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 4 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 90% of our revenues in the first nine months of 2009, with 52% of our revenues coming from Lidoderm ®. Our non-branded generic portfolio, which accounted for 9% of revenues in the first nine 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 promoted in the U.S. by 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 AveedTM for hypogonadism, 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 890 sales representatives in the United States, including 320 Specialty representatives and 75 sales representatives focusing on urology and oncology, 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, rheumatology, surgery, anesthesiology, oncology, urology, endocrinology and primary care, including pediatricians. 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 continues to provide an effective prescription drug benefit under the Medicare program (known as Medicare Part D). Uncertainty currently exists due to the current administration and U.S. Congress, and the impact any government decisions or programs on the pharmaceutical industry is unknown. Draft legislation on healthcare reform currently being considered by Congress has the potential to be both beneficial and detrimental to the pharmaceutical industry. First, virtually all of the proposals seek to reduce significantly the number of uninsured Americans by a combination of reform of private insurance, mandates to purchase or to provide insurance, and subsidies for such purchase. Some proposals would also expand health insurance coverage through use of a public health plan option. Upon obtaining healthcare coverage, previously uninsured individuals are likely to consume more healthcare services, including pharmaceutical products. However, many of the proposals focus on cost savings by imposing additional pricing pressures on products. One proposal would require the Secretary of Health and Human Services to negotiate drug prices within Medicare Part D directly with pharmaceutical manufacturers. Congress could also seek to permit boarder importation of prescription drugs in conjunction with healthcare reform legislation. Further, proposals to expand coverage to the uninsured may be financed through some form of price rebates or tax on the pharmaceutical industry, including changes in the mix and amount of rebates paid under various contractual arrangements. The proposals also focus on cost savings through the use of generic products, which could lower the utilization of brand pharmaceuticals and stimulate more competition from generic drugs. 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. Accordingly, we expect pricing pressures at the federal and state levels to intensify, which could have a material adverse effect on our consolidated results of operations, cash flows and / or financial position.

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.

The public docket remained open for comment until September 30, 2009. As of the filing of this Report, 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 boxed 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®, which remain FDA approved. 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 $368 million in aggregate initial cash consideration for the Indevus Shares and entered into the AveedTM 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 AveedTM Contingent Cash Consideration Agreement. As of the date hereof, Endo has paid the (i) aggregate cash consideration 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 AveedTM intramuscular injection, an investigational testosterone preparation for the treatment of male hypogonadism. The FDA targeted September 2, 2009 as the action date for a decision on this application. In September 2009, the FDA informed us that it has extended the review period to December 2, 2009.

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 was 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.

In August 2009, we entered into a License and Supply Agreement with Strakan International Limited, a subsidiary of ProStrakan Group plc (referred to as ProStrakan), for the exclusive right to commercialize Fortesta™ in the U.S. (referred to as the ProStrakan Agreement). Fortesta™, a patented 2 percent testosterone transdermal gel for testosterone replacement therapy in male hypogonadism, utilizes a metered dose delivery system designed to permit accurate dose adjustment to individual patient requirements. Under the terms of the ProStrakan Agreement, Endo paid ProStrakan an up-front cash payment of $10 million, which was recorded as research and development expense. In addition, ProStrakan could potentially receive up to approximately $200 million in additional payments linked to the achievement of future regulatory and commercial milestones related to Fortesta™. ProStrakan will exclusively supply Fortesta™ to Endo at a supply price based on a percentage of annual net sales subject to a minimum floor price as defined in the ProStrakan Agreement. Endo may terminate the ProStrakan Agreement upon six months, prior written notice at no cost to the Company.

In October 2009, we received a Complete Response letter from the FDA regarding the NDA for Fortesta™. The FDA issues Complete Response letters to communicate that their initial review of an NDA or abbreviated new drug application (ANDA) is complete and that the application cannot be approved in its present form. A Complete Response also informs applicants of changes that must be made before an application can be approved, with no implication regarding the ultimate approvability of the application. The Company will continue to work closely with the FDA to address their questions and we expect to file a complete response, mid-2010. The potential of this action was considered in the structure of the deal to in-license this product as the milestone payment to ProStrakan related to FDA approval of Fortesta™ is reduced the longer such approval takes.

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 and Officers

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 and the transactions 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.

On August 12, 2009, the Company announced the resignation of Nancy J. Wysenski, Endo's Chief Operating Officer. Ms. Wysenski's resignation was effective September 1, 2009. Endo has engaged an executive search firm to assist in the search for a new chief operating officer.

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, changes in the fair value of certain of our financial instruments and contingent consideration arrangements and certain upfront, milestone and certain other payments made or accrued pursuant to acquisition or licensing agreements.

Revenues

Revenues for the three and nine months ended September 30, 2009 increased 14% to $361.0 million and 17% to $1,069 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. For the nine months ended September 30, 2009 compared to the comparable period in 2008, Lidoderm® net sales as a percent of total revenues have decreased from 61% of total revenues to 52% of total revenues. We expect this trend to continue as we continue to diversify our product portfolio. Also, included in the three and nine months ended September 30, 2009 are net sales of our recently acquired products, included in other brands, from our acquisition of Indevus on February 23, 2009. For the three months ended September 30, 2009, increased sales volume contributed 10% of the total growth in revenues of 14%, while price increases contributed 4% of the total growth in revenues. For the nine months ended September 30, 2009, increased sales volume contributed 15% of the total growth in revenues of 17%, while price increases contributed the remaining 2% 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 nine months ended September 30, 2009 and 2008 (dollars in thousands):

                                               Three Months Ended                    Nine Months Ended
                                                  September 30,                        September 30,
                                             2009              2008               2009               2008
                                            $        %        $        %         $         %        $        %
Lidoderm®                               $ 192,738    53   $ 194,138    61   $   559,846    52   $ 559,712    61
Opana® ER and Opana®                       58,894    16      41,496    13       166,878    16     128,171    14
Percocet®                                  30,690     9      31,371    10        96,394     9      96,553    11
Voltaren® Gel                              19,584     5      10,299     3        57,437     5      11,296     1
Frova®                                     15,000     4      14,306     5        42,479     4      41,247     5
Other brands                               18,510     5       2,748     1        44,333     4       8,031     1

Total brands*                             335,416    93     294,358    93       967,367    90     845,010    93
Total generics                             22,928     6      22,410     7        95,605     9      68,190     7
Total royalty and other revenues            2,683     1          -     -          6,463     1          -     -

Total revenues*                         $ 361,027   100   $ 316,768   100   $ 1,069,435   100   $ 913,200   100

*- Total percentages may not sum due to rounding.

Lidoderm®. Net sales of Lidoderm®for the three months ended September 30, 2009 decreased by $1.4 million, or 0.7%, from the comparable 2008 period. Net sales of Lidoderm® for the nine months ended September 30, 2009 increased by $0.1 million from the comparable 2008 period. As expected, we recognize that the growth of this product has slowed as it matures and competition in the topical pain market increases. Notwithstanding, the product has had a solid performance this year and continues to generate strong cash flow that we can use to invest in our business to continue to further diversify our revenue base.

Opana® ER and Opana®. Net sales of Opana® ER and Opana® for the three months ended September 30, 2009 increased by $17.4 million, or 42% from the comparable 2008 period. Net sales of Opana ® ER and Opana® for the nine months ended September 30, 2009 increased by $38.7 million, or 30% 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 effectively 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 September 30, 2009 decreased by $0.7 million, or 2% from the comparable 2008 period. Net sales of Percocet ® for the nine months ended September 30, 2009 decreased by $0.2 million from the comparable 2008 period.

Voltaren® Gel. Net sales of Voltaren® Gel for the three and nine months ended September 30, 2009 were $19.6 million and $57.4 million, respectively compared to $10.3 million for the three months ended September 30, 2008 and $11.3 million for the nine months ended September 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 September 30, 2009 increased by $15.8 million to $18.5 million from $2.7 million in the comparable 2008 period. Net sales of our other branded products for the nine months ended September 30, 2009 increased by $36.3 million to $44.3 million from $8.0 million in the comparable 2008 period. This increase is primarily driven by the acquired Indevus products, Supprelin ® LA and Vantas®, which together contributed approximately $14.6 million of net sales during the three months ended September 30, 2009 and $32.1 million of net sales during the period from February 23, 2009 through September 30, 2009.

Generics. Net sales of our generic products for the three months ended September 30, 2009 increased by $0.5 million, or 2% from the comparable 2008 period. Net sales of our generic products for the nine months ended September 30, 2009 increased by $27.4 million, or 40% from the comparable 2008 period. The year-to-date increase was primarily due to a shortage of other competing generic opioids in the market during the first half of 2009. The supply of these generic products has largely returned to normal levels and consequently our net sales of generic products for the nine months ended September 30, 2009 may not be indicative of future results.

Royalty and other revenues. Royalty and other revenues for the three and nine months ended September 30, 2009 was $2.7 million and $6.5 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 nine months
ended September 30, 2009 and 2008:



                                                     Three Months Ended                                    Nine Months Ended
                                                        September 30,                                        September 30,
                                               2009                        2008                      2009                      2008
                                                       % of                      % of                      % of                      % of
. . .