Summary of LIFE SCIENCES RESEARCH INC

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the Company's financial condition and results of operations should be read together with the financial statements and related notes, which are included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. The Company's actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in more detail in its 2007 Annual Report on Form 10-K. The Company undertakes no obligation to update any information in its forward-looking statements.

OVERVIEW OF THE COMPANY'S BUSINESS

The Company provides pre-clinical and non-clinical biological safety evaluation research services to most of the world's leading pharmaceutical and biotechnology companies, as well as many agrochemical and industrial chemical companies. The purpose of this safety evaluation is to identify risks to humans, animals or the environment resulting from the use or manufacture of a wide range of chemicals, which are essential components of our clients' products. The Company's services are designed to meet the regulatory requirements of governments around the world.

The Company's aim is to develop its business within these markets, principally in the pharmaceutical sector, and through organic growth. In doing so, the Company expects to benefit from strong drug pipelines in the pharmaceutical industry and a growing trend towards greater outsourcing as clients focus more internal resources on research and increasingly look to variabilize their development costs.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The following discussion and analysis of the Company's financial condition and operating results is based on the Company's financial statements. The preparation of this Quarterly Report requires the Company to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Company's financial statements, and the reported amount of revenue and expenses during the reporting period. Actual results may differ from those estimates and assumptions. See "Notes to Unaudited Condensed Financial Statements" in Part I of this Quarterly Report for a presentation of the Company's significant accounting policies. No changes have been made to the Company's critical accounting policies and estimates disclosed in its 2007 Annual Report on Form 10-K.

RESULTS OF OPERATIONS

Three months ended September 30, 2008 compared with three months ended September 30, 2007.

Net revenues for the three months ended September 30, 2008 were $63.6 million, an increase of 4.4% on net revenues of $60.9 million for the three months ended September 30, 2007. The underlying increase, after adjusting for the impact of the movement in exchange rates was 9.8%; with the UK showing a 11.6% increase and the US a 3.5% increase. The increase in revenues reflects growth in all the Company's service offerings, particularly safety assessment and regulatory support.

Cost of sales for the three months ended September 30, 2008 were $44.6 million (70.2% of revenue), an increase of 5.0% on cost of sales of $42.5 million (69.9% of revenue) for the three months ended September 30, 2007. The underlying increase, after adjusting for the impact of the movement in exchange rates was 10.6% with the UK showing a 11.4% increase and the US a 7.4% increase. The increase in cost of sales as a % of revenue was due to a 130 basis points increase in labor costs as a % of revenue. In addition to headcount increases due to the growth in revenues there have been a limited number of hires to strengthen the scientific and operational infrastructure of the Company. Compensation packages have also increased. This was offset by a reduction of 10 basis points in direct study costs as a % of revenue as a result of a change in the mix of business, and a 90 basis points reduction in overhead costs as a % of revenues with improved capacity utilization.

Selling, general and administrative expenses (SG&A) decreased by 4.1% to $9.4 million for the three months ended September 30, 2008 from $9.8 million in the corresponding period in 2007. The underlying decrease, after adjusting for the impact of the movement in exchange rates was 0.2%. That decrease in costs was primarily due to a reduction in incentive accruals.

Net interest expense decreased by 11.0% to $2.3 million for the three months ended September 30, 2008 from $2.5 million for the three months ended September 30, 2007. Of the decrease of $0.2 million, $0.6 million relates to a decrease in interest expense associated with the $10 million reduction in the principal of the March 2006 Financing and the reduced interest rate associated with the Amended March 2006 Financing, offset by a $0.4 million decrease in interest income.

Other expense of $5.1 million for the three months ended September 30, 2008 comprised $5.1 million from the non-cash foreign exchange re-measurement loss on the March 2006 Financing denominated in US dollars (the functional currency of the financial subsidiary that holds the loan is UK sterling) and finance arrangement fees of $0.5 million, offset by other exchange gains of $0.5 million. In the three months ended September 30, 2007, there was other income of $0.02 million which comprised $0.5 million from the non-cash foreign exchange re-measurement gain on the March 2006 Financing denominated in US dollars (the functional currency of the financial subsidiary that holds the loan is UK sterling) and other exchange gains of $0.1 million, offset by finance arrangement fees of $0.6 million.

Income tax expense for the three months ended September 30, 2008 was $0.1 million. The income tax expense for the three months ended September 30, 2007 was $0.2 million. Net operating losses are $85.4 million at September 30, 2008, with net operating losses in the US of $7.8 million and net operating losses in the UK of $77.6 million.

Net income for the three months ended September 30, 2008 was $2.1 million compared with net income of $5.9 million for the three months ended September 30, 2007. The decrease in net income of $3.8 million is due to a $1.0 million increase in operating income, a decrease in the net interest expense of $0.2 million, a decrease in non-cash finance arrangement fees of $0.1 million, a decrease in the income tax expense of $0.1 million, offset by a movement of $5.2 million from a gain to a loss in non-cash foreign exchange re-measurement.

Net income per outstanding common share for the three months ended September 30, 2008 was 16 cents, compared to 47 cents income in the three months ended September 30, 2007, on the weighted average common shares outstanding of 12,679,488 and 12,613,629 respectively. Net income per fully diluted share for the three months ended September 30, 2008 was 13 cents, compared to 39 cents in the three months ended September 30 2007, on the weighted average fully diluted common shares outstanding of 15,625,054 and 14,965,067 respectively.

Nine months ended September 30, 2008 compared with nine months ended September 30, 2007.

Net revenues for the nine months ended September 30, 2008 were $191.1 million, an increase of 10.2% on net revenues of $173.4 million for the nine months ended September 30, 2007. The underlying increase, after adjusting for the impact of the movement in exchange rates was 12.0%; with the UK showing a 12.3% increase and the US a 10.9% increase. The increase in revenues reflects growth in all the Company's service offerings, particularly safety assessment and regulatory support.

Cost of sales for the nine months ended September 30, 2008 were $131.5 million (68.8% of revenue), an increase of 6.7% on cost of sales of $123.2 million (71.1% of revenue) for the nine months ended September 30, 2007. The underlying increase, after adjusting for the impact of the movement in exchange rates was 8.5% with the UK showing a 8.3% increase and the US a 9.3% increase. The decrease in cost of sales as a % of revenue was due to a reduction of 110 basis points in direct study costs as a % of revenue as a result of a change in the mix of business, and a 180 basis points reduction in overhead costs as a % of revenues with improved capacity utilization. These were offset by an increase of 60 basis points in labor costs as a % of revenue. In addition to headcount increases due to the growth in revenues there have been a limited number of hires to strengthen the scientific and operational infrastructure of the Company. Compensation packages have also increased.

Selling, general and administrative expenses (SG&A) increased by 9.1% to $30.4 million for the nine months ended September 30, 2008 from $27.8 million in the corresponding period in 2007. The underlying increase, after adjusting for the impact of the movement in exchange rates was 10.5%. That increase in costs was due to an increase in staff costs to match the expansion of the business and higher employee stock option expenses.

Net interest expense decreased by 15.5% to $7.0 million for the nine months ended September 30, 2008 from $8.3 million for the nine months ended September 30, 2007. Of the decrease of $1.3 million, $2.2 million relates to a decrease in interest expense associated with the $10 million reduction in the principal of the March 2006 Financing and the reduced interest rate associated with the Amended March 2006 Financing, offset by a $0.9 million decrease in interest income.

Other expense of $6.1 million for the nine months ended September 30, 2008 comprised $5.1 million from the non-cash foreign exchange re-measurement loss on the March 2006 Financing denominated in US dollars (the functional currency of the financial subsidiary that holds the loan is UK sterling) and finance arrangement fees of $1.5 million, offset by other exchange gains of $0.5 million. In the nine months ended September 30, 2007 there was other income of $0.3 million which comprised $1.7 million from the non-cash foreign exchange re-measurement gain on the March 2006 Financing denominated in US dollars and other exchange gains of $0.3 million, offset by finance arrangement fees of $1.7 million.

Income tax expense for the nine months ended September 30, 2008 was $0.1 million. The income tax benefit for the nine months ended September 30, 2007 was $0.5 million.

Net income for the nine months ended September 30, 2008 was $16.1 million compared with net income of $14.8 million for the nine months ended September 30, 2007. The increase in net income of $1.3 million is due to a $6.9 million increase in operating income, a decrease in the net interest expense of $1.3 million and a decrease in non-cash finance arrangement fees of $0.3 million, offset by a decrease in the income tax benefit of $0.6 million and a movement of $6.6 million from a gain to a loss in non-cash foreign exchange re-measurement.

Net income per outstanding common share for the nine months ended September 30, 2008 was $1.27, compared to $1.17 income in the nine months ended September 30, 2007, on the weighted average common shares outstanding of 12,655,939 and 12,722,989 respectively. Net income per fully diluted share for the nine months ended September 30, 2008 was $1.04, compared to 99 cents in the nine months ended September 30, 2007, on the weighted average fully diluted common shares outstanding of 15,488,807 and 14,952,153 respectively.

LIQUIDITY & CAPITAL RESOURCES

Cash and Cash Equivalents
During the nine months ended September 30, 2008 funds used were $2.1 million, decreasing cash and cash equivalents from $32.3 million at December 31, 2007 to $30.2 million at September 30, 2008. The decrease in cash for the nine months ended September 30, 2008 was primarily caused by the increase in DSOs which utilized $10.0 million, and by capital expenditure exceeding depreciation and amortization by $6.5 million. These offset cash generated by the strong operating performance in the period and the $3.9 million generated from the sale of short-term investments. There were further payments during the period of $1.8 million regarding the small fold in acquisition, $1.5 million repayments of long term borrowings, and $1.0 million repurchase of warrants.

Net days sales outstanding ("DSOs") at September 30, 2008 were 28 days, an increase from the 21 days at June 30, 2008 (2 days at September 30, 2007 and 13 days at December 31, 2007). DSOs are calculated as a sum of accounts receivables, unbilled receivables and fees in advance over total net revenue. Over the last 5 years, DSOs at the quarter ends have varied from 2 days to 28 days, so they are currently at a five year high. The impact on liquidity from a one-day change in DSO is approximately $666,000.

On March 2, 2006, the Company entered into a financing agreement (the "March 2006 Financing") which matures on March 1, 2011. On November 30, 2007, the Company entered into a second amendment to the March 2006 Financing (the "Second Amended March 2006 Financing") in which certain financial covenants were modified and consent was given by the lender to permit the Company to complete a fold-in acquisition.

On September 5, 2008 the Company repurchased 40,600 of the warrants issued on November 9, 2005 to an independent third party advisor who provided advisory services to assist the Company in obtaining a listing on the NYSE Arca, for an aggregate consideration of $1,000,000. Accordingly, the independent third party advisor now owns warrants to acquire 271,900 shares of Life Sciences Research, Inc. ("LSR") Common Stock at an exercise price of $10.46 per share.

OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2008, the Company did not engage in any off-balance sheet arrangements as defined in Item 303 (a) (4) of Regulation S-K under the Securities Act of 1934, as amended, that have, or are likely to have, a material current or future effect on its consolidated financial position or results of operations.

Recently Issued Accounting Standards
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 provides a common definition of fair value and establishes a framework to make the measurement of fair value in generally accepted accounting principles more consistent and comparable. SFAS 157 also requires expanded disclosures to provide information about the extent to which fair value is used to measure assets and liabilities, the methods and assumptions used to measure fair value, and the effect of fair value measures on earnings. SFAS 157 is effective for fiscal years beginning after November 15, 2007 (2008 fiscal year), although early adoption is permitted. In February 2008, the FASB formally provided a one-year deferral for the implementation of SFAS 157 only with regard to certain nonfinancial assets and liabilities (2009 fiscal year). The Company has not yet determined the impact, if any, of SFAS 157 on the Company's consolidated results of operations or financial position.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 allows entities the option to measure eligible financial instruments at fair value as of specified dates. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company does not expect SFAS 159 to have a material effect on the Company's consolidated results of operations or financial position.

In December 2007, the FASB issued FAS 141(R), "Business Combinations - a replacement of FASB Statement No. 141", which significantly changes the principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement is effective prospectively, except for certain retrospective adjustments to deferred tax balances, for fiscal years beginning after December 15, 2008. This statement will be effective for the Company beginning in fiscal year 2009. The Company is currently evaluating FAS 141(R), and has not yet determined the impact if any, FAS 141(R) will have on its consolidated results of operations or financial position.

In March 2008, the FASB issued SFAS No. 161 Disclosures about Derivative Instruments and Hedging Activities (FAS 161). FAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under FASB Statement 133 and its related interpretations, and
(c) how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. This statement is not expected to have an impact on the Company's consolidated financial statements.

In April 2008, the FASB issued FSP FAS 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP FAS 142-3"). FSP FAS 142-3 amends FASB Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No 141, "Business Combinations" ("SFAS No. 141") and other U.S. GAAP. This FSP is effective for fiscal years beginning after December 15, 2008. The guidance for determining the useful life of a recognized intangible asset is to be applied prospectively, therefore, the impact of the implementation of this pronouncement cannot be determined until the transactions occur.

In May 2008, the FASB issued SFAS No. 162 "The Hierarchy of Generally Accepted Accounting Principles". SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. SFAS No. 162 is effective 60 days following the Securities and Exchange Commission's approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles." The Company does not expect the adoption of SFAS No. 162 to change its current practice nor does the Company anticipate an effect on its results of operations or financial position.

In June 2008, the FASB issued FSP No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" ("FSP EITF 03-6-1"). FSP EITF 03-6-1 concludes that unvested share-based payment awards that contain rights to receive nonforfeitable dividends or dividend equivalents are participating securities, and thus, should be included in the two-class method of computing earnings per share ("EPS"). FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Early application of EITF 03-6-1 is prohibited. This FSP also requires that all prior-period EPS data be adjusted retrospectively. The Company is currently evaluating the impact FSP EITF 03-6-1 will have on its consolidated financial statements.

Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying financial statements.