million compared to a pre-tax income of $43.8 million. This benefit was derived from the reversal of valuation allowance on U.S. deferred tax assets of $52.1 million, partially offset by income taxes of $28.6 million related to the repatriation of earnings under the American Jobs Creation Act.

     Total revenue increased $40.3 million or 7.9% for the year ended December 31, 2005 compared to 2004. Foreign exchange increased revenues by approximately $0.5 million or 0.1%. 2004 revenues included $26.2 million related to the divested Wynco and Aquatics operations. Excluding the Wynco and Aquatic results and foreign exchange, revenues increased approximately $66.1 million or 13.5%. Operating income was $94.8 million in 2005 compared to $63.0 million in 2004. 2004 operating income included the results of Wynco and Aquatics. Excluding these operations, operating income increased $21.4 million or 29.2% due to improvements in the Pharmaceuticals and AH businesses which offset lower year-over-year operating income in API due to reduced pricing. Diluted earnings per share was $1.17 in 2005 compared to a loss of $0.90 in 2004. 2005 results include the reversal of a deferred tax valuation allowance of $52.1 million ($0.98 earnings per share), taxes of $28.6 million on the repatriation of cash dividends from controlled foreign corporations and pre-tax charges of $8.0 million for extinguishment of debt, primarily related to the write-off of deferred loan costs resulting from the prepayment of debt. 2004 results include pre-tax charges of approximately $59.5 million ($1.13 loss per share) resulting from the establishment of a deferred tax valuation allowance and $2.8 million for extinguishment of debt.

The following table sets forth revenues and operating income by segment:

N/M - Not meaningful

The following summarizes revenues and operating income by segment:

     Pharmaceuticals revenues increased 62.8% on higher prices (24.2%) and volume gains (38.5%) attributable to product prescription growth driven from sales force expansions and a new marketing campaign.

     AH revenues, excluding Wynco and Aquatic revenues in 2004, increased 12.7% due primarily to increased sales in the U.S. livestock market (7.8%) and in the European markets (2.0%). The majority of AH plants are operating at or near capacity. During the year, as a result of increased demand and capacity constraints, AH reduced supply of certain products to customers.

     On a Company-wide basis, gross profit increased $41.6 million in 2005 compared to 2004. As a percentage of sales, overall gross profit was 60.7% in 2005, versus 57.4% in 2004

     The increase in gross margin dollars results primarily from higher sales volumes in Pharmaceuticals and AH, combined with cost reductions achieved through supply chain and other process improvement initiatives, offset partially, by pricing decreases in API.

     On a consolidated basis, selling, general and administrative expenses increased $18.3 million or 9.4% in 2005 compared to 2004. Included in 2004, are Wynco and Aquatic expenses of $3.3 million and $2.1 million, respectively. Excluding these costs, selling, general and administrative expenses increased $23.7 million due primarily to marketing campaigns and sales force expansions within Pharmaceuticals ($15.0 million) and increased costs within the Pharmaceuticals and API segments related to realigning the remaining businesses as a result of the disposal of the Generics Business ($5.3 million). Foreign exchange also contributed $1.1 million to the year-over-year increase in selling, general and administrative expenses.

     Research and development expenses increased $1.5 million in 2005 compared to 2004, which included Aquatic expenses of $2.4 million. Excluding these costs, research and development increased $3.9 million, due primarily to new product development in Pharmaceuticals and API.

     2005 asset impairments and other was $1.2 million compared to 2004 asset impairments of $11.1 million, which included a $10.0 million charge to write down the carrying value of Aquatic assets to fair value, as well as an associated pension curtailment loss and other costs associated with the sale, and severance charges of $1.1 million, primarily incurred in API.

     The increase/(decrease) in operating income is summarized as follows:

     2005 results include $8.0 million of expense, which resulted primarily from the write-off of deferred loan costs. In 2005, the Company prepaid $267.4 million of bank term debt. 2004 results include $2.8 million of expense associated with the write-off of deferred loan costs. In 2004, the Company prepaid $75.0 million of bank term debt, $32.0 million of mortgage notes payable, and $24.5 million of the 5.75% convertible Notes.

     Other income/(expense), net is detailed as follows:

Income taxes for 2005 amounted to a benefit of $18.4 million compared to pre-tax income of $43.8 million. The net tax benefit is primarily attributable to the removal of a valuation allowance for net U.S. deferred tax assets, offset partially by tax expense of $28.6 million, resulting from repatriating cash in 2005 under the American Jobs Creation Act. The tax provision in 2004 was an expense of $49.5 million compared to pre-tax income of $2.7 million, resulting mainly from the establishment of a valuation allowance for net U.S. deferred tax assets.

     Deferred tax assets are evaluated quarterly to assess the likelihood of realization which is ultimately dependent upon generating future taxable income prior to the expiration of the net operating loss carryforwards. At December 31, 2004, the Company had recorded significant U.S. federal deferred tax assets for which it had provided a full valuation allowance given that it was not considered to be "more likely than not" that these deferred tax assets would be realized. At December 31, 2005, the Company made the decision to reverse the remaining valuation allowance because it believed that it was "more likely than not" that these assets would be realized. The Company's cash flow generated throughout 2005, including the net proceeds from the sale of the Generics Business, enabled the Company to pay off all of its domestic debt by January 23, 2006 which in turn, eliminated related interest expense, thereby increasing future profitability. In addition, it was expected that the continuing domestic business segments, which had been profitable for the past three years, would continue to be profitable.

On December 19, 2005, the Company sold its world-wide human Generics pharmaceutical business (the "Generics Business"), excluding ParMed Pharmaceuticals Inc. ("ParMed"), its Generics pharmaceutical telemarketing distribution unit, to Actavis Group hf ("Actavis") for cash in the amount of $810 million. The net cash proceeds from this sale were used to repay all of the Company's outstanding debt, which amounted to $416.7 million at December 31, 2005. On March 31, 2006, the Company sold ParMed for cash in the amount of $40.1 million. After completing both of these sales, the Company had no debt and cash and cash equivalents at March 31, 2006, amounting to $366.4 million.

The results of operations of the Generics Business and ParMed (collectively, the "Discontinued Operations"), for the three years ended December 31, 2006, 2005, and 2004 and the financial position of the Discontinued Operations at December 31, 2006 and 2005, are summarized as follows:

There were no assets and liabilities of discontinued operations at December 31, 2006 and, at December 31, 2005, the assets and liabilities of discontinued operations consisted of solely ParMed assets ($17.5 million) and liabilities ($12.1 million) held for sale at that time.

Results in 2006 include only the results of operations of ParMed for the three months ended March 31, 2006, prior to its sale on March 31, 2006.

The Discontinued Operations reported revenues of $870.2 million and $826.1 million in 2005 and 2004, respectively. Gross profit margins improved to 33.3% in 2005, from 28.9% in 2004, primarily a result of increased sales of gabapentin in the U.S. Generics business and costs reductions achieved in the Generics Business through supply chain and other process improvement initiatives. In 2005, the Discontinued Operations reported operating income of $44.6 million compared with an operating loss of $286.2 million in 2004. The 2004 operating loss was principally attributable to a $260 million goodwill impairment charge and a $15.5 million facility impairment charge recorded in the U.S. Generics business in 2004. During the fourth quarter of 2004, a number of factors emerged which impacted the estimated future cash flows of the U.S. Generics business. These factors included recent experience with new product launches for which pricing was significantly below previous expectations; reflecting increasing competition, including authorized Generics. As a result, during the fourth quarter of 2004, estimates for new product launches and the future profitability of the U.S. Generics business were adjusted downward, resulting in declines in projected cash flows and indications of an impairment of the goodwill attributable to the U.S. Generics business. Based upon preliminary Statement of Financial Accounting Standards ("SFAS") No. 142 step two valuation work performed by an independent valuation firm, the Company estimated and recorded a goodwill impairment charge of $260 million in the fourth quarter of 2004. The SFAS No. 142 step two valuation work was finalized in the first quarter of 2005, and the Company recorded an adjustment of $0.8 million in the first quarter of 2005, increasing the total U.S. Generics goodwill impairment charge to $260.8 million.

     The effect of inflation on the Company's operations during 2006, 2005 and 2004 was not significant.

     The consolidated financial statements are presented on the basis of accounting principles that are generally accepted in the United States of America. All professional accounting standards that are effective as of December 31, 2006, have been taken into consideration in preparing the consolidated financial statements. The Company has chosen to highlight certain policies, which include estimates that it considers critical to the operations of the business and its consolidated financial statements:

Revenue Recognition

    Revenues are recognized when title to products and risk of loss are transferred to customers. The Company's subsidiaries have terms of FOB shipping point where title and risk of loss transfer on shipment. Additional conditions for recognition of revenue are that collection of sales proceeds is reasonably assured and the Company has no further performance obligations.

In the Company's Pharmaceuticals and AH businesses, sales to certain customers require that the business remit discounts to either customers or governmental authorities in the form of rebates, discounts, promotional allowances, and other managed-care allowances. In addition, sales are generally made with limited right of return under certain circumstances.

Provisions for these discounts are reflected in the Consolidated Statement of Operations as a reduction of total revenues and amounted to $47.1 million and $38.0 million for the years ended December 31, 2006 and 2005, respectively. Accruals related to these provisions are reflected on the balance sheet and classified as either a direct reduction of accounts receivable or, to the extent that amounts are due to entities other than customers, as accrued expenses. The reserve balances related to these provisions included in Accounts receivable, net amounted to $6.6 million and $7.5 million at December 31, 2006 and 2005, respectively. The amounts included in Accrued expenses amounted to $17.6 million and $13.5 million, at December 31, 2006 and 2005, respectively. The most significant of these reserves relates to Medicaid accruals that are recorded as accrued expenses and estimated based upon experience within each state and information obtained from wholesalers regarding inventory levels. In the case of Medicaid accruals and all other reserves for discounts, the Company continually monitors the adequacy of procedures used to estimate these deductions from revenue by comparison of estimated amounts to actual experience. Operating results in 2006 were favorably impacted by $0.7 million in adjustments to prior year reserve balances.

     The values assigned to goodwill and intangibles, as well as their related useful lives, are subject to judgment and estimation by the Company. In 2002, upon adoption of SFAS No. 142, the Company ceased amortization of goodwill and periodically reviews goodwill for impairment.

     Goodwill and intangibles related to acquisitions are determined based on purchase price allocations. These allocations, including an assessment of estimated useful lives, have generally been performed by qualified independent appraisers using reasonable valuation methodologies. Valuation of intangible assets is generally based on the estimated cash flows related to those assets, while the value assigned to goodwill is the residual of the purchase price over the fair value of all identifiable assets acquired and liabilities assumed. Useful lives are determined based on the expected future period of benefit of the asset, the assessment of which considers various characteristics of the asset, including historical cash flows.

     The assessment of potential impairment for a particular asset or set of assets requires certain judgments and estimates by the Company, including the determination of an event indicating impairment; the future cash flows to be generated by the asset, including the estimated life of the asset and likelihood of alternative courses of action; the risk associated with those cash flows; and the Company's cost of capital or discount rate to be utilized.

Research and Development ("R&D"), Including In-Process R&D ("IPR&D")

     The Company's products are subject to regulation by governmental authorities, principally the Food and Drug Administration ("FDA") in the United States and equivalent authorities in international markets. Research and development expenses are charged to the consolidated statement of operations when incurred, as the Company considers that regulatory and other uncertainties inherent in the development of new products preclude it from capitalizing development costs.

     With respect to completed acquisitions, acquired products or projects which have achieved technical feasibility, signified by FDA or comparable regulatory body approval, are capitalized as intangible assets because it is probable that the costs will give rise to future economic benefits. Estimates of the values of these intangible assets are subject to the estimation process described in "Goodwill and Intangible Assets" above.

     Acquired products or projects which have not achieved technical feasibility (i.e., regulatory approval) are charged to the statement of operations on the date of acquisition. In connection with its acquisitions, the Company generally utilizes independent appraisers in the determination of IPR&D charges. The amount of this charge is determined based on a variety of factors including the estimated future cash flows of the product or project, the likelihood of future benefit from the product or project, and the level of risk associated with future research and development activities related to the product or project.

     Inventories are valued at the lower of cost or market. Cost is determined on a first-in, first-out basis for all inventories. The determination of market value involves assessment of numerous factors, including costs to dispose of inventory and estimated selling prices. Inventories determined to be damaged, obsolete, or otherwise unsaleable are written down to net realizable value.

     The Company also purchases raw materials, and manufactures finished goods, for certain products prior to the product receiving regulatory approval. The Company reviews these inventories on a case-by-case basis, and records a write-down of the inventory if it becomes probable that regulatory approval will not be obtained or the inventory's cost will not be recoverable based on other factors.

     The Company provides a range of benefits to employees and retired employees, including pension, post-retirement, post-employment and health care benefits. The Company records annual amounts relating to these plans based on calculations, which include various actuarial assumptions, including discount rates, assumed rates of return, compensation increases, turnover rates, and health care cost and trend rates. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates, changes in historical experience, and trends when it is deemed appropriate to do so. Gains and losses arising from changes in assumptions are amortized over future periods. The Company believes that the assumptions utilized for recording its obligations under its plans are reasonable based on input from actuaries. In determining pension costs for its U.S. defined benefit pension plan, the Company used a discount rate of 5.75% in 2006, 6.00% in 2005 and 6.25% in 2004; an assumed return on plan assets of 8.00% in both 2006 and 2005 and 8.75% in 2004. The Company used an assumed rate of compensation increases of 4.5% for both 2006 and 2005 and 4.25% in 2004. The changes in these plan assumptions did not have a significant impact on net earnings for the years involved.

The Company has two primary defined pension plans, one in the U.S. and one in Norway. Effective December 31, 2006, the Company froze these two pension plans; replacing both with enhanced defined contribution plans. In connection with the freezing of these plans, the Company recorded a net pre-tax curtailment and settlement gain, net of special termination benefits, of $7.5 million in 2006.

     The Company is subject to litigation in the ordinary course of business, and also to certain other contingencies (see Item 3 of this Form 10-K and Note 15 to the Financial Statements). The Company records legal fees and other expenses related to litigation and contingencies as incurred. Additionally, the Company assesses, in consultation with its counsel, the need to record liability for litigation and contingencies on a case by case basis. Reserves are recorded when the Company, in consultation with counsel, determines that a loss related to a matter is both probable and reasonably estimable.

     The Company applies an asset and liability approach to accounting for income taxes. Deferred tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The recoverability of deferred tax assets is dependent upon the Company's assessment that it is more likely than not that sufficient future taxable income will be generated in the relevant tax jurisdiction to utilize the deferred tax asset. In the event the Company determines that future taxable income will not be sufficient to utilize the deferred tax asset, a valuation allowance is recorded.

     Deferred tax assets are evaluated quarterly to assess the likelihood of realization, which is ultimately dependent upon generating future taxable income prior to the expiration of the net operating loss carryforwards. At December 31, 2004, the Company had recorded significant U.S. federal deferred tax assets for which it had provided a full valuation allowance given that it was not considered to be "more likely than not" that these deferred tax assets would be realized. At December 31, 2005, the Company made the decision to reverse the remaining valuation allowance because it believed that it was "more likely than not" that these assets would be realized. The Company's cash flow generated throughout 2005, including the net proceeds from the sale of the Generics Business, enabled the Company to pay off all of its domestic debt by January 23, 2006 which in turn, eliminated related interest expense, thereby increasing future profitability. In addition, it is expected that the continuing domestic business segments, which have been profitable, will continue to be profitable.

     At December 31, 2006, the Company had $113.2 million in cash and cash equivalents no debt outstanding. Interest income earned on investments was $19.3 million for the twelve months of 2006 and is included in Interest income (expense), net in the Consolidated Statements of Operations.

Cash flow provided by operating activities for the year ended December 31, 2006 was $42.9 million compared to $247.3 million provided from operations in 2005. During 2006, the Company paid cash taxes of $64.4 million, including approximately $30 million in connection with the Company's Generics business, and additional cash payments of approximately $25 million related to the settlement of accrued expenses associated with the Generics Business disposition. Cash provided by operating activities in 2005 includes the cash flows of the divested Generics Business.

     Cash provided by investing activities for 2006 included the proceeds from the sale of ParMed of $40.1 million and, in 2005, the net proceeds from the sale of the Generics Business of $804.4 million. Capital expenditures amounted to $36.2 million in 2006, $38.9 million in 2005 and $49.3 million in 2004. Cash from investing activities includes cash flows of discontinued operations.

Working capital, including cash and cash equivalents, at December 31, 2006, was $198.0 million compared to working capital of $371.8 million at December 31, 2005. Working capital is defined as current assets less current liabilities. Working capital at December 31, 2005 included the benefit of the cash proceeds from the sale of the Generics Business which was partially offset by the anticipated payment of all outstanding debt, which was classified as current liabilities at December 31, 2005. The decline in working capital from December 31, 2005 to 2006 is principally attributable to the fourth quarter 2006 Class B share repurchase for $307.4 million including related fees. Trade working capital (accounts receivable and inventories, less accounts payable and accrued expenses) was higher at December 31, 2006 than 2005 because of increased receivables and inventory related to business growth and the settlement of December 31, 2005 tax and other liabilities related to the sale of the Generics Business.

    Stockholders' equity at December 31, 2006 was $724.0 million compared to $918.1 million at December 31, 2005. The decrease in Stockholders' Equity in 2006 resulted primarily from the repurchase of B shares as treasury stock at a cost of $307.4 million partially offset by this year's net earnings, including the gain on the sale of ParMed. At December 31, 2006, due primarily to the cumulative weakening of the U.S. dollar against many other currencies, the Company reported Accumulated Other Comprehensive Income of $58.2 million compared to $47.9 million at December 31, 2005.

Under the terms of certain business and product acquisition agreements, the Company may be required to make additional payments in future years upon the occurrence of specified events. Additionally, the Company has a number of conditional supply agreements which obligate the Company to purchase products or services from vendors based on Company forecasts which are updated on a regular basis and at prices subject to negotiation and change. Certain of the supply agreements may require minimum payments under certain circumstances if minimum quantities are not purchased. See Note 15 to the financial statements for additional information.

     The Company's earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates and interest rates. The Company's risk management practice includes the selective use, on a limited basis, of forward foreign currency exchange contracts. Such instruments are used for purposes other than trading.

Foreign Currency Exchange Rate Risk

     Foreign currency exchange rate movements create fluctuations in U.S. Dollar reported amounts of foreign subsidiaries whose local currencies are their respective functional currencies. The Company has not used foreign currency derivative instruments to manage translation fluctuations. The Company and its respective subsidiaries primarily use forward foreign exchange contracts to hedge certain cash flows denominated in currencies other than the subsidiary's functional currency. Such cash flows are normally represented by actual receivables and payables and anticipated receivables and payables for which there is a firm commitment.

     At December 31, 2006, the Company had forward foreign exchange contracts mainly denominated in Euros, Danish Krones, Hungarian Forints and U.S. Dollars with a notional amount of $74.9 million. The fair market value of such contracts has been recognized in the financial statements and is not material. All contracts expire in the first quarter of 2007. The cash flows expected from the contracts will generally offset the cash flows of related non-functional currency transactions. The change in value of the foreign currency forward contracts resulting from a 10% movement in foreign currency exchange rates would be less than $10 million and generally would be offset by the change in value of the hedged receivable or payable. Such contracts are not designated hedges for accounting purposes.

     Alpharma's interest rate risk relates primarily to the asset-based $75 million Senior Secured Credit Facility, which has variable interest rates which reset on a periodic basis. At December 31, 2006, there were no amounts outstanding under the Senior Secured Credit Facility.

     See page F-1 of this Report, which includes an index to the consolidated financial statements and financial statement schedules.

None.

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

     The Company's CEO and CFO completed an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Rule 13a-15 as of December 31, 2006. Based on this evaluation, they concluded that the Company's disclosure controls and procedures were effective as of December 31, 2006.

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

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

• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company,

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the board of directors of the Company, and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.

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

      Management performed an assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2006, utilizing the criteria described in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). The objective of this assessment was to determine whether the Company's internal control over financial reporting was effective as of December 31, 2006. Based on that assessment the Company believes that, at December 31, 2006, its internal control over financial reporting was effective.

Management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2006 has been audited by BDO Seidman, LLP, an independent registered public accounting firm, as stated in their report which follows.

(c)    Changes in Internal Control over Financial Reporting

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

     During 2005, management implemented enhanced control procedures related to the accounting for income taxes. These included: (i) the development and communication of enhanced policies and procedures for the accounting for income taxes, including expanded documentation requirements to support financial statement assertions, (ii) retaining a public accounting firm and other external tax professional services to assist the Company in its quarterly review, analysis and documentation of both its US and international income tax accounts, and (iii) expanding internal financial management review and oversight of income tax accounts and the work of outside tax service providers.

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

     Because the December 19, 2005 sale of the Generics Business has simplified the Company, the tax accounting complexities and workload created by the fourth quarter 2005 transactions described above have been significantly reduced. In addition, during 2006, the Company expanded its internal tax staff by recruiting three additional tax professionals; two of whom are responsible for the tax accounting and compliance function. The Company believes that the addition of these tax professionals to its internal staff, combined with enhanced tax policies and procedures, and expanded financial management review and oversight, has served to remediate the material weakness at December 31, 2006 related to the financial reporting for income taxes.

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

Report of Independent Registered Public Accounting Firm

Fort Lee, New Jersey 07024

We have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting, that Alpharma Inc. maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Alpharma Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

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

In our opinion, management's assessment that Alpharma Inc. maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also in our opinion, Alpharma Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Alpharma Inc. as of December 31, 2006, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended and our report dated February 28, 2007 expressed an unqualified opinion thereon.

/ / BDO Seidman, LLP
New York, NY
February 28, 2007

Item 9B.    Other Information

On February 26, 2007, the Compensation Committee of the Board of Directors established the performance goals that will be used to determine the amount of cash bonuses that may be paid to key executives (including the Named Executive Officers) for the 2007 fiscal year under the Amended Executive Bonus Plan (filed as an Exhibit to this Report). Each such Named Executive Officer can receive more or less than his or her target bonus (from 0% to 200% of said target bonus) based upon the Registrant's ability to achieve certain operating income, cash flow and revenue growth targets for 2007. In addition, for Named Executive Officers who are responsible for a specific business segment of the Registrant, a portion of his or her bonus will depend on that business segment's ability to achieve certain income, cash flow and revenue targets for 2007.  The target bonus level for the Chief Executive Officer for the 2007 fiscal year is 100% and for the other Named Executive Officers for the 2007 fiscal year is 50%.

Effective February 27, 2007, the Board of Directors approved amended and restated by-laws of the Company. The amended by-laws reflect (i) a change in the Company's principal executive office as of approximately April 1, 2007, (ii) the removal of the requirement to have nine board members, (iii) a change to provide that a quorum shall be deemed to be present at a stockholder meeting if the meeting shall be attended by persons entitled to vote stock representing 1/3 of the potential voting power, (iv) the elimination of the Executive and Finance Committee of the Board of Directors, (v) the creation of a Nominating and Corporate Governance Committee of the Board of Directors, which assumed the corporate governance responsibilities of the previous Audit and Corporate Governance Committee, and (vi) the corresponding change in name of the Audit and Corporate Governance Committee to the "Audit Committee".

PART III

     The information set forth under the sub-caption "Compensation Committee Interlocks and Insider Participation" appearing under the caption "Corporate Governance" of the Proxy Statement relating to the Annual Meeting of Stockholders to be held on June 5, 2007, which Proxy Statement will be filed on or prior to April 30, 2007, and the information set forth under the caption s"Executive Compensation" and "Compensation Committee Report" in such Proxy Statement, are incorporated into this Report by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     The information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" of the Proxy Statement relating to the Annual Meeting of Stockholders to be held on June 5, 2007, which Proxy Statement will be filed on or prior to April 30, 2007, is incorporated in this Report by reference.

     The following table provides information as of December 31, 2006 with respect to Alpharma's common shares issuable under the Company's equity compensation plans:

(a)     The number of shares included in the table represent shares from the following equity compensation plans which have been approved by the Company's shareholders: (i) Alpharma Inc. 1997 Stock Option and Appreciation Right Plan, (ii) Alpharma Inc. Non-Employee Director Option Plan and (iii) Alpharma Inc. 2003 Omnibus Incentive Compensation Plan. The table does not include shares to be issued under the Company's Employee Stock Purchase Plan which was approved by the Company's shareholders in 1991. This Plan was not included because there are no limitations on the number of shares that may be purchased under the Plan. The Plan entitles employees to contribute up to 4% of basic pay into the Plan for the purchase of shares of the Company's Class A Common Stock. The Company contributes to the Plan an amount equal to 50% of each participating employee's contributions.

Item 13.    Certain Relationships, Related Transactions, and Director Independence

     The information set forth under the caption "Certain Relationships and Related Transactions" of the Proxy Statement relating to the Annual Meeting of Stockholders to be held on June 5, 2007, which Proxy Statement will be filed on or prior to April 30, 2007, and the information set forth under the subcaption "Board and Committee Independence" appearing under the caption "Corporate Governance" in such Proxy Statement, are incorporated into this Report by reference.

Item 14.    Principal Accountant Fees and Services.

The Information set forth under the caption "Principal Accountant Fees and Services" of the Proxy Statement relating to the Annual Meeting of Stockholders to be held on June 5, 2007, which Proxy Statement will be filed on or prior to April 30, 2007, is incorporated into this Report by reference.

     See page F-1 of this Report, which includes an index to consolidated financial statements and financial statement schedule.

List of Exhibits (numbered in accordance with Item 601 of Regulation S-K)

For purposes of complying with the amendments to the rules governing Registration Statements under the Securities Act of 1933, the undersigned Registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into Registrant's Registration Statements on Form S-8 (Nos. 33-60495, effective July 13, 1990, 333-107873, 333-104253, 333-104252) and Form S-3 (File Nos. 333-57501, 333-86037, 333-86153 and 333-70229):

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

SIGNATURES

Pursuant to the requirements of Section B or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities and Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Board of Directors and Stockholders
Alpharma Inc.
1 Executive Drive
Fort Lee, New Jersey 07024

We have audited the accompanying consolidated balance sheets of Alpharma Inc. as of December 31, 2006 and 2005 and the related consolidated statements of income, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alpharma Inc. at December 31, 2006 and 2005 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As described in Note 2, in 2006 the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment," utilizing the modified prospective transition method effective January 1, 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Alpharma Inc.'s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 28, 2007 expressed an unqualified opinion thereon.

/s/ BDO Seidman, LLP
New York, NY
February 28, 2007

To the Board of Directors and Stockholders of Alpharma Inc:

In our opinion, the consolidated statements of operations, of stockholders' equity and cash flows listed in the index on page F-1 present fairly, in all material respects, the results of operations and cash flows of Alpharma Inc. and its subsidiaries for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Florham Park, New Jersey

March 31, 2005, except for the restatement discussed in Note 2b (not presented herein) to the consolidated financial statements appearing under Item 15 of the Company's 2004 annual report on Form 10-K/A, as to which the date is May 5, 2005 and the effects of discontinued operations discussed in Note 3 to the consolidated financial statements, as to which the date is March 16, 2006.

ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)