The following discussion of the financial condition and results of operations of Life Sciences Research, Inc ("LSR") and Subsidiaries (collectively, "the Company") 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 2008 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 the Company's 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. A number of the larger pharmaceutical companies are going through mergers and acquisitions, or reprioritizing their research and development functions, and as a result there has been a short term decrease in outsourced projects. It is expected that this pharmaceutical development market will return in the medium term and that the Company will benefit from improving drug pipelines across the industry. In addition there is a growing trend towards greater outsourcing as clients focus more internal resources on research and increasingly look to variabilize their development costs.

On July 8, 2009, the Company entered into the Merger Agreement with Parent and Lion, a wholly owned subsidiary of Parent. Each of Parent and Lion was formed for the purpose of consummating the transactions contemplated by the Merger Agreement, and each of such entities is controlled by Andrew Baker, Chairman and CEO of the Company. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Lion will merge with and into the Company (the "Merger"), with the Company continuing as the surviving company and a wholly owned subsidiary of Parent following the Merger.

A Special Committee consisting of the Company's independent directors was charged with evaluating strategic alternatives for the Company and unanimously recommended the approval of the Merger. Based upon this recommendation, the Board of Directors of the Company (with Andrew Baker and Brian Cass abstaining), approved the Merger and resolved to recommend that LSR stockholders approve the Merger. The Special Committee was advised by independent counsel and an independent financial advisor who provided a fairness opinion to the Special Committee.

The Merger Agreement provides that, upon consummation of the Merger, each share of common stock, par value $0.01 per share, of the Company issued and outstanding immediately prior to the effective time of the Merger, other than Shares owned by Parent, Lion or their affiliates, will be converted into the right to receive $8.50 in cash. Based upon the latest information available to the Company, Mr. Baker beneficially owns approximately 17.7% of the Shares. No stockholder has any statutory right to demand and receive payment of the fair value of his, her or its Shares in connection with the Merger.

Consummation of the Merger is subject to a number of conditions, including without limitation: (i) the approval of the Merger by (A) the holders of at least a majority of the outstanding Shares entitled to vote on the Merger at a stockholders' meeting duly called and held for such purpose and (B) a majority of the votes cast by holders of outstanding Shares entitled to vote on the Merger at a stockholders' meeting duly called and held for such purpose, excluding any votes cast by Parent, Lion, Andrew Baker or any other "interested party" (as such term is defined in the Merger Agreement); (ii) the absence of any "company material adverse effect" (as defined in the Merger Agreement); and
(iii) other closing conditions set forth in the Merger Agreement.

Each of the Company and Parent has the right to terminate the Merger Agreement under certain circumstances, which may require the payment of a termination fee.

The foregoing description is qualified in its entirety by reference to the full text of the Merger Agreement filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on July 9, 2009.

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 2008 Annual Report on Form 10-K.

RESULTS OF OPERATIONS

Three months ended September 30, 2009 compared with three months ended September 30, 2008.

The Company is continuing to experience what it expects is a near term softness in demand driven by a number of factors, including reorganizations and reprioritizations within pharmaceutical industry customers, and contraction in spending by biotechnology customers who are facing a challenging financing environment. This impacted orders in the third quarter of 2009 with the result that orders for the quarter ended September 30, 2009 were $42.5 million, a 17% decrease on orders for the quarter ended September 30, 2008 at constant exchange rates. This reduction in orders, following on from a reduction in orders in the first quarter of 2009, together with a significant weakening of the British Pound against the US dollar, reduced revenues in the third quarter of 2009 compared to the third quarter of 2008.

Cost of sales for the three months ended September 30, 2009 were $36.4 million (73.8% of revenue), a decrease of 18.4% on cost of sales of $44.6 million (70.2% of revenue) for the three months ended September 30, 2008. The underlying decrease, after adjusting for the impact of the movement in exchange rates was 9.1%; with the UK showing a 11.0% decrease and the US a 2.1% decrease. The increase in cost of sales as a % of revenue was due to an increase of 80 basis points in direct study costs as a % of revenue, and a 400 basis points increase in overhead costs as a % of revenue offset by a decrease of 130 basis points in salary costs as a % of revenue. The increase in overhead costs as a % of revenues was due to a reduction in capacity utilization consequent upon the decline in revenue and also reflected higher utility costs. The increase in direct study costs as a % of revenues was due to a change in the mix of business. The decrease in labor costs as a % of revenues was due to the reduction in salaries and related costs, effective April 1, 2009, and a reduction in headcount.

Selling, general and administrative expenses decreased by 20.1% to $7.5 million for the three months ended September 30, 2009 from $9.4 million in the corresponding period in 2008. The underlying decrease, after adjusting for the impact of the movement in exchange rates was 12.2%. The decrease was due to lower incentive expenses and professional fees.

Acquisition-related expenses in the three months ended September 30, 2009 were $1.0 million. These represented costs associated with the Merger, and were comprised predominantly of professional fees.

Net interest expense increased by 10.7% to $3.0 million for the three months ended September 30, 2009 from $2.7 million for the three months ended September 30, 2008. The increase was due to changes in interest rates consequent upon the July 8, 2009 amendments to the March 2006 Financing.

Other expense of $0.9 million for the three months ended September 30, 2009 comprised $1.2 million from the non-cash foreign exchange re-measurement loss on the March 2006 Financing denominated in US dollars (the functional currency of the subsidiary that holds the loan is UK sterling), offset by other exchange gains of $0.3 million. In the three months ended September 30, 2008 other expense of $4.7 million comprised a non-cash foreign exchange re-measurement loss on the March 2006 Financing denominated in US dollars (the functional currency of the subsidiary that holds the loan is UK sterling) of $5.2 million, offset by other exchange gains of $0.5 million.

Income tax benefit for the three months ended September 30, 2009 was $0.5 million. This reflects a tax benefit arising in the US, which the Company expects to utilize during the course of 2009. The income tax expense for the three months ended September 30, 2008 was $0.1 million. Net operating losses are $97.7 million at September 30, 2009, with net operating losses in the US of $17.9 million and net operating losses in the UK of $79.8 million.

Net income per outstanding common share for the three months ended September 30, 2009 was 8 cents, compared to 16 cents income in the three months ended September 30, 2008, on the weighted average common shares outstanding of 13,355,073 and 12,679,488, respectively. Net income per fully diluted share for the three months ended September 30, 2009 was 8 cents, compared to 13 cents in the three months ended September 30 2008, on the weighted average fully diluted common shares outstanding of 14,047,937 and 15,625,054, respectively.

Nine months ended September 30, 2009 compared with nine months ended September 30, 2008.

The Company is continuing to experience what it expects is a near term softness in demand driven by a number of factors, including reorganizations and reprioritizations within pharmaceutical industry customers, and contraction in spending by biotechnology customers who are facing a challenging financing environment. This impacted orders in the first nine months of 2009 with the result that orders for the nine months ended September 30, 2009 were $128.0 million, a 23% decrease on orders for the nine months ended September 30, 2008 at constant exchange rates. This reduction in orders, following on from a reduction in orders in the second half of 2008 and a significant weakening of the British Pound against the US dollar since the first half of 2008, reduced revenues in the first nine months of 2009 compared to the first nine months of 2008.

Net revenues for the nine months ended September 30, 2009 were $142.7 million, a decrease of 25.4% on net revenues of $191.1 million for the nine months ended September 30, 2008. The underlying decrease, after adjusting for the impact of the movement in exchange rates was 10.5%; with the UK showing an 10.7% decrease and the US an 10.1% decrease.

Cost of sales for the nine months ended September 30, 2009 were $104.0 million (72.9% of revenue), a decrease of 20.9% on cost of sales of $131.5 million (68.8% of revenue) for the nine months ended September 30, 2008. The underlying decrease, after adjusting for the impact of the movement in exchange rates was 5.6%; with the UK showing a 6.3% decrease and the US a 2.9% decrease. The increase in cost of sales as a % of revenue was due to an increase of 90 basis points in direct study costs as a % of revenue, a 280 basis points increase in overhead costs as a % of revenue, and an increase of 40 basis points in salary costs as a % of revenue. The increase in overhead costs as a % of revenue was due to a reduction in capacity utilization consequent upon the decline in revenue, and also reflected higher utility costs. The increase in direct study costs as a % of revenue was due to a change in the mix of business

Acquisition-related expenses in the nine months ended September 30, 2009 were $2.5 million. These represented costs associated with the Merger, and were comprised predominantly of professional fees.

Net interest expense decreased by 2.5% to $8.2 million for the nine months ended September 30, 2009 from $8.4 million for the nine months ended September 30, 2008.

Other income of $3.4 million for the nine months ended September 30, 2009 comprised $4.1 million from the non-cash foreign exchange re-measurement gain on the March 2006 Financing denominated in US dollars (the functional currency of the subsidiary that holds the loan is UK sterling), offset by other exchange losses of $0.7 million. In the nine months ended September 30, 2008 other expense of $4.6 million comprised a non-cash foreign exchange re-measurement loss on the March 2006 Financing denominated in US dollars (the functional currency of the subsidiary that holds the loan is UK sterling) of $5.1 million, offset by other exchange gains of $0.5 million.

Income tax benefit for the nine months ended September 30, 2009 was $1.5 million. This reflects a tax benefit arising in the US, which the Company expects to utilize during the course of 2009. The income tax expense for the nine months ended September 30, 2008 was $0.1 million.

Net income for the nine months ended September 30, 2009 was $11.0 million compared with net income of $16.1 million for the nine months ended September 30, 2008. The decrease in net income of $5.1 million is due to a $14.9 million decrease in operating income, offset by an increase in other income of $8.0 million, a decrease in the net interest expense of $0.2 million and an increase in the income tax benefit of $1.6 million.

Net income per outstanding common share for the nine months ended September 30, 2009 was 83 cents, compared to $1.27 income in the nine months ended September 30, 2008, on the weighted average common shares outstanding of 13,350,378 and 12,655,939, respectively. Net income per fully diluted share for the nine months ended September 30, 2009 was 79 cents, compared to $1.04 in the nine months ended September 30, 2008, on the weighted average fully diluted common shares outstanding of 14,026,628 and 15,488,807, respectively.

                 LIFE SCIENCES RESEARCH, INC. AND SUBSIDIARIES

LIQUIDITY & CAPITAL RESOURCES

Cash and Cash Equivalents

Cash and cash equivalents at September 30, 2009 were $39.4 million and were held
in accounts denominated in the following currencies:

               Currency                        September 30, 2009
               (Amounts in USD Equivalents)   $                000

               Dollar                                       21,145
               Sterling                                     14,955
               Euro                                          1,044
               Yen                                           2,217
                                                            39,361

The Company's cash balances increased by $2.9 million during the nine months ended September 30, 2009.

The Company retains sufficient working capital in the appropriate currencies to meet its local short term requirements. These local currency balances are normally funded by the collection of similar currency accounts receivables. Excess cash is converted into US Dollars and held on deposit to act as an economic hedge against the Company's US Dollar denominated debt.

The Company has approximately $77 million of outstanding debt. $55 million of this debt relates to the March 2006 Financing, and is repayable on March 1, 2011. In addition, the Company has a long term lease of $22 million arising on the sale and leaseback deal (Alconbury) which is classed as long-term debt.

The Company's expected primary cash needs on both a short-term and a long-term basis are for capital expenditures, expansion of services, possible future acquisitions, geographic expansion, working capital and other general corporate purposes, including possible share repurchases.

As of September 30, 2009, the Company had a working capital surplus of $19.8 million, and the Company believes that projected cash flow from operations will satisfy its contemplated cash requirements for at least the next 12 months.

Net days sales outstanding ("DSO") at September 30, 2009 were 31 days, an increase from 30 days at December 31, 2008 (28 days at September 30, 2008). DSO is calculated as a sum of accounts receivable, unbilled receivables and fees in advance over total net revenue. The impact on liquidity from a one-day change in DSO is approximately $532,000.

During the nine months ended September 30, 2009, the Company's operating activities generated net cash of $11.4 million. The change in net operating assets and liabilities used $5.2 million, mainly caused by the increase in DSO which used $3.0 million, and the decrease in accounts payable, accrued expenses and other liabilities, which used $1.3 million.

Investing activities for the nine months ended September 30, 2009 used $8.6 million, as a result of capital expenditures.

Financing activities for the nine months ended September 30, 2009 used $1.9 million, mainly due to capital repayments of the March 2006 Financing which used $1.8 million.

The effect of exchange rate movements on cash for the nine months ended September 30, 2009 was an increase of $2.0 million.

OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2009, 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 1933, as amended, that have, or are likely to have, a material current or future effect on its consolidated financial position or results of operations.