You should read the following discussion together with Part II, Item 6. "Selected Financial Data" and our Consolidated Financial Statements and the related Notes included elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ materially from those we currently anticipate as a result of many factors, including the factors we describe under Item 1A. "Risk Factors" and elsewhere in this Annual Report.

Unless otherwise noted or the context otherwise requires, references in this prospectus to "Warner Chilcott," "the Company," "our company," "we," "us" or "our" for periods after the Acquisition Date refer to the operations of Warner Chilcott Limited and for periods prior to the Acquisition Date refer to the historical operations of the Predecessor.

Overview

We are a leading specialty pharmaceutical company currently focused on the women's healthcare and dermatology segments of the U.S. pharmaceutical market. We are a fully integrated company with internal resources dedicated to the development, manufacturing and promotion of our products. Our diversified portfolio of branded products has enabled us to establish strong franchises in women's healthcare and dermatology which we promote through our marketing techniques and specialty sales forces. We believe that our proven product development capabilities, coupled with our ability to execute acquisitions and in-licensing transactions and develop partnerships, will enable us to sustain and grow these franchises. We are a Bermuda company, with operations through our wholly-owned subsidiaries in the U.S., Puerto Rico, the Republic of Ireland and Northern Ireland.

In September 2006, we completed our IPO and sold 70,600,000 of our Class A common shares. Also see discussion in "Operating results for the years ended December 31, 2007 and 2006".

Factors Affecting Our Results of Operations

Revenue

We generate two types of revenue: revenue from product sales (including contract manufacturing) and other revenue which currently includes royalty revenue.

Net Sales

We promote a portfolio of branded prescription pharmaceutical products currently focused on the women's healthcare and dermatology segments of the U.S. pharmaceutical market. To generate demand for our products, our sales representatives make face-to-face promotional and educational presentations to physicians who are potential prescribers of our products to their patients. By informing these physicians of the attributes of our products, we generate demand for our products with physicians, who then write prescriptions for their patients, who in turn go to the pharmacy where the prescription is filled. Pharmacies buy our products either through wholesale pharmaceutical distributors or directly from us (for example, retail drug store chains). We recognize revenue when title passes to our customers, generally free on board ("FOB"), destination, net of sales-related deductions.

When our unit sales to customers in any period exceeds consumer demand (as measured by filled prescriptions in units), our sales in excess of demand must be absorbed before our customers begin to order again. We refer to the estimated amount of inventory held by our customers and pharmacies that purchase our product from our direct customers, generally measured in the number of days of demand on hand, as "pipeline inventory". Pipeline inventories expand and contract in the normal course of business. When comparing reported product sales between periods, it is important to consider whether estimated pipeline inventories increased or decreased during each period.

We generate our revenue primarily from the sale of branded pharmaceutical products in the United States ("U.S."), including our oral contraceptives (LOESTRIN 24 FE, FEMCON FE, ESTROSTEP FE, and OVCON), our HT products (primarily ESTRACE Cream, FEMHRT, and FEMRING), our oral antibiotic for the adjunctive treatment of severe acne (DORYX), our psoriasis products (TACLONEX and DOVONEX) and our treatment for premenstrual dysphoric disorder (SARAFEM). Our revenue from sales of these products consists primarily of sales invoiced less returns and other sales-related deductions. In addition to the products listed above, the Company earns revenues from the sale of generic products, including TILIA™ FE (a generic version of ESTROSTEP FE) and ZENCHENT (a generic version of OVCON 35) under profit-sharing supply and distribution agreements with Watson. We also recognize revenue on a generic version of DOVONEX Solution under a profit-sharing supply and distribution agreement with Hi-Tech. The revenue we earn under these agreements is included with our related branded product revenue for financial reporting purposes.

Included in net sales are amounts earned under contract manufacturing agreements. These activities are by-products of our May 2004 acquisition of the Fajardo, Puerto Rico manufacturing facility from a subsidiary of Pfizer and the March 2004 sale of rights to two LOESTRIN products to a unit of Teva (then Barr). In connection with these transactions, we agreed to manufacture certain products for Pfizer and Teva (then Barr) for specified periods. Contract manufacturing is not an area of strategic focus for us as these contracts produce profit margins significantly below the margins realized on sales of our branded products. We have phased out the manufacturing of all but one of the Pfizer products (the supply agreement for the production of Dilantin ฎ was extended for three years effective July 31, 2006, subject to two one-year renewals at Pfizer's option). We continue to manufacture Dilantinฎfor Teva.

Changes in revenue from sales of our products from period to period are affected by factors that include the following:

• changes in the level of competition faced by our products, including the launch of new products by competitors and the introduction of generic equivalent products;

• changes in the level of promotional or marketing support for our products and the size of our sales forces;

• expansion or contraction of the levels of pipeline inventories of our products held by our customers;

• changes in the regulatory environment;

• our ability to successfully develop or acquire and launch new proprietary products;

• changes in the level of demand for our products, including changes based on general economic conditions in the U.S. economy;

• long-term growth of our core therapeutic markets, currently women's healthcare and dermatology;

• price increases, which are common in the branded pharmaceutical industry and for the purposes of our period-over-period comparisons, reflect the average gross selling price billed to our customers before any sales-related deductions; and

• changes in the levels of sales related deductions.

Other Revenue

Beginning in the fourth quarter of 2006, the Company began to generate revenue related to licensing rights to sell products using the Company's patents to third parties as a component of other revenue.

Cost of Sales (excluding amortization and impairment of intangible assets)

We currently contract with third parties to manufacture certain of our products, although we now manufacture most of our women's healthcare oral dose products in our facility in Fajardo, Puerto Rico. We also have supply contracts with our third-party development partners, such as LEO Pharma (DOVONEX and TACLONEX), CPL (ESTRACE CREAM) and Mayne (DORYX). Our supply agreements with these third-party manufacturers and development partners may include minimum purchase requirements and may provide that the price we pay for the products we sell can be increased based on factors outside of our control such as inflation, increases in costs or other factors.

For products that we manufacture and package (as of December 31, 2008, LOESTRIN 24 FE, FEMCON FE, ESTROSTEP FE, OVCON 50 and FEMRING), our direct material costs include the costs of purchasing raw materials and packaging materials. For products that we only package (as of December 31, 2008, DORYX, FEMHRT, FEMTRACE, OVCON 35 and DOVONEX and TACLONEX samples), our direct material costs include the costs of purchasing packaging materials. Direct labor costs for these products consist of payroll costs (including benefits) of employees engaged in production, packaging and quality control in our manufacturing plants in Fajardo, Puerto Rico and Larne, Northern Ireland. The largely fixed indirect costs of our manufacturing plants consist of production, overhead and certain laboratory costs. We do not include amortization or impairments of intangible assets as components of cost of sales.

A significant factor that influences the cost of sales, as a percentage of product net sales, is the terms of our supply agreements with our third party manufacturers. As of September 2005 and January 2006, we became the exclusive licensee of the U.S. sales and marketing rights to TACLONEX and DOVONEX, respectively, under agreements with LEO Pharma. We are obligated to pay LEO Pharma specified supply fees and royalties based on a percentage of our net sales (as calculated under the terms of the agreements). In addition, with respect to DOVONEX, we were obligated to pay Bristol-Myers a royalty of 5% of net sales through December 31, 2007.

SG&A Expenses

SG&A expenses are comprised of selling and distribution expenses, advertising and promotion expenses ("A&P") and general and administrative expenses ("G&A"). Selling and distribution and A&P expenses consist of all expenditures incurred in connection with the sales and marketing of our products, including warehousing costs. The major items included in selling and distribution and A&P expenses are:

• costs associated with employees in the field sales forces, sales force management and marketing departments, including salaries, benefits and incentive bonuses;

• promotional and advertising costs, including samples, medical education programs and direct-to-consumer campaigns; and

• distribution and warehousing costs reflecting the transportation and storage associated with transferring products from our manufacturing facilities to our distribution contractors and on to our customers.

Changes in selling and distribution and A&P expenses, as a percentage of our revenue, may be affected by a number of factors, including:

• changes in sales volumes, as higher sales volumes enable us to spread the fixed portion of our selling and A&P expenses over higher sales;

• changes in the mix of products we promote, as some products (such as those in launch phase, for example) require more intensive promotion than others; and

• changes in the size and configuration of our sales forces, such as when we establish a sales force to market a new product or expand or reduce our sales forces.

G&A expenses consist of management salaries, benefits, incentive compensation, rent, legal and professional fees and miscellaneous administration and overhead costs.

R&D

Our R&D expenses are comprised mainly of development costs. These development costs are typically associated with:

• developing improvements to our existing products, including new dosage forms;

• developing new products based on compounds which have been previously shown to be safe and effective; and

• supporting and conducting clinical trials and subsequent registration of products we develop internally or license from third parties.

In addition, we have certain projects that focus on earlier stage exploratory research. R&D costs also include payments to third-party licensors when products that we have licensed reach contractually-defined milestones. Milestone payments are recognized as expenses, unless they meet the criteria of an intangible asset, in which case they are capitalized and amortized over their useful lives.

The aggregate level of our R&D expense in any period is related to the number of products in development and the stage of their development process. Development costs for any particular product may increase progressively during the development process, with Phase III clinical trials generally accounting for a significant part of the total development costs of a product.

Depreciation and Amortization

Depreciation costs relate to the depreciation of property, plant and equipment and are included in our statement of operations, primarily in cost of sales and G&A expenses. Depreciation is calculated on a straight-line basis over the expected useful life of each class of asset. No depreciation is charged on land.

Amortization costs relate to the amortization of identified definite-lived intangible assets, which consists primarily of intellectual property rights. Amortization is calculated on either an accelerated or a straight-line basis over the expected useful life of the asset, with identifiable assets assessed individually or by product family. Patents and other intellectual property rights are amortized over periods not exceeding 15 years. We periodically review the amortization schedules for intangible assets to ensure that the methods employed and the amortization rates being used are consistent with our then current forecasts of future product cash flows. Where appropriate, we make adjustments to the remaining amortization to better match the expected benefit of the asset.

Interest Income and Interest Expense ("Net interest expense")

Interest income consists primarily of interest income earned on our cash balances. Interest (expense) consists primarily of interest on outstanding indebtedness, amortization of deferred financing costs and the write-off of deferred financing costs associated with the early prepayment of debt.

Provision / (Benefit) for Income Taxes

Provision / (benefit) for income taxes consist of a current corporate tax expense, deferred tax expense and any other accrued tax expense. In addition, interest and penalties accrued on our FIN48 reserves are included as a component of our provision / (benefit) for income taxes. We are a Bermuda holding company with operating subsidiaries in the U.S., Puerto Rico, the UK and the Republic of Ireland. We have a tax agreement with the Puerto Rican tax authorities whereby our earnings in Puerto Rico, which are a large component of our overall earnings, are subject to a 2% income tax for a period of 15 years expiring in 2019. See "Note 15" to the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for further discussion of Income Taxes.

2008 Significant Events

The following are certain significant events that occurred during the year ended December 31, 2008:

• In February 2008, our U.S. operating entities entered into an Advanced Pricing Agreement ("APA") with the Internal Revenue Service ("IRS") covering the calendar years 2006 through 2010. In addition, in 2008 the IRS concluded its audits of our U.S. tax returns for the periods ending September 30, 2003, September 30, 2004 and January 17, 2005;

• In April 2008, we reached an agreement to settle for $16.5 million, the class action securities lawsuit brought against us in connection with our IPO. The majority of the settlement was funded by insurance proceeds and the settlement did not have a material impact on our consolidated financial statements;

• In May 2008, Hi-Tech began commercial sales under a distribution and supply agreement with us pursuant to which we agreed to supply, and it agreed to market, sell and distribute in the U.S, an authorized generic version of our DOVONEX Solution;

• In May 2008, the FDA approved LEO Pharma's NDA for our TACLONEX scalp product. As a result, in June 2008, we paid a $40.0 million milestone payment (which was recorded as an intangible asset) to LEO Pharma and began commercial sales of the product;

• In June 2008, the FDA approved a 150 mg strength of DORYX ("DORYX 150mg") and we began commercial sales of the product in the third quarter of 2008;

• In December 2008, we signed an agreement with Dong-A, to develop and market their orally-administered udenafil product, a PDE5 inhibitor for the treatment of ED in the U.S.;

• In December 2008, we entered into a settlement and license agreement with Barr, which was subsequently acquired by Teva, to resolve the pending patent litigation involving FEMCON FE;

• During 2008, we made optional prepayments aggregating $220.0 million of our term loan indebtedness under our senior secured credit facility and also purchased and retired $10.0 million aggregate principal amount of our Notes, at a discount, in privately negotiated open market transactions;

• In connection with our annual review of intangible assets, in the fourth quarter of 2008 we recorded a non-cash impairment charge of $163.3 million relating to the identified intangible assets associated with the OVCON/FEMCON FE product family; and

• Our revenue for the year ended December 31, 2008 was $938.1 million and our net (loss) was $(8.4) million.

Operating Results for the years ended December 31, 2008 and 2007

Revenue

The following table sets forth our revenue for the years ended December 31, 2008
and 2007, with the corresponding dollar and percentage change:



                                                                     Increase
                                  Year Ended December 31,           (decrease)
      (dollars in millions)         2008            2007       Dollars      Percent
      Oral Contraceptives
      LOESTRIN 24 FE            $      197.2    $      148.9   $   48.3        32.4 %
      FEMCON FE                         45.8            32.4       13.4        41.5 %
      ESTROSTEP FE*                     20.8            70.2      (49.4 )     (70.3 )%
      OVCON 35/50 ("OVCON")*            12.9            15.5       (2.6 )     (16.7 )%

      Total                     $      276.7    $      267.0   $    9.7         3.7 %

      Hormone Therapy ("HT")
      ESTRACE Cream             $       83.8    $       73.1   $   10.7        14.7 %
      FEMHRT                            61.5            63.7       (2.2 )      (3.4 )%
      FEMRING                           14.2            15.5       (1.3 )      (8.2 )%
      Other HT products                 11.7            13.5       (1.8 )     (13.3 )%

      Total                     $      171.2    $      165.8   $    5.4         3.3 %

      Dermatology
      DORYX                     $      158.9    $      115.8   $   43.1        37.3 %
      TACLONEX                         153.3           127.2       26.1        20.6 %
      DOVONEX*                         123.3           145.3      (22.0 )     (15.1 )%

      Total                     $      435.5    $      388.3   $   47.2        12.2 %

      PMDD
      SARAFEM                   $       16.9    $       37.7   $  (20.8 )     (55.1 )%

      Other Product Net Sales
      Other                               -              3.7       (3.7 )    (100.0 )%
      Contract manufacturing            18.7            25.7       (7.0 )     (27.3 )%

      Total Product Net Sales   $      919.0    $      888.2   $   30.8         3.5 %

      Other Revenue
      Royalty revenue                   19.1            11.4        7.7        68.3 %

      Total Revenue             $      938.1    $      899.6   $   38.5         4.3 %

* Includes revenue from related authorized generic product sales from the date of their respective launch.

Revenue in the year ended December 31, 2008 totaled $938.1 million, an increase of $38.5 million, or 4.3%, over the year ended December 31, 2007. The primary drivers of the increase in revenue were the net sales of our promoted products LOESTRIN 24 FE, DORYX, TACLONEX and FEMCON FE, which together contributed $130.9 million of revenue growth for the year ended December 31, 2008 compared to the prior year. The growth delivered by these products was offset primarily by significant declines in ESTROSTEP FE and SARAFEM net sales due to generic competition and declines in DOVONEX net sales. Changes in the net sales of our products are a function of a number of factors including changes in: market demand, gross selling prices, sales-related deductions from gross sales to arrive at net sales and the levels of pipeline inventories of our products. We use IMS estimates of filled prescriptions for our products as a proxy for market demand.

Net sales of our oral contraceptive products increased $9.7 million, or 3.7%, in the year ended December 31, 2008, compared with the prior year. LOESTRIN 24 FE generated revenues of $197.2 million in the year ended

December 31, 2008, an increase of 32.4%, compared with $148.9 million in the prior year. The increase in LOESTRIN 24 FE net sales was primarily due to an increase in filled prescriptions of 28.8% in the year ended December 31, 2008, and to a lesser extent, higher average selling prices compared to the prior year. FEMCON FE generated revenues of $45.8 million in the year ended December 31, 2008, compared to $32.4 million in the prior year. The increase in FEMCON FE net sales in the year ended December 31, 2008 was primarily due to an increase in filled prescriptions of 58.2% versus the prior year, offset partially by the impact of higher sales-related deductions in the year ending December 31, 2008. ESTROSTEP FE net sales decreased $49.4 million, or 70.3%, in the year ended December 31, 2008, as compared to the prior year. The decrease in ESTROSTEP FE net sales was primarily due to an 80.2% decline in filled prescriptions in the year ended December 31, 2008, compared to the prior year, as a result of generic versions of ESTROSTEP FE being introduced in the fourth quarter of 2007, including our authorized generic Tilia™ FE.

Net sales of our dermatology products increased $47.2 million, or 12.2%, in the year ended December 31, 2008, as compared to the prior year. Net sales of DORYX increased $43.1 million, or 37.3%, in the year ended December 31, 2008, compared to the prior year, primarily due to the launch of DORYX 150 mg in the third quarter of 2008, as well as higher average selling prices and a 10.7% increase in total DORYX filled prescriptions. In addition, we believe the average economic value of a DORYX 150 mg prescription is roughly one-third higher than that of a DORYX 100 mg prescription. Net sales of TACLONEX increased $26.1 million, or 20.6%, to $153.3 million in the year ended December 31, 2008, compared to $127.2 million in the prior year. The increase in net sales was primarily due to increases in filled prescriptions, measured on a per-gram basis, and higher average selling prices in the year ended December 31, 2008, compared to the prior year. The introduction of our TACLONEX scalp product in June 2008 also contributed to the increase compared to the prior year. We believe the increases in filled prescriptions for TACLONEX are not fully reflective of the increases in demand for the product during these periods. In August 2007, we began offering TACLONEX in 100 gram tubes, in addition to our original 60 gram tubes, resulting in an increase in the average grams per filled TACLONEX prescription during the year ended December 31, 2008 compared with the prior year. Net sales of DOVONEX decreased $22.0 million, or 15.1%, in the year ended December 31, 2008 as compared to the prior year. The decline in DOVONEX net sales in the year ended December 31, 2008 was due primarily to a decrease in filled prescriptions of 23.3%, and, to a lesser extent, increases in sales-related deductions during the 2008 period, which were partially offset by higher average selling prices. The decline in filled prescriptions was due primarily to the introduction of generic versions of DOVONEX Solution into the market in the second quarter of 2008, including our authorized generic product, and also due to customers switching to other therapies. We expect DOVONEX net sales to continue to decline due to competition from other therapies and generic competition, specifically relating to DOVONEX Solution.

Net sales of our hormone therapy products increased $5.4 million, or 3.3%, in the year ended December 31, 2008 as compared to the prior year. Net sales of ESTRACE Cream increased $10.7 million, or 14.7%, in the year ended December 31, 2008, compared to the prior year, primarily due to higher average selling prices, and an increase in filled prescriptions of 2.0%, offset in part by a contraction of pipeline inventories relative to the prior year. Net sales of FEMHRT decreased $2.2 million, or 3.4%, in the year ended December 31, 2008, compared to the prior year. The decline in FEMHRT net sales was due primarily to a decrease in filled prescriptions of 14.1% as well as higher sales-related deductions for the year ended December 31, 2008, offset partially by higher average selling prices as compared with the prior year. Generic competition may negatively impact net sales of FEMHRT beginning as early as November 2009.

Net sales of SARAFEM, our product used to treat symptoms of pre-menstrual dysphoric disorder ("PMDD"), decreased $20.8 million, or 55.1%, in the year ended Decembers 31, 2008, compared with the prior year. The decrease in net sales was due primarily to a decline in filled prescriptions of 51.7% in the year ended December 31, 2008 compared to the prior year. During the first half of 2008 we discontinued sales of SARAFEM Capsules and commenced sales of SARAFEM Tablets. Generic versions of SARAFEM Capsules were introduced in May 2008 and negatively impacted our SARAFEM net sales. We expect generic competition to continue to have an adverse impact on our SARAFEM net sales in the future.

Our other product net sales declined in the year ended December 31, 2008 due to a recall of certain non-core products manufactured by a third party. As a result of the recall, our other product net sales during the year ended December 31, 2008 were negatively impacted due to contra-sales related accruals for the product recalls. We do not expect this product recall to materially affect our operating results in future periods. Our contract manufacturing revenues relate to certain products which we manufacture for third parties. Additionally, in the year ended December 31, 2008, we generated $19.1 million of revenue which consisted of royalties earned on the net sales of an oral contraceptive product sold by a third party under a license relating to one of our patents, as compared to $11.4 million in the prior year.

Cost of Sales (excluding Amortization and Impairment of Intangible Assets)

The table below shows the calculation of cost of sales and cost of sales
percentage for the years ended December 31, 2008 and 2007:



                                             Year Ended          Year Ended
. . .