The following Management's Discussion and Analysis of Financial Condition and Results of Operations describes the principal factors affecting the results of operations, liquidity and capital resources, and critical accounting estimates of Endo. This discussion should be read in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements and our Annual Report on Form 10-K, for the year ended December 31, 2008 (Annual Report). Our Annual Report includes additional information about our significant accounting policies, practices and the transactions that underlie our financial results, as well as a detailed discussion of the most significant risks and uncertainties associated with our financial and operating results. Except for the historical information contained in this Report, this Report, including the following discussion, contains forward-looking statements that involve risks and uncertainties. See "Forward-Looking Statements" beginning on page i of this Report.

EXECUTIVE SUMMARY

About the Company

We are a specialty pharmaceutical company engaged in the research, development, manufacturing, sale and marketing of branded and generic prescription pharmaceuticals used primarily to treat and manage pain, overactive bladder, prostate cancer and the early onset of puberty in children, or central precocious puberty.

We have a portfolio of branded products that includes established brand names such as Lidoderm®, Opana ® ER and Opana®, Percocet ®, Frova®, Voltaren® Gel, Sanctura XR ®, Sanctura®, Vantas®, Delatestryl®, and Supprelin® LA. Branded products comprised approximately 89% of our revenues in the first six months of 2009, with 52% of our revenues coming from Lidoderm®. Our non-branded generic portfolio, which accounted for 10% of revenues in the first six months of 2009, currently consists of products primarily focused in pain management. We focus on selective generics that have one or more barriers to market entry, such as complex formulation, regulatory or legal challenges or difficulty in raw material sourcing.

In the first quarter of 2009, we acquired Indevus, a specialty pharmaceutical company engaged in the acquisition, development and commercialization of products to treat conditions in urology and endocrinology. Indevus's approved products include Sanctura® and Sanctura XR® for overactive bladder (OAB), which is co-promoted with Allergan, Inc. (Allergan), Vantas® for advanced prostate cancer, Supprelin®LA for central precocious puberty (CPP), Delatestryl® for the treatment of hypogonadism and Valstar™ for bladder cancer. Indevus also has a core urology and endocrinology portfolio containing multiple compounds in development including testosterone undecanoate for hypogonadism (formerly known as Nebido®), PRO 2000 for the prevention of infection by HIV and other sexually-transmitted pathogens, and the octreotide implant for acromegaly and carcinoid syndrome.

Through a dedicated sales force of approximately 870 sales representatives in the United States, and through a contract field force of approximately 80 sales representatives, we market our branded pharmaceutical products to high-prescribing physicians in pain management, neurology, surgery, anesthesiology, oncology, urology, endocrinology and primary care. Our sales force also targets retail pharmacies and other healthcare professionals throughout the United States.

Business Environment

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) continues to provide an effective prescription drug benefit under the Medicare program (known as Medicare Part D). Uncertainty exists surrounding the new administration and Congress and the impact any government decisions or programs will have on the pharmaceutical industry. Various measures have been discussed and/or passed in both the U.S. House of Representatives and U.S. Senate that would impose additional pricing pressures on our products, including proposals to legalize the importation of prescription drugs and either allow, or require, the Secretary of Health and Human Services to negotiate drug prices within Medicare Part D directly with pharmaceutical manufacturers. Additionally, various proposals have been introduced that would increase the rebates we pay on sales to Medicaid patients or impose additional rebates on sales to patients who receive their medicines through Medicare Part D or other government programs. Further, proposals to expand coverage to the uninsured could include some form of price rebates or tax on the pharmaceutical industry. In addition, many U.S. states are facing substantial budget difficulties due to the downturn in the economy and are expected to seek aggressive cuts or other offsets in healthcare spending. We expect pricing pressures at the federal and state levels to become more severe, which could have a material adverse effect on our consolidated results of operations.

The Food and Drug Administration (FDA) held a public advisory committee meeting in June 2009 to discuss acetaminophen use in both over-the-counter (OTC) and prescription (Rx) products, the potential for liver injury, and potential interventions to reduce the incidence of liver injury. The panel's recommendations followed the release in May 2009 of an FDA report that found severe liver damage, and even death, can result from a lack of consumer awareness that acetaminophen can cause such injury These recommendations are advisory in nature and the FDA is not bound to follow these recommendations.

At this time, the FDA has not made any decisions regarding acetaminophen containing products, but has stated that it is reviewing the recommendations of the advisory committee, all available safety and efficacy data as well as public input before making a final decision. Therefore it is unclear what actions the FDA may take in response to the panel's recommendations. Implementation by the FDA of certain specific panel recommendations could result in (1) a black box warning on the labels of prescription acetaminophen combination products or
(2) the removal of several products from the marketplace including certain, or even all, strengths of Percocet® and Endocet®. The recommendation does not change the safety and efficacy of Percocet® and Endocet®. Endo remains committed to working with the FDA so that these products are prescribed in the best interest of patients, and we will continue to closely monitor this issue. Any action taken by the FDA to implement certain of the recommendations of the panel, or take other measures to address concerns raised by the panel, could have a material adverse effect on our consolidated results of operations and cash flows.

Indevus Acquisition

On February 23, 2009 (the Acquisition Date), the Company completed its initial tender offer (the Offer) for all outstanding shares of common stock, par value $0.001 per share (the Indevus Shares), of Indevus, a Delaware corporation. On that day, the Company accepted for payment in accordance with the terms of the Offer, approximately 60.3 million Indevus Shares representing approximately 76% of the total outstanding Indevus Shares. Through purchases in subsequent offering periods, the exercise of a top-up option and a subsequent merger (the Merger), the Company completed its acquisition of Indevus on March 23, 2009, at which time Indevus became a wholly-owned subsidiary of the Company. The Indevus Shares were purchased at a price of $4.50 per Indevus Share, net to the seller in cash, plus contractual rights to receive up to an additional $3.00 per Indevus Share in contingent cash consideration payments (the Offer Price), pursuant to the terms of the Agreement and Plan of Merger, dated as of January 5, 2009. Accordingly, the Company paid approximately $367 million in aggregate initial cash consideration for the Indevus Shares and entered into the Nebido ® (TU) Contingent Cash Consideration Agreement and the Octreotide Contingent Cash Consideration Agreement (each as defined in the Merger Agreement), providing for the payment of up to an additional $3.00 per Indevus Share in contingent cash consideration payments, in accordance with the terms of the Offer.

The total cost to acquire all outstanding Indevus Shares pursuant to the Offer and the Merger could be up to an additional approximately $267 million, if Endo is obligated to pay the maximum amounts under the Nebido® (TU) Contingent Cash Consideration Agreement. As of the date hereof, Endo has paid the (i) aggregate cash consideration of $367 million in respect of the Indevus Shares and
(ii) cash consideration for unexercised in-the-money options. Endo funded such amounts with existing cash on hand. Indevus common stock ceased trading on NASDAQ at market close on March 23, 2009.

Pipeline Developments

On January 29, 2009, the Company announced that by mutual agreement it concluded its research collaboration with Alexza Pharmaceuticals, Inc. to develop an inhaled fentanyl product for the treatment of breakthrough pain using Alexza's Staccato® inhalation technology. The product, Staccato® fentanyl (AZ-003/EN-3294), has completed Phase I clinical testing and was returned to Alexza. In 2007, Endo licensed exclusive rights to develop and commercialize AZ-003 in North America.

In February 2009, we entered into a discovery collaboration agreement with Aurigene Discovery Technologies Limited (referred to as the Aurigene Agreement). The Aurigene Agreement is a three-year collaboration to discover novel drug candidates to treat cancer.

In February 2009, we entered into a development, license and supply agreement with Grünenthal GMBH, (referred to as Grünenthal), granting us the exclusive right in North America to develop and market Grünenthal's investigational drug, axomadol. Currently in Phase II trials, axomadol is a patented new chemical entity being developed for the treatment of moderate to moderately-severe chronic pain and diabetic peripheral neuropathic pain.

In March 2009, the FDA accepted for review the complete response submission to the new drug application for testosterone undecanoate intramuscular injection, an investigational testosterone preparation for the treatment of male hypogonadism. The FDA is targeting September 2, 2009 as the action date for a decision on this application. In May 2009, we received notice from the FDA that Nebido® is unacceptable as a proprietary name for testosterone undecanoate. The Company has submitted a request to the FDA for review of a new proprietary name for this product.

In July 2009, the Company entered into a License, Development and Supply Agreement (the Bioniche Agreement) with Bioniche Life Sciences Inc. and Bioniche Urology Inc. (collectively referred to as Bioniche), whereby the Company licensed from Bioniche the exclusive rights to develop and market Bioniche's proprietary formulation of Mycobacterial Cell Wall-DNA Complex (MCC), known as Urocidin™, in the U.S. with an option for global rights. Urocidin™ is a patented formulation of MCC developed by Bioniche for the treatment of non-muscle-invasive bladder cancer that is currently undergoing Phase III clinical testing. Under the terms of the Bioniche Agreement, Endo paid Bioniche an up-front cash payment of $20 million in July 2009, which will be recorded as research and development expense. In addition, Bioniche could potentially receive up to approximately $110 million in additional payments linked to the achievement of future clinical, regulatory, and commercial milestones related to Urocidin™. Bioniche will manufacture Urocidin™ and receive a transfer price for supply based on a percentage of Endo's annual net sales of Urocidin™. Endo may terminate the Bioniche Agreement upon 180 days' prior written notice.

Branded Business Activity

In February 2009, The Company, and Penwest Pharmaceuticals (Penwest) settled litigation with Actavis South Atlantic LLC (Actavis) regarding the production and sale of generic formulations of Opana® ER (oxymorphone hydrochloride) Extended Release Tablets CII. Endo and Penwest have agreed to dismiss their suit with prejudice and Actavis has agreed to dismiss its counterclaims with prejudice. Under the terms of the settlement, Endo and Penwest have agreed to grant Actavis a license to the patents to sell a generic version of Opana® ER on or after July 15, 2011, and earlier under certain circumstances and have agreed not to sue Actavis under such patents.

In June 2009, the Company entered into a license agreement with Valeant Canada Ltd (referred to as Valeant) granting Valeant a license to market Opana® and Opana® ER in Canada, Australia and New Zealand. Opana® ER, the extended release formulation of oxymorphone, was jointly developed by Penwest and Endo. Under the terms of the collaboration agreement between Penwest and Endo, the two companies have agreed to share equally in the proceeds received from Valeant for Opana® ER. The license agreement with Valeant also includes rights to Opana ®, the immediate release formulation of oxymorphone developed by Endo. Under the terms of the licensing agreement Valeant made an upfront payment to Endo and will make future payments if certain sales milestones are reached. In addition, Valeant has agreed to pay royalties on net sales of Opana® ER and Opana® in each of the three countries, subject to royalty reductions upon patent expiry or generic entry.

Changes in Directors & Officers and Other Related Matters

In February 2009, the Company announced the appointment of William P. Montague to the Company's board of directors. Mr. Montague, 62, retired in July last year as chief executive officer and a director of Mark IV Industries. Mark IV Industries is a diversified global manufacturer of highly-engineered systems and components for the transportation, industrial and automotive markets. He joined Mark IV Industries in April 1972, became chief financial officer in 1986 and was named president in 1996. Mr. Montague is also a director of Gibraltar Industries, Inc., a NASDAQ-listed company that is a leading manufacturer, processor and distributor of products for the building, industrial, and vehicular markets. Mr. Montague serves as a member of the audit committee of Endo's board.

In March 2009, the Company announced the appointment of Nancy J. Hutson, Ph.D., to the Company's board of directors. Dr. Hutson retired from Pfizer, Inc. in 2006 after spending 25 years in various research and leadership positions with that company, serving most recently as senior vice president, Pfizer Global Research and Development and director of Pfizer's pharmaceutical R&D site, known as Groton/New London Laboratories. Dr. Hutson currently is a director of Cubist Pharmaceuticals, Inc. and Inspire Pharmaceuticals, Inc. and serves on the board of Planned Parenthood of Connecticut. Dr. Hutson serves as a member of the compensation committee of Endo's board.

On May 5, 2009, the Company's Board of Directors appointed Alan G. Levin to be the Company's Executive Vice President and Chief Financial Officer. From June 2008 until May 2009, Mr. Levin, 47, was the executive vice president and chief financial officer of Moksha8 Pharmaceuticals, Inc., a privately held, specialty pharmaceuticals company focused in Latin America and other emerging markets. From 1987 until 2007, Mr. Levin worked at Pfizer Inc. where he served in a variety of executive positions, including treasurer, senior vice president of finance and strategic management for the company's research and development organization and most recently senior vice president and chief financial officer. Mr. Levin began his career in public accounting and received a bachelor's degree from Princeton University and a master's from New York University's Stern School of Business.

RESULTS OF OPERATIONS

Our quarterly results have fluctuated in the past, and may continue to fluctuate. These fluctuations are primarily due to (1) the timing of new product launches, (2) purchasing patterns of our customers, (3) market acceptance of our products, (4) the impact of competitive products and products we recently acquired and (5) pricing. These fluctuations are also attributable to charges incurred for compensation related to stock compensation, amortization of intangible assets, impairment of intangible assets, and certain upfront, milestone and certain other payments made or accrued pursuant to acquisition or licensing agreements.

Revenues

Revenues for the three and six months ended June 30, 2009 increased 22% to $373.1 million and 19% to $708.4 million, respectively from the comparable 2008 periods. This increase in revenues is primarily driven by increased net sales of Opana® ER and Opana® and Voltaren® Gel, a topical drug added to our portfolio in March 2008. Also, included in the three and six months ended June 30, 2009 are the net sales of our newly acquired products, included in other brands, from our acquisition of Indevus. For the three months ended June 30, 2009, increased sales volume contributed 17% of the total growth in revenues of 22%, while sales of Indevus products contributed 5% of the total growth in revenues. For the six months ended June 30, 2009, increased sales volume contributed 14% of the total growth in revenues of 19%, while price increases and the sale of Indevus products contributed the remaining 1% and 4% of the total growth in revenues, respectively.

The following table displays our revenues by product category and as a percentage of total revenues for the three and six months ended June 30, 2009 and 2008 (dollars in thousands):

                                                Three Months Ended                   Six Months Ended
                                                     June 30,                            June 30,
                                              2009              2008              2009              2008
                                             $        %        $        %        $        %        $        %
Lidoderm®                                $ 195,472    52   $ 185,050    60   $ 367,108    52   $ 365,574    61
Opana® ER and Opana®                        55,219    15      46,392    15     107,984    15      86,675    15
Percocet®                                   32,014     9      33,382    11      65,704     9      65,182    11
Voltaren®Gel                                25,534     7         997     *      37,853     5         997     *
Frova®                                      15,187     4      12,886     4      27,479     4      26,941     4
Other brands                                16,915     4       3,467     1      25,823     4       5,283     1

Total brands                               340,341    91     282,174    92     631,951    89     550,652    92
Total generics                              30,284     8      23,987     8      72,677    10      45,780     8
Total royalty and other revenues             2,483     1          -     -        3,780     1          -     -

Total revenues                           $ 373,108   100   $ 306,161   100   $ 708,408   100   $ 596,432   100

*- Denotes an amount less than 1% of total revenues

Lidoderm®. Net sales of Lidoderm® for the three months ended June 30, 2009 increased by $10.4 million, or 6%, from the comparable 2008 period. Net sales of Lidoderm®for the six months ended June 30, 2009 increased by $1.5 million, or 0.4%, from the comparable 2008 period. During the second quarter of 2009, Lidoderm® net sales increased from the same period in 2008 primarily as a result of wholesaler purchasing patterns, which resulted in an inventory workdown in the first quarter and a subsequent restocking of inventory in the second quarter. As expected, we recognize that the growth of this product has slowed as it matures and competition in the topical pain market increases.

Opana® ER and Opana®. Net sales of Opana® ER and Opana® for the three months ended June 30, 2009 increased by $8.8 million, or 19% from the comparable 2008 period. Net sales of Opana ® ER and Opana® for the six months ended June 30, 2009 increased by $21.3 million, or 25% from the comparable 2008 period. The growth in net sales is primarily attributable to continued prescription and market share growth of the products, as we continue to drive our promotional efforts through physician targeting. In addition, our strategy to aggressively contract with managed care organizations has resulted in increases in volume as we have broadened our access for the brand.

Percocet®. Net sales of Percocet® for the three months ended June 30, 2009 decreased by $1.4 million, or 4% from the comparable 2008 period. Net sales of Percocet® for the six months ended June 30, 2009 increased by $0.5 million, or 1% from the comparable 2008 period.

Voltaren® Gel. Net sales of Voltaren® Gel for the three months ended June 30, 2009 were $25.5 million and net sales for the six months ended June 30, 2009 were $37.9 million compared to $1.0 million for the six months ended June 30, 2008. The Company launched Voltaren ® Gel in March 2008. We believe the growth of Voltaren® Gel since its launch is driven by the product's proven clinical effectiveness combined with our continued promotional activities aimed at increasing product awareness in the target audience. We believe we are establishing a stronger position in the osteoarthritis market with Voltaren® Gel.

Other brands. Net sales of our other branded products for the three months ended June 30, 2009 increased by $13.5 million from the comparable 2008 period. Net sales of our other branded products for the six months ended June 30, 2009 increased by $20.5 million from the comparable 2008 period. This increase is primarily driven by the acquisition of Indevus, which contributed approximately $20.7 million of net sales during the period from February 23, 2009 through June 30, 2009.

Generics. Net sales of our generic products for the three months ended June 30, 2009 increased by $6.3 million, or 26% from the comparable 2008 period. Net sales of our generic products for the six months ended June 30, 2009 increased by $26.9 million, or 59% from the comparable 2008 period. The increase was primarily due to a shortage of other competing generic opioids in the market. The supply of these generic products has largely returned to normal levels and consequently our net sales of generic products for the six months ended June 30, 2009 may not be indicative of future results.

Royalty and other revenues. Royalty and other revenues for the three and six months ended June 30, 2009 was $2.5 million and $3.8 million, respectively. These amounts consist primarily of royalties earned from Allergan on net sales of Sanctura® and Sanctura XR® in the United States.

Gross Margin, Costs and Expenses

The following table sets forth costs and expenses for the three and six months
ended June 30, 2009 and 2008:



                                                    Three Months Ended                                   Six Months Ended
                                                         June 30,                                            June 30,
                                              2009                      2008                      2009                      2008
                                                    % of                      % of                      % of                      % of
                                          $       Revenues          $       Revenues          $       Revenues          $       Revenues
Cost of revenues                      $  95,069         25 %    $  62,993         21 %    $ 178,078         25 %    $ 119,527         20 %
Selling, general and administrative     129,592         35        126,524         41        249,598         35        241,526         41
Research and development                 48,508         13         26,497          9         76,922         11         60,079         10
Acquisition related costs                35,023          9             -          -          61,428          9             -          -
Impairment of long-lived assets              -          -           8,083          3             -          -           8,083          1

Total costs and expenses*             $ 308,192         83 %    $ 224,097         73 %    $ 566,026         80 %    $ 429,215         72 %

* Total percentages may not sum due to rounding.

Cost of Revenues and Gross Margin. Cost of revenues for the three months ended June 30, 2009 increased by $32.1 million or 51%, to $95.1 million from $63.0 million in the comparable 2008 period. Cost of revenues for the six months ended June 30, 2009 increased by $58.6 million or 49%, to $178.1 million from $119.5 million in the comparable 2008 period. Gross profit margins for the three months ended June 30, 2009 and 2008 were 75% and 79%, respectively. Gross profit margins for the six months ended June 30, 2009 and 2008 were 75% and 80%, respectively. The reduction in gross profit margins is primarily due to the increased amortization expense in 2009 and the royalty recorded on sales of Opana® ER. During the first quarter of 2009, as a result of our acquisition of Indevus, we recorded amortizable intangible assets totaling $312.0 million.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ended June 30, 2009 increased to $129.6 million from $126.5 million in the comparable 2008 period. Selling, general and administrative expenses for the six months ended June 30, 2009 increased to $249.6 million from $241.5 million in the comparable 2008 period. The increase is primarily attributable to our acquisition of Indevus during the first quarter of 2009 partially offset by expense efficiency measures taken in 2009.

Research and Development Expenses. Research and development expenses for the three months ended June 30, 2009 increased to $48.5 million from $26.5 million in the comparable 2008 period. Research and development expenses for the six months ended June 30, 2009 increased to $76.9 million from $60.1 million in the comparable 2008 period. The increase in research and development expenses for the three and six months ended June 30, 2009 when compared to the same periods in 2008 is primarily attributable to upfront and milestone payments to Grünenthal related to axomadol, of which $20.6 million was expensed during the three months ended June 30, 2009 and $30.0 million was expensed during the six months ended June 30, 2009. We expect research and development expenses to increase in the future as a result of the recent investments in our pipeline, the acquisition of Indevus and our collaborative agreements with Grünenthal, Aurigene, Harvard University and Bioniche.

Acquisition-Related Costs. As a result of our acquisition of Indevus in the first quarter of 2009, we incurred acquisition-related costs attributable to transaction fees, professional service fees, employee retention and separation arrangements and other costs related to the acquisition. During the three months ended June 30, 2009, we recorded $25.9 million of expense, related to changes in the fair value of acquisition-related contingent consideration which is included in acquisition-related costs. Acquisition-related costs for the three and six months ended June 30, 2009 were $35.0 million and $61.4 million, respectively.

Impairment of Other Intangible Assets

As a result of our decision to discontinue the development of RapinylTM we recorded an impairment charge in the amount of $8.1 million in the second quarter of 2008 to write-off the remaining balance of our RapinylTM intangible asset.

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