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Par Aims for Turnaround

Still, investors appear a bit nervous a day after it hires a new CEO.

Par Pharmaceutical


had investors on edge a day after the generic-drug maker ousted its chairman and chief executive.

On Wednesday, the stock fell as low as $17.80, rose as high as $18.97 and ultimately ended down 43 cents, or 2.3%, at $18.37. Trading volume was higher than average.

After the markets had closed Tuesday, Par's board announced that, at its request, Mark Auerbach, 67, and Scott Tarriff, 46, had resigned immediately as executive chairman and chief executive, respectively.

Tarriff had been an executive with Par since 1998, becoming CEO in September 2003. He had been a director since 2001. Auerbach, a director since 1990, had been executive chairman of Par since September 2003.

Par's board named Patrick LePore as president and CEO and John Abernathy as nonexecutive chairman. Abernathy has been a board member since 2001, and LePore became a director this past May. LePore, 51, worked for

Hoffmann-La Roche

and was a founder of a medical communications company that was subsequently sold to

Cardinal Health

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Par has been plagued with accounting problems, causing it to restate results for 2004 and 2005, as well as for the first quarter of 2006. Par has delayed filing its second-quarter report with the

Securities and Exchange Commission

because of the need for restatements.

The filing delay puts the company in default of certain convertible notes, says a trustee of the notes. Citing the trustee's comments, Par says in a recent SEC filing that the claim of default is "invalid and without merit."

In one regulatory filing, Par says its investigation indicates the accounting errors were "inadvertent." The company also has suffered from diminishing support among investors. In the last 24 months, the stock price has been cut in half.

The management shakeup earned a downgrade to market-perform from outperform by Robert Uhl of Friedman Billings Ramsey. Uhl tells clients in a research note that the departures weren't related to a single event.

"It is our understanding that several issues, particularly Par's poor performance compared to internal targets over the past few years, led to the board's loss of confidence in Par's most senior managers," he says.

"We do not look for another shoe to drop, such as broadening of the ongoing accounting restatement," says Uhl, who doesn't own shares. However, he adds that the "sudden nature of the transition and the uncertainty that new management could brings reduces our confidence in the stock's potential to outperform." His firm says it seeks to do business with companies covered in research reports.

Elliot Wilbur of CIBC World Markets maintained a sector-performer rating on Par, telling clients that he isn't sure if the new CEO is "merely a placeholder" or someone who will make good on the promise to add brand-name drugs to the Par arsenal of generic products.

"In an era of intense consolidation in

the generics industry, investors will likely conclude that at least 'something' could happen," says Wilbur, who doesn't own shares. His firm expects to seek or receive investment-banking compensation from Par in the next three months.