Quarterly Report

Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

1. General

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete consolidated financial statements have been condensed or are not included herein. The interim statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 (the “Annual Report”).

The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. The unaudited interim condensed consolidated financial information presented herein reflects all normal adjustments that are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented. The Company has made certain reclassifications to prior period information to conform to the current period presentation. The Company is responsible for the unaudited interim condensed consolidated financial statements included in this document. All intercompany transactions and balances have been eliminated in consolidation.

In periods prior to the quarter ended September 30, 2009, the Company’s consolidated financial statements presented the accounts of Warner Chilcott Limited, a Bermuda company, and all of its wholly-owned subsidiaries. In August 2009, the Company completed its redomestication from Bermuda to Ireland. As a result of the transaction, Warner Chilcott Public Limited Company, a public limited company organized in, and a tax resident of, Ireland, became the ultimate public holding company of the Warner Chilcott group. References throughout to “we”, “our” or the “Company” refer to Warner Chilcott Limited and its subsidiaries prior to the redomestication and to Warner Chilcott Public Limited Company and its subsidiaries since the redomestication. In addition, references throughout to “ordinary shares” refer to Warner Chilcott Limited’s Class A common shares, par value $0.01 per share, prior to the redomestication and to the Company’s ordinary shares, par value $0.01 per share, since the redomestication.

2. Summary of Significant Accounting Policies

The following policies had significant changes from Note 2 of the Company’s 2009 audited consolidated financial statements included in the Annual Report and below are required interim updates.

Revenue Recognition

Revenue from product sales is recognized when title and risk of loss to the product transfers to the customer, which is based on the transaction shipping terms. Recognition of revenue also requires reasonable assurance of the collection of a fixed amount of sales proceeds and the completion of all performance obligations. The Company warrants products against defects and for specific quality standards, permitting the return of products under certain circumstances. Product sales are recorded net of all sales-related deductions including, but not limited to: sales returns, rebates, customer loyalty programs and fee for service arrangements with certain distributors. The Company establishes accruals for its sales-related deductions in the same period that it recognizes the related sales based on select criteria for estimating such contra revenues including, but not limited to: estimated utilization or redemption rates, costs related to the programs and other historical data. These reserves reduce revenues and are included as either a reduction of accounts receivable or as a component of accrued expenses. Included in net sales are amounts earned under contract manufacturing agreements with third parties.

On October 30, 2009, pursuant to the purchase agreement dated August 24, 2009 (as amended, the “Purchase Agreement”), between the Company and The Procter & Gamble Company (“P&G”), the Company acquired the global branded prescription pharmaceutical business (“PGP”) of P&G for $2,919,261 in cash and the assumption of certain liabilities (the “PGP Acquisition”). As a result of the PGP Acquisition, the Company began to offer Medicare rebates and assumed significant managed care contracts. The costs incurred by the Company in connection with these rebates are considered sales-related deductions which reduce reported net sales. The Company estimates the accruals for these programs, based on estimated utilization rates, costs related to the programs and other historical data.

On March 30, 2010 the Patient Protection and Affordable Care Act of 2010 was signed into law. This law impacts the Company’s net sales by increasing certain rebates it pays per prescription, most notably Medicaid rebates. The new law is not expected to have a material impact on the Company’s revenues.

As of March 31, 2010 and December 31, 2009, the amounts related to all sales-related deductions included as a reduction of accounts receivable were $37,168 and $41,828, respectively. The amounts included in accrued liabilities were $352,698 and $333,292 as of March 31, 2010 and December 31, 2009, respectively. The provisions recorded to reduce gross sales to net sales were $218,417 and $49,318 in the quarters ended March 31, 2010 and 2009, respectively.

The Company recognizes revenue related to licensing rights to sell products using the Company’s patents, based on third-party sales, as earned in accordance with contractual terms when the third-party sales can be reasonably estimated and collection is reasonably assured. These amounts are included as a component of “other revenue”. The Company also has agreements with other pharmaceutical companies to co-promote certain products. Revenues and related product costs are recognized on a gross basis in transactions where the Company

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Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

is deemed to be the principal in the transaction. Revenues earned based on a percentage of the co-promotion partners’ net sales are recognized, on a net basis, when the co-promotion partners ship the related products and title passes to their customers. Contractual payments due to co-promotion partners are included within selling, general & administrative (“SG&A”) expense and contractual payments due from co-promotion partners are included within other revenue. Total other revenue for the quarters ended March 31, 2010 and 2009 was $51,846 and $6,965, respectively.

3. PGP Acquisition

As discussed above, on October 30, 2009, the Company acquired PGP for $2,919,261 in cash and the assumption of certain liabilities. Under the terms of the Purchase Agreement, the Company acquired P&G’s portfolio of branded pharmaceutical products, prescription drug pipeline, manufacturing facilities in Puerto Rico and Germany and a net receivable owed from P&G of approximately $60,000. The total purchase price of $2,919,261 was allocated to the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date.

The acquisition of PGP was accounted for as a business combination using the acquisition method of accounting. The results of operations of PGP since October 30, 2009 have been included in the Company’s condensed consolidated statement of operations. The purchase price allocation as of December 31, 2009 previously presented in the Annual Report, as well as the purchase price allocation as of March 31, 2010 is considered preliminary pending completion of the final valuation.

The goodwill associated with this acquisition is reported within the Company’s North American segment. The goodwill results from expected synergies from the transaction, including complementary products that will enhance the Company’s overall product portfolio, which the Company believes will result in incremental revenue and profitability. During the quarter ended March 31, 2010, the increase in goodwill shown below was the result of fair value adjustments to the identifiable net assets acquired. Final determination of the fair values may result in further adjustments to these values.

4. LEO Transaction

On September 23, 2009, the Company entered into a definitive asset purchase agreement (the “LEO Transaction Agreement”) with LEO Pharma A/S (“LEO”) pursuant to which LEO paid the Company $1,000,000 in cash in order to terminate the Company’s exclusive license to distribute LEO’s DOVONEX and TACLONEX products (including all dermatology products in LEO’s development pipeline) in the United States and to acquire certain assets related to the Company’s distribution of DOVONEX and TACLONEX products in the United States. The transaction (the “LEO Transaction”) closed simultaneously with the execution of the LEO Transaction Agreement. In connection with the LEO Transaction, the Company entered into a distribution agreement with LEO pursuant to which the Company agreed to, among other things, (1) continue to distribute DOVONEX and TACLONEX on behalf of LEO, for a distribution fee, through September 23, 2010 and (2) purchase inventories of DOVONEX and TACLONEX from LEO. In addition, the Company agreed to provide certain transition services for LEO for a period of up to one year after the closing.

The LEO Transaction resulted in a gain of $393,095 (or $380,088, net of tax). In addition, during the third quarter of 2009, the Company recorded a deferred gain of $68,919 relating to the sale of certain inventories to LEO in connection with the LEO Transaction. In the fourth quarter of 2009, the Company recognized $34,184 of the deferred gain as a reduction to cost of sales ($33,500 net of tax). In the quarter ended March 31, 2010, the Company recognized $25,111 of the deferred gain as a reduction to cost of sales ($24,609 net of tax). The remaining $9,624 of the deferred gain is expected to be recognized during the remainder of 2010 as the Company continues to distribute products for LEO under the distribution agreement. The aggregate gain from the LEO Transaction is expected to be $462,014 (or $447,629 net of tax).

5. Earnings Per Share (“EPS”)

The Company accounts for EPS in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 260, “Earnings Per Share” and related guidance, which requires two calculations of EPS to be disclosed: basic and diluted. The numerator in calculating basic and diluted EPS is an amount equal to consolidated net (loss) / income for the periods presented. The denominator in calculating basic EPS is the weighted average shares outstanding for the respective periods. The

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Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

denominator in calculating diluted EPS is the weighted average shares outstanding plus the dilutive effect of stock option grants and restricted share grants or their equivalent, when applicable. The following is the calculation of EPS for the quarters ended March 31, 2010 and 2009, respectively:

6. Collaboration Arrangements

As a result of the PGP Acquisition, the Company became party to new collaborative arrangements to develop and commercialize drug candidates. Collaborative activities include research and development, marketing and selling (including promotional activities and physician detailing), and manufacturing and distribution. These collaborative arrangements often require milestone and royalty or profit share payments, as well as expense reimbursements or payments to the third party. Each collaborative arrangement is unique in nature and the Company’s more significant arrangements are discussed below.

Sanofi

The Company and Sanofi-Aventis U.S. LLC (“Sanofi”) are parties to an agreement to co-promote ACTONEL on a global basis, excluding Japan (as amended, the “Actonel Collaboration Agreement”). Pursuant to the Actonel Collaboration Agreement, a joint oversight committee comprised of equal representation from the Company and Sanofi is responsible for overseeing the development and promotion of ACTONEL. The Company’s and Sanofi’s rights and obligations are specified by geographic market. In certain geographic markets, the Company and Sanofi share selling and advertising and promotion (“A&P”) costs as well as product profits based on contractual percentages. In the geographic markets where the Company is deemed to be the principal in transactions with customers, the Company recognizes all revenues from sales of the product along with the related product costs. The Company’s share of selling, A&P and contractual profit sharing expenses are recognized in SG&A expenses. In geographic markets where the Company is not the principal in transactions with customers, revenue is recognized on a net basis, in other revenue for amounts earned based on Sanofi’s sale transactions with its customers. The Actonel Collaboration Agreement expires on January 1, 2015. For the quarter ended March 31, 2010, the Company recognized net sales and other revenue related to ACTONEL of $235,722 and $26,586, respectively, and co-promotion expenses of $107,094 were recognized in SG&A expense.

In April 2010, the Company and Sanofi entered into an amendment to the Actonel Collaboration Agreement. Under the terms of the amendment, the Company took full operational control over the promotion, marketing and research & development (“R&D”) decisions for ACTONEL in the United States and Puerto Rico, and assumed responsibility for all associated costs relating to those activities. Prior to the amendment, the Company shared such costs with Sanofi in these territories. The Company remained the principal in transactions with customers in the United States and Puerto Rico and continues to invoice all sales in these territories. In return, it was agreed that Sanofi would receive, as part of the global collaboration payments between the parties, collaboration payments from the Company based on an agreed upon percentage of U.S. and Puerto Rico net sales for the remainder of the term of the Actonel Collaboration Agreement, which expires on January 1, 2015.

Novartis

The Company and Novartis Pharmaceuticals Corporation (“Novartis”) are parties to an agreement to co-promote ENABLEX, developed by Novartis, in the U.S. The Company shares expenses with Novartis pursuant to the agreement and these costs are included within SG&A. The Company receives a contractual percentage of Novartis’ sales of ENABLEX, which is recorded, on a net basis, in other revenue. Under the agreement which expires in August 2016, the Company may be required to make payments to Novartis upon the achievement of various sales milestones that could aggregate up to $15,000. For the quarter ended March 31, 2010, the Company recognized other revenue related to ENABLEX of $18,180.

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WARNER CHILCOTT PUBLIC LIMITED COMPANY

Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

7. Inventories

Inventories consist of the following:

Amounts above are net of $7,568 and $7,495 related to inventory obsolescence reserves as of March 31, 2010 and December 31, 2009, respectively. As of December 31, 2009, finished goods inventories included a fair market value step-up adjustment related to the PGP Acquisition of $105,504. This increase in the cost of inventory resulting from purchase accounting was recognized in the statement of operations in the quarter ended March 31, 2010. Product samples are stated at cost ($6,482 and $5,017 as of March 31, 2010 and December 31, 2009, respectively) and are included in prepaid expenses and other current assets.

8. Goodwill and Intangible Assets

The Company’s goodwill and a trademark have been deemed to have indefinite lives and are not amortized. The following table represents the Company’s changes in goodwill:

In-process research and development (“IPR&D”) acquired through the acquisition of a business is capitalized as non-amortizable intangible assets. These costs will begin to be amortized if the associated regulatory approval is received. If regulatory approval is not received, and the R&D study is considered to be no longer viable, the IPR&D would be considered impaired. Until such time that both events occur, IPR&D is treated as an indefinite-lived intangible asset. The Company’s licensing agreements and certain trademarks that do not have indefinite lives are being amortized on either a straight-line or accelerated basis over their useful lives not to exceed 15 years.

The Company’s intangible assets as of March 31, 2010 consist of the following components:

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Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

Aggregate amortization expense related to intangible assets was $160,912 (including $120,845 for the newly acquired PGP products) and $56,993 for the quarters ended March 31, 2010 and 2009, respectively. The Company continuously reviews its products’ remaining useful lives based on each product’s estimated future cash flows. As of March 31, 2010, estimated amortization expense based on current forecasts (excluding indefinite-lived intangible assets) for the remainder of 2010 and for each of the next five years was as follows:

9. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

10. Indebtedness

New Senior Secured Credit Facilities

On October 30, 2009, Warner Chilcott Holdings Company III, Limited (“Holdings III”), WC Luxco S.à r.l. (the “Luxco Borrower”), Warner Chilcott Corporation (“WCC”) (the “US Borrower”) and Warner Chilcott Company, LLC (“WCCL”) (the “PR Borrower”, and together with the Luxco Borrower and the US Borrower, the “Borrowers”) entered into a credit agreement (the “Credit Agreement”) with a syndicate of lenders (the “Lenders”), Credit Suisse, Cayman Islands Branch as administrative agent, Bank of America Securities LLC as syndication agent and JPMorgan Chase Bank, N.A. as documentation agent, pursuant to which the Lenders provided senior secured credit facilities (the “New Senior Secured Credit Facilities”) in an aggregate amount of $3,200,000 comprised of (i) $2,950,000 in aggregate term loan facilities and (ii) a $250,000 revolving credit facility that is available to all Borrowers. The term loan facilities were comprised of (i) a $1,000,000 Term A facility that matures on October 31, 2014 and (ii) a $1,600,000 Term B

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Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

facility and a $350,000 delayed-draw term loan facility that mature on April 30, 2015. On December 16, 2009, the Borrowers entered into an amendment (“Amendment No. 1”) to the Credit Agreement, pursuant to which the Credit Agreement was amended to create a new tranche of term loans (the “Additional Term Loans”) which was borrowed on December 30, 2009 by the US Borrower in an aggregate principal amount of $350,000 in order to finance, together with cash on hand, the repurchase or redemption (as described below) of any and all of the issued and outstanding Notes. On December 16, 2009, the outstanding delayed-draw term loan facility was terminated. The revolving credit facility provides for a $20,000 sublimit for swing line loans and a $50,000 sublimit for the issuance of standby letters of credit. Any swing line loans and letters of credit would reduce the available commitment under the revolving credit facility on a dollar-for-dollar basis. The interest rates on the borrowings under the New Senior Secured Credit Facilities, other than swing line loans, are (i) for the Term A facility, LIBOR (with a floor of 2.25%) plus 3.25%, or ABR, as defined, plus 2.25% and (ii) for the Term B facility, the revolving credit facility and the Additional Term Loans, LIBOR (with a floor of 2.25%) plus 3.50% or ABR, as defined, plus 2.50%. The carrying amounts reported in the consolidated balance sheets as of March 31, 2010 and December 31, 2009 for the Company’s debt outstanding under its New Senior Secured Credit Facilities approximates fair value since interest is at variable rates and it re-prices frequently.

The loans and other obligations under the New Senior Secured Credit Facilities (including in respect of hedging agreements and cash management obligations) are (i) guaranteed by Holdings III and substantially all of its subsidiaries (subject to certain exceptions and limitations) and (ii) secured by substantially all of the assets of the Borrowers and each guarantor (subject to certain exceptions and limitations). As a result of making optional prepayments of $400,000 in the quarter ended March 31, 2010 the current portion of the long-term debt was reduced to $140,490. As of March 31, 2010 there were letters of credit totaling $1,500 outstanding. As a result, the Company had $248,500 available under the revolving credit facility as of March 31, 2010.

Prior Senior Secured Credit Facilities

On January 18, 2005, Holdings III and its subsidiaries, WCC and WCCL, entered into the $1,790,000 prior senior secured credit facilities (the “Prior Senior Secured Credit Facilities”) with Credit Suisse as administrative agent and lender, and the other lenders and parties thereto. The Prior Senior Secured Credit Facilities consisted of $1,640,000 of term loans (including $240,000 of delayed-draw term loans) and a $150,000 revolving credit facility, of which $30,000 and $15,000 were available for letters of credit and swing line loans, respectively, to WCC and WCCL. All of the remaining outstanding debt under the Prior Senior Secured Credit Facilities was repaid with a portion of the proceeds of the LEO Transaction in September 2009.

8.75% Notes

On January 18, 2005, WCC, a wholly-owned U.S. subsidiary, issued $600,000 aggregate principal amount of Notes. The Notes were initially guaranteed on a senior subordinated basis by the Company, Holdings III, WC Luxco S.à.r.l., Warner Chilcott Intermediate (Luxembourg) S.à.r.l., WC Pharmaceuticals I Limited, the U.S. operating subsidiary (Warner Chilcott (US), LLC) and WCCL. Interest payments on the Notes were due semi-annually in arrears on each February 1 and August 1. The issuance costs related to the Notes were being amortized to interest expense over the ten-year term of the Notes using the effective interest method.

On December 15, 2009, WCC commenced a cash tender offer pursuant to an Offer to Purchase and Consent Solicitation (the “Offer to Purchase”) for any and all of its then remaining $380,000 aggregate principal amount of outstanding Notes. In connection with the Offer to Purchase, WCC purchased $290,540 aggregate principal amount of the Notes in December of 2009 for a total price of $304,341 (104.75% of the principal amount), plus accrued interest. Following the Company’s acceptance for purchase of $290,540 aggregate principal amount of the Notes on December 30, 2009, $89,460 aggregate principal amount of the Notes remained outstanding. In January of 2010, pursuant to the Offer to Purchase, WCC received and accepted for purchase approximately $2,000 aggregate principal amount of additional Notes. Finally, on February 1, 2010, WCC redeemed all of the remaining outstanding Notes in accordance with the Indenture. The redemption price for the redeemed Notes was $1,043.75 per $1,000.00 principal amount plus accrued and unpaid interest. The interest premium recognized in the condensed consolidated statement of operations as a result of the tender offer was $3,914 in the quarter ended March 31, 2010.

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WARNER CHILCOTT PUBLIC LIMITED COMPANY

Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

11. Stock-Based Compensation Plans

The Company’s stock-based compensation, including grants of non-qualified options to purchase ordinary shares and grants of restricted ordinary shares or their equivalent, is measured at fair value on the date of grant and is recognized in the statement of operations as compensation expense over the applicable vesting periods. Total stock-based compensation expense recognized for the quarters ended March 31, 2010 and 2009 was $4,683 and $2,632, respectively. Unrecognized future compensation expense was $32,288 as of March 31, 2010, which will be recognized as an expense over a remaining weighted average period of 1.24 years.

In establishing the value of the options on the grant dates, the Company uses its actual historical volatility for its ordinary shares to estimate its expected future volatility at each grant date. The fair value of options is determined on the grant dates using the Black-Scholes method of valuation and that amount is recognized as an expense over the four year vesting period. The options have a term of ten years. The Company assumed that the options would be exercised, on average, in six years. Using the Black-Scholes valuation model, the fair value of the options was determined using the following assumptions:

The weighted average remaining contractual term of all outstanding options to purchase ordinary shares granted is 7.87 years.

The following is a summary of the equity award activity for unvested restricted ordinary shares, or their equivalent, in the period from December 31, 2009 through March 31, 2010:

The following is a summary of the equity award activity for non-qualified options to purchase ordinary shares in the period from December 31, 2009 through March 31, 2010:

The intrinsic value of non-qualified options to purchase ordinary shares is calculated as the difference between the closing price of the Company’s ordinary shares and the exercise price of the non-qualified options that had a strike price below the closing price. The intrinsic value for the non-qualified options to purchase ordinary shares, that are “in the money” as of March 31, 2010, is as follows:

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WARNER CHILCOTT PUBLIC LIMITED COMPANY

Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

12. Commitments and Contingencies

Product Development Agreements

In July 2007, the Company entered into an agreement with Paratek Pharmaceuticals, Inc. (“Paratek”) under which the Company acquired certain rights to novel tetracyclines under development for the treatment of acne and rosacea. The Company paid an upfront fee of $4,000 and agreed to reimburse Paratek for R&D expenses incurred during the term of the agreement. The Company may make additional payments to Paratek upon the achievement of various developmental milestones that could aggregate up to $24,500. In addition, the Company agreed to pay royalties to Paratek based on the net sales, if any, of the products covered under the agreement.

In December 2008, the Company signed an agreement with Dong-A PharmTech Co. Ltd. (“Dong-A”), to develop and if approved market its orally-administered udenafil product, a PDE5 inhibitor, for the treatment of erectile dysfunction (“ED”) in the United States. The Company paid $2,000 in connection with signing the agreement. In March 2009, the Company paid $9,000 to Dong-A, which was included in R&D expense in the quarter ended March 31, 2009, upon the achievement of a developmental milestone under the agreement. The Company agreed to pay for all development costs incurred during the term of the agreement and may make additional payments to Dong-A of $13,000 upon the achievement of contractually-defined milestones in relation to the ED product. In addition, the Company agreed to pay a profit-split to Dong-A based on operating profit (as defined in the agreement), if any, on the product.

In April 2010, the Company amended its agreement with Dong-A to add the right to develop, and if approved, market in the U.S. and Canada, Dong-A’s udenafil product for the treatment of lower urinary tract symptoms associated with Benign Prostatic Hyperplasia (“BPH”). The Company currently is preparing to commence Phase II clinical trials for the BPH indication. This amendment resulted in the Company making an up-front payment to Dong-A of $20,000 in April 2010. This amount will be included as R&D expense during the quarter ended June 30, 2010. Under the amendment, the Company may make additional payments to Dong-A in an aggregate amount of $25,000 upon the achievement of contractually-defined milestones in relation to the BPH product. These payments would be in addition to the potential milestone payments in relation to the ED product described above. The Company also agreed to pay Dong-A a percentage of net sales of the BPH product in the U.S. and Canada, if any.

In February 2009, the Company acquired the U.S. rights to NexMed Inc.’s (“NexMed”) topically applied alprostadil cream for the treatment of ED and the previous license agreement between the Company and NexMed relating to the product was terminated. Under the terms of the acquisition agreements, the Company paid NexMed an up-front payment of $2,500, which was included in R&D expense in the quarter ended March 31, 2009, and agreed to pay a milestone payment of $2,500 to NexMed upon the Food and Drug Administration’s (“FDA”) approval of the product New Drug Application. The Company is currently working to prepare its complete response to the non-approvable letter that the FDA delivered to NexMed in July 2008 with respect to the product.

Product Development Agreements – PGP Acquisition

As part of the PGP Acquisition, the Company became party to certain agreements including the following:

In July 2005, PGP entered into a co-development and co-promotion agreement with Novartis under which Novartis agreed to co-develop and co-promote ENABLEX. Under the agreement, the Company may be required to make payments to Novartis upon the achievement of various sales and developmental milestones that could aggregate up to $15,000.

In June 2006, PGP entered into an agreement with Watson Pharmaceuticals, Inc. (“Watson”) under which PGP acquired the rights to certain products under development relating to transdermal delivery systems for testosterone for use in females. Under the product development agreement, the Company may be required to make additional payments to Watson upon the achievement of various developmental milestones that could aggregate up to $25,000. Further, the Company agreed to pay a supply fee and royalties to Watson on the net sales of those products.

In June 2007, PGP entered into an agreement with Dong Wha Pharm. Ind. Co. Ltd. (“Dong-Wha”). Under the agreement, PGP acquired an exclusive license to develop, manufacture and commercialize compounds world wide, excluding Asia, for the treatment of osteoporosis. The agreement permits termination by the Company upon 90 days’ notice. In April 2010, the Company notified Dong-Wha of its intent to terminate the agreement. The termination will be effective in July 2010. The Company has no further payment obligations to Dong-Wha.

Other

The Company and Sanofi are parties to the Actonel Collaboration Agreement. Pursuant to the Actonel Collaboration Agreement, a joint oversight committee comprised of equal representation from the Company and Sanofi is responsible for overseeing the development and

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Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

promotion of ACTONEL. The rights and obligations of the Company and Sanofi are specified by geographic market. In certain geographic markets, the Company and Sanofi share development and promotion costs as well as product profits based on contractual percentages. Pursuant to this agreement, the Company is obligated to incur an agreed upon amount for A&P and selling each fiscal year in certain countries. See Note 19 for a discussion of the recent amendment of the Actonel Collaboration Agreement with respect to the U.S. and Puerto Rico.

As mentioned above, the Company and Novartis are parties to an agreement to co-promote ENABLEX, developed by Novartis, in the United States. The Company and Novartis share development and promotion costs pursuant to the agreement. Such costs incurred by the Company are included within SG&A. The Company receives a contractual percentage of Novartis’ sales of ENABLEX, which is recorded on a net basis in “other revenue”. Pursuant to this agreement, the Company is obligated to incur an agreed upon amount for A&P and selling each fiscal year.

13. Legal Proceedings

General Matters

The Company is involved in various legal proceedings in the normal course of its business, including product liability and other litigation. The Company records reserves related to legal matters when losses related to such litigation or contingencies are both probable and reasonably estimable. The Company maintains insurance with respect to potential litigation in the normal course of its business based on its consultation with its insurance consultants and outside legal counsel, and in light of current market conditions, including cost and availability. In addition, the Company self-insures for certain liabilities not covered under its litigation insurance based on estimates of potential claims developed in consultation with its insurance consultants and outside legal counsel.

The following discussion is limited to the Company’s material on-going legal proceedings, including the Company’s legal proceedings as a result of the PGP Acquisition:

Hormone Therapy Product Liability Litigation

Approximately 716 product liability suits, including some with multiple plaintiffs, have been filed against, or tendered to, the Company related to its hormone therapy (“HT”) products, FEMHRT, ESTRACE, ESTRACE Cream and medroxyprogesterone acetate. Under the purchase and sale agreement pursuant to which the Company acquired FEMHRT from Pfizer Inc. (“Pfizer”) in 2003, the Company agreed to assume certain product liability exposure with respect to claims made against Pfizer after March 5, 2003 and tendered to the Company relating to FEMHRT products. The cases are in the early stages of litigation and the Company is in the process of analyzing and investigating the individual complaints.

The lawsuits were likely triggered by the July 2002 and March 2004 announcements by the National Institute of Health (“NIH”) of the terminations of two large-scale randomized controlled clinical trials, which were part of the Women’s Health Initiative (“WHI”), examining the long-term effect of HT on the prevention of coronary heart disease and osteoporotic fractures, and any associated risk for breast cancer in postmenopausal women. In the case of the trial terminated in 2002, which examined combined estrogen and progestogen therapy (the “E&P Arm of the WHI Study”), the safety monitoring board determined that the risks of long-term estrogen and progestogen therapy exceeded the benefits, when compared to a placebo. WHI investigators found that combined estrogen and progestogen therapy did not prevent heart disease in the study subjects and, despite a decrease in the incidence of hip fracture and colorectal cancer, there was an increased risk of invasive breast cancer, coronary heart disease, stroke, blood clots and dementia. In the trial terminated in 2004, which examined estrogen therapy, the trial was ended one year early because the NIH did not believe that the results were likely to change in the time remaining in the trial and that the increased risk of stroke could not be justified for the additional data that could be collected in the remaining time. As in the E&P Arm of the WHI study, WHI investigators again found that estrogen only therapy did not prevent heart disease and, although study subjects experienced fewer hip fractures and no increase in the incidence of breast cancer compared to subjects randomized to placebo, there was an increased incidence of stroke and blood clots in the legs. The estrogen used in the WHI Study was conjugated equine estrogen and the progestin was medroxyprogesterone acetate, the compounds found in Premarin ^® and Prempro™, products marketed by Wyeth (now a part of Pfizer). Numerous lawsuits were filed against Wyeth, as well as against other manufacturers of HT products, after the publication of the summary of the principal results of the E&P Arm of the WHI Study.

Approximately 80% of the complaints filed against, or tendered to, the Company did not specify the HT drug alleged to have caused the plaintiff’s injuries. These complaints broadly allege that the plaintiff suffered injury as a result of an HT product. The Company has sought the dismissal of lawsuits that, after further investigation, do not involve any of our products. The Company has successfully reduced the number of HT suits it will have to defend. Of the approximately 716 suits that were filed against, or tendered to, the Company, 477 have been dismissed and 94 involving ESTRACE have been successfully tendered to Bristol-Myers pursuant to an indemnification provision in the asset purchase agreement pursuant to which we acquired ESTRACE. The purchase agreement included an indemnification agreement whereby Bristol-Myers indemnified the Company for product liability exposure associated with ESTRACE products that were shipped prior to July 2001. The Company has forwarded agreed upon dismissal notices in another 20 cases to plantiffs’ counsel.

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Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

ONJ Product Liability Litigation

The Company is a defendant in approximately 83 cases involving 91 plaintiffs who allege, among other things, that the Company’s bisphosphonate drug ACTONEL caused them to suffer osteonecrosis of the jaw (“ONJ”), a rare but serious condition that involves severe loss, or destruction, of the jawbone. These cases have been filed in either federal or state courts in the United States, except for one lawsuit in provincial court in Canada. Sanofi, which co-promotes ACTONEL with the Company, is a defendant in most of the cases. In some of the cases, manufacturers of other bisphosphonate products are also named as defendants. Plaintiffs have typically asked for unspecified monetary and injunctive relief, as well as attorney’s fees. In addition, the Company is aware of three other potential claimants who are under a tolling agreement suspending the statutes of limitation related to their claims. The Company is in the initial stages of discovery in the litigation, and cannot at this time predict the outcome of these lawsuits and claims or their financial impact. Under the Actonel Collaboration Agreement Sanofi has agreed to indemnify the Company, subject to certain limitations, for 50% of the losses from any product liability claims in the U.S. and Canada relating to ACTONEL brought prior to April 1, 2010, which would include ONJ-related claims that were pending as of March 31, 2010. Pursuant to the April 2010 amendment to the Actonel Collaboration Agreement, the Company will be fully responsible for any product liability claims in the U.S. and Puerto Rico relating to ACTONEL brought on or after April 1, 2010.

The Company may be liable for product liability, warranty or similar claims in relation to PGP products, including ONJ-related claims that were pending as of the closing of the PGP Acquisition. The Company’s agreement with P&G provides that P&G will indemnify the Company for 50% of the losses from any such claims pending as of October 30, 2009, subject to certain limits.

The Company currently maintains product liability insurance coverage for claims between $25 million and $170 million, above which the Company is self-insured. The Company’s insurance may not apply to damages or defense costs related to the above mentioned HT claims or the above mentioned ONJ claims, including any claim arising out of HT or ACTONEL products with labeling that does not conform completely to FDA approved labeling. Labeling changes for ESTRACE Tablets that conform to such communications are currently pending before the FDA. Although it is impossible to predict with certainty the outcome of any litigation, an unfavorable outcome in these proceedings is not anticipated. An estimate of the range of potential loss, if any, to us relating to these proceedings is not possible at this time.

ASACOL 400 mg Patent Matters

In September 2007, PGP and Medeva Pharma Suisse AG (“Medeva”) received a Paragraph IV certification notice letter from Roxane Laboratories, Inc. (“Roxane”), a subsidiary of Boehringher Ingelheim Corporation, indicating that Roxane had submitted to the FDA an Abbreviated New Drug Application (“ANDA”) seeking approval to manufacture and sell a generic version of PGP’s ASACOL 400 mg product (“ASACOL 400”). The notice letter contended that Medeva’s U.S. Patent No. 5,541,170 (the “‘170 Patent”) and U.S. Patent No. 5,541,171 (the “‘171 Patent”), formulation and method patents which PGP exclusively licenses from Medeva covering the ASACOL 400 mg product (“ASACOL 400”), were invalid and not infringed. The ‘170 Patent and ‘171 Patent expire in July 2013. In October 2007, Medeva and PGP filed a patent lawsuit against Roxane in the U.S. District Court for the District of New Jersey alleging infringement of the ‘170 Patent. The lawsuit resulted in a stay of FDA approval of Roxane’s ANDA until March 2010. The trial has not yet been scheduled. However, unless the District Court decides earlier in its favor, Roxane has agreed not to launch a generic version of ASACOL 400 before November 1, 2010. In addition, Roxane has agreed that if the case is fully submitted to the District Court by November 1, 2010, it will not launch until the District Court decides the case. While the Company and Medeva intend to vigorously defend the ‘170 Patent and pursue their legal rights, the Company can offer no assurance as to when the lawsuit will be decided, whether the lawsuit will be successful or that a generic equivalent of the ASACOL 400 mg product will not be approved and enter the market prior to the expiration of the ‘170 Patent in 2013.

ACTONEL Patent Matters

In July 2004, PGP received a Paragraph IV certification notice letter from a subsidiary of Teva Pharmaceutical Industries, Ltd. (together with its subsidiaries “Teva”) indicating that Teva had submitted to the FDA an ANDA seeking approval to manufacture and sell a generic version of PGP’s ACTONEL product. The notice letter contended that PGP’s U.S. Patent No. 5,583,122 (the “‘122 Patent”), a new chemical entity patent expiring in June 2014 (including a 6-month pediatric extension of regulatory exclusivity), was invalid, unenforceable or not infringed. In August 2004, PGP filed a patent lawsuit against Teva in the U.S. District Court for the District of Delaware charging Teva with infringement of the ‘122 Patent. In January 2006, Teva admitted patent infringement but alleged that the ‘122 Patent was invalid and, in February 2008, the District Court decided in favor of PGP and upheld the ‘122 Patent as valid and enforceable. In May 2009, the U.S. Court of Appeals for the Federal Circuit unanimously upheld the decision of the District Court.

In August 2008, December 2008 and January 2009, PGP and Hoffman-La Roche Inc. (“Roche”) received Paragraph IV certification notice letters from Teva, Sun Pharma Global, Inc. (“Sun”) and Apotex Inc. and Apotex Corp. (together “Apotex”) indicating that each such company had submitted to the FDA an ANDA seeking approval to manufacture and sell generic versions of the once-a-month ACTONEL product (“ACTONEL OaM”). The notice letters contended that Roche’s U.S. Patent No. 7,192,938 (the “‘938 Patent”), a method patent expiring in November 2023 (including a 6-month pediatric extension of regulatory exclusivity) which Roche licensed to PGP with respect to ACTONEL OaM, was invalid, unenforceable or not infringed. PGP and Roche filed patent infringement suits against Teva in September 2008, Sun in January 2009 and Apotex in March 2009 in the U.S. District Court for the

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Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

District of Delaware charging each with infringement of the ‘938 Patent. The lawsuits result in a stay of FDA approval of each defendant’s ANDA for 30 months from the date of PGP’s and Roche’s receipt of notice, subject to the prior resolution of the matters before the court. Teva delivered the first Paragraph IV certification notice letter to PGP and Roche. The stay of approval of Teva’s ANDA will expire on the earlier of February 2011 or the resolution of the suit. Additionally, ACTONEL OaM has FDA exclusivity through April 2011 and the underlying ‘122 Patent expires in June 2014 (including a 6-month extension of regulatory exclusivity). The suits against Teva and Apotex have been consolidated for pretrial purposes. While a pretrial schedule has been set, and a pretrial conference scheduled, no trial date has been set. While the Company and Roche intend to vigorously defend the ‘938 Patent and protect their legal rights, the Company can offer no assurance as to when the lawsuits will be decided, whether the lawsuits will be successful or that a generic equivalent of ACTONEL OaM will not be approved and enter the market prior to the expiration of the ‘938 Patent in 2023.

On December 1, 2009, the Company received a Paragraph IV certification notice letter from Aurobindo Pharma Limited (“Aurobindo”) regarding the Company’s ACTONEL 5, 30 and 35 mg dosage strengths tablets (“ACTONEL Tablets”), which are covered by the Company’s U.S. Patent No. 6,165,513 (the “‘513 Patent”), as well as U.S. Patent Nos. 5,994,329, 6,015,801, 6,432,932 and 6,465,443, owned by Merck & Co., Inc. (“Merck”) and licensed by the Company (the “Merck Patents”). The Paragraph IV certification notice letter advised the Company of the filing of an ANDA with the FDA requesting approval to manufacture and sell a generic version of ACTONEL Tablets prior to the expiration of the ‘513 patent in 2018 and the Merck Patents in 2019. Merck did not assert the Merck Patents in any of the prior ACTONEL patent litigation. The Company has elected not to bring an infringement action with respect to this ANDA. In addition, Aurobindo did not certify against the ‘122 Patent, which expires in June 2014 (including a 6-month extension of regulatory exclusivity) and covers all of the Company’s ACTONEL products (including the ACTONEL Tablets). As a result, the Company does not believe that Aurobindo will be permitted to market its proposed ANDA product prior to the expiration of Teva’s 180-day period of marketing exclusivity following the June 2014 expiration (including a 6-month extension of regulatory exclusivity) of the ‘122 Patent.

On February 12, 2010, the Company received a Paragraph IV certification notice letter from Mylan Pharmaceuticals Inc. (“Mylan”) regarding the Company’s ACTONEL With Calcium Tablets (Copackaged) (“ACTONEL/Calcium”), which are covered by the Company’s ‘513 Patent, as well as the Merck Patents owned by Merck and licensed by the Company. The Paragraph IV certification letter advised the Company of the filing of an ANDA with the FDA requesting approval to manufacture and sell a generic version of ACTONEL/Calcium prior to the expiration of the ‘513 patent in 2018 and the Merck Patents in 2019. The certification notice letter sets forth allegations of non-infringement and/or the invalidity of the ‘513 and Merck patents. Merck did not assert the Merck Patents in any of the prior ACTONEL patent litigation. The Company previously discontinued sales of ACTONEL/Calcium and has elected not to bring an infringement action with respect to this ANDA. In addition, Mylan did not certify against the ‘122 Patent which expires in June 2014 (including a 6-month extension of regulatory exclusivity) and covers all of the Company’s ACTONEL products (including ACTONEL/Calcium). As a result, the Company does not believe that Mylan will be permitted to market its proposed ANDA product prior to the expiration of Teva’s 180-day period of marketing exclusivity following the June 2014 expiration (including a 6-month extension of regulatory exclusivity) of the ‘122 Patent.

On February 24, 2010, the Company received a Paragraph IV certification notice letter from Mylan indicating that it had submitted to the FDA an ANDA seeking approval to manufacture and sell generic versions of the Company’s 5, 30, 35 and 75 mg dosage strength ACTONEL tablets, as well as ACTONEL OaM tablets. The notice letter contends that the ‘513 Patent, the Merck Patents and the ‘938 Patent which cover the products are invalid and/or will not be infringed. The Company and Roche filed a patent suit against Mylan in April 2010 in the United States District Court for the District of Delaware charging Mylan with infringement of the ‘938 Patent. The lawsuit results in a stay of FDA approval of Mylan’s ANDA for 30 months from the date of the Company’s and Roche’s receipt of notice, subject to prior resolution of the matter before the court. Additionally, ACTONEL OaM has FDA exclusivity through April 2011, and Mylan did not certify against the underlying ‘122 Patent which expires in June 2014 (including a 6-month extension of regulatory exclusivity) and covers all of the Company’s ACTONEL products. As a result, the Company does not believe that Mylan will be permitted to market its proposed ANDA products prior to the expiration of Teva’s 180-day period of marketing exclusivity following the June 2014 expiration of the ‘122 Patent (including a 6-month extension of regulatory exclusivity). No trial date has been set. While the Company and Roche intend to vigorously defend the ‘938 Patent and protect their legal rights, the Company can offer no assurance as to when the lawsuit will be decided, whether the lawsuit will be successful or that Mylan’s generic versions of ACTONEL tablets will not be approved and enter the market prior to the expiration of the ‘938 Patent in 2023.

DORYX Patent Matters

As a result of the enactment of the QI Program Supplemental Funding Act of 2008 (the “QI Act”) on October 8, 2008, Mayne Pharma International Pty. Ltd.’s (“Mayne”) U.S. Patent No. 6,958,161 (the “‘161 Patent”) covering the Company’s DORYX product was submitted to the FDA for listing in the FDA’s Orange Book and potential generic competitors that had filed an ANDA prior to the listing of the ‘161 Patent were permitted to certify to the listed patent within 120 days of the enactment of the QI Act. In November and December 2008, and January 2009, the Company and Mayne received Paragraph IV certification notice letters from Actavis Elizabeth LLC (“Actavis”), Mutual Pharmaceutical Company, Inc. (“Mutual”), Mylan, Impax Laboratories, Inc. (“Impax”) and Sandoz Inc. (“Sandoz”) indicating that each had submitted to the FDA an ANDA seeking approval to manufacture and sell generic

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Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

versions of DORYX 100 and 75 mg delayed-release tablets (“DORYX 100 and 75”). Those notice letters contend that the ‘161 Patent is invalid, unenforceable or not infringed. In December 2008 and January 2009, the Company and Mayne filed lawsuits against each of the potential generic competitors in the United States District Court for the District of New Jersey, charging them with infringement of the ‘161 Patent. In March 2009, the Company received the FDA’s response to a citizen petition that it had submitted requesting that the FDA impose a 30-month stay of approval on ANDAs referencing DORYX 100 and 75 that were filed prior to the listing of the ‘161 Patent under the transition rules of the QI Act. In its joint response to the citizen petitions of the Company and several other petitioners, the FDA took the position that a 30-month stay would not apply to approvals for such ANDAs. On November 9, 2009, pursuant to an agreement among the Company, Mayne and Mutual, the District Court dismissed the lawsuit against Mutual concerning generic versions of DORYX 100 and 75 following Mutual’s agreement to withdraw its ANDA with respect to such products.

In March 2009, the Company and Mayne received Paragraph IV certification notice letters from Impax and Mylan indicating that each had submitted to the FDA an ANDA seeking approval to manufacture and sell a generic version of DORYX 150 mg delayed-release tablets (“DORYX 150”). The notice letters contend that the ‘161 Patent is not infringed. In March 2009, the Company and Mayne filed a lawsuit against Impax in the United States District Court for the District of New Jersey, charging Impax with infringement of the ‘161 Patent. In May 2009, the Company and Mayne filed a lawsuit against Mylan in the United States District Court for the District of New Jersey charging Mylan with infringement of the ‘161 Patent. In February 2010, the Company and Mayne received a Paragraph IV certification notice letter from Heritage Pharmaceuticals Inc. (“Heritage”) indicating that it had submitted to the FDA an ANDA seeking approval to manufacture and sell a generic version of DORYX 100 and 75 and DORYX 150 (together “DORYX 150, 100 and 75”). The notice letter contends that the ‘161 Patent is not infringed. In March 2010, the Company and Mayne filed a lawsuit against Heritage in the United States District Court for the District of New Jersey charging Heritage with infringement of the ‘161 Patent. Based on the FDA’s March 2009 guidance, the Company believes that because each of Impax’s and Mylan’s ANDAs with respect to generic versions of DORYX 150, and Heritage’s ANDA with respect to generic versions of DORYX 150, 100 and 75, were submitted after the listing of the ‘161 Patent in the FDA’s Orange Book, that the FDA will stay approval of these generic versions of the products for up to 30 months, subject to the prior resolution of the matter before the District Court.

In January 2010, the Company and Mayne received a Paragraph IV certification notice letter from Sandoz indicating that it had amended its ANDA previously submitted to the FDA requesting approval to manufacture and sell generic versions of DORYX 100 and 75 to include a generic version of DORYX 150. The notice letter contends that the ‘161 Patent is invalid, unenforceable or not infringed. In January 2010, the Company and Mayne filed a lawsuit against Sandoz in the United States District Court for the District of New Jersey charging Sandoz with infringement of the ‘161 Patent with respect to DORYX 150. While the Company can give no assurance, it believes that under current law, the FDA may not approve Sandoz’s amended ANDA with respect to DORYX 150 until 180 days following the date on which the “first filer” of an ANDA with respect to DORYX 150 enters the market, unless the first filer transfers or forfeits its first filer rights, for example by failing to begin marketing its product in a timely manner.

All of the actions against Actavis, Mylan, Impax and Sandoz relating to DORYX 100 and 75, as well as our lawsuits against Impax and Mylan relating to DORYX 150 have been consolidated for discovery purposes. The same is expected for the Sandoz DORYX 150 lawsuit. As the lawsuit against Heritage is only recently filed, it is uncertain whether the Heritage lawsuit will be consolidated with the others or proceed on a separate track. No trial dates been set by the District Court. While the Company and Mayne intend to vigorously defend the ‘161 Patent and pursue their legal rights, the Company can offer no assurance as to when the lawsuits will be decided, whether the lawsuits will be successful or that a generic equivalent of DORYX 150, 100 or 75 will not be approved and enter the market prior to the expiration of the ‘161 Patent in 2022.

LOESTRIN 24 FE Patent Matters

On July 31, 2009 the Company received a Paragraph IV certification notice letter from Lupin Ltd. indicating that it had submitted to the FDA an ANDA seeking approval to manufacture and sell a generic version of the Company’s oral contraceptive, LOESTRIN 24 FE. The notice letter contends that the Company’s U.S. Patent No. 5,552,394 (the “‘394 Patent”) which covers LOESTRIN 24 FE and expires in 2014 is invalid, unenforceable or not infringed. In September 2009, the Company filed a lawsuit against Lupin Ltd. and its U.S. subsidiary, Lupin Pharmaceuticals, Inc. (collectively “Lupin”), in the District of Delaware charging Lupin with infringement of the ‘394 Patent. The lawsuit results in a stay of FDA approval of Lupin’s ANDA for 30 months from the date of the Company’s receipt of such notice, subject to the prior resolution of the matter before the court. On October 21, 2009 Lupin answered alleging invalidity and non-infringement of the ‘394 Patent. No trial date has yet been set. In January 2009, the Company entered into a settlement and license agreement with Watson Pharmaceuticals, Inc. (together with its subsidiaries, “Watson”) to resolve patent litigation related to the ‘394 Patent. Under the agreement, Watson was permitted to commence marketing its generic equivalent product on the earlier of January 22, 2014 or the date on which another generic version of LOESTRIN 24 FE enters the U.S. market. Under current law, unless Watson forfeits its “first filer” status, the FDA may not approve Lupin’s ANDA until 180 days following the date on which Watson enters the market. The Company believes Watson may have forfeited its “first filer” status as a result of its failure to obtain approval by the FDA of its ANDA within the requisite period. As a result, while the Company has filed an infringement suit against Lupin and intends to vigorously defend the ‘394 Patent and pursue its legal rights, it can offer no assurance as to when the lawsuit will be decided, whether the lawsuit will be successful or that a generic equivalent of LOESTRIN 24 FE will not be approved and enter the market prior to the expiration of the ‘394 Patent in 2014.

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Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

FEMCON FE Patent Matters

On July 31, 2009 the Company received a Paragraph IV certification notice letter from Lupin Ltd. indicating that it had submitted to the FDA an ANDA seeking approval to manufacture and sell a generic version of the Company’s oral contraceptive, FEMCON FE. The notice letter contends that the Company’s U.S. Patent No. 6,667,050 (the “‘050 Patent”) which covers FEMCON FE and expires in 2019 is invalid or not infringed. In September 2009, the Company filed a lawsuit against Lupin in the District of Delaware charging Lupin with infringement of the ‘050 Patent. The lawsuit results in a stay of FDA approval of Lupin’s ANDA for 30 months from the date of the Company’s receipt of such notice, subject to the prior resolution of the matter before the court. On October 21, 2009, Lupin answered alleging invalidity and non-infringement of the ‘050 patent. No trial date has yet been set. In December 2008, the Company entered into a settlement and license agreement with a subsidiary of Barr Pharmaceuticals, Inc. (together with its subsidiaries, “Barr”), which was subsequently acquired by Teva, to resolve the Company’s patent litigation related to FEMCON FE. Under the terms of the agreement, Teva was not permitted to launch a generic version of FEMCON FE until the earlier of July 1, 2012 or, among other circumstances, the date that is two years following the date of the filing of a new ANDA with a Paragraph IV certification by a third-party. In January 2009, the Company entered into a settlement and license agreement with Watson to resolve patent litigation related to FEMCON FE. Under the agreement, Watson was permitted to commence marketing its generic equivalent product on the earlier of 180 days after Teva enters the market with a generic equivalent product, or January 1, 2013. If Lupin filed its ANDA with respect to FEMCON FE during 2009 and Teva’s ANDA with respect to a generic version of FEMCON FE is approved, Teva may be able to enter the market with a generic version of FEMCON as early as 2011. While the Company has filed an infringement suit against Lupin and intends to vigorously defend the ‘050 Patent and pursue its legal rights, it can offer no assurance as to when the lawsuit will be decided, whether the lawsuit will be successful or that a generic equivalent of FEMCON FE will not be approved and enter the market prior to the expiration of the ‘050 Patent in 2019.

False Claims Act Litigation

In December 2009, the Company was served with a civil complaint brought by an individual plaintiff, purportedly on behalf of the United States, alleging that the Company and over 20 other pharmaceutical manufacturers violated the False Claims Act (“FCA”), 31 U.S.C. § 3729(a)(1)(A), (B), by submitting false records or statements to the federal government, thereby causing Medicaid to pay for unapproved or ineffective drugs. The plaintiff’s original complaint was filed under seal in 2002, but was not served on the Company until 2009. The complaint alleges that the Company submitted to the Centers for Medicare and Medicaid Services (“CMS”) false information regarding the safety and effectiveness of certain nitroglycerin transdermal products. The plaintiff alleges that CMS included these products in its list of reimbursable prescription drugs and that, as a consequence federal Medicaid allegedly reimbursed state Medicaid programs for a portion of the cost of such products. The plaintiff asserts that from 1996 until 2003 the federal Medicaid program paid approximately $9.8 million to reimburse the states for the Company’s nitroglycerin transdermal products. The complaint seeks treble damages; a civil penalty of up to ten thousand dollars for each alleged false claim; and costs, expenses and attorneys’ fees.

The Company expects to file its response to the complaint during the second or third quarter of 2010. The Company intends to defend this action vigorously and currently believes that the complaint lacks merit. The Company has a number of defenses to the allegations in the complaint and anticipates filing a motion to dismiss the action. Although it is impossible to predict with certainty the outcome of any litigation, an unfavorable outcome in these proceedings is not anticipated. The estimate of the range of potential loss, if any, to the Company relating to these proceedings is not possible at this time.

14. Income Taxes

The Company operates in many tax jurisdictions including: the Republic of Ireland, the United States, the United Kingdom, Puerto Rico, Germany, Switzerland, Canada and other Western European countries. The Company’s effective tax rate for the quarter ended March 31, 2010 was 57.6%, which reflected a tax benefit on the quarterly loss as a result of the mix of income in the various jurisdictions the company operates in and a tax ruling granting the Company a reduced Swiss tax rate for 2009. The effective tax rate for the quarter ended March 31, 2009 was 16.0%. The effective income tax rate for interim reporting periods is volatile due to changes in income mix among the various tax jurisdictions in which the Company operates, the impact of discrete items, impacts from the purchase accounting related to the PGP Acquisition, as well as the overall level of consolidated income before income taxes. The Company’s estimated annual effective tax rate for all periods includes the impact of changes in income tax liabilities related to reserves recorded under ASC Topic 740.

15. Segment Information

After the PGP Acquisition, the Company organized its business into two reportable segments, North America (which includes the U.S., Canada and Puerto Rico) and the Rest of the World (“ROW”) consistent with how it manages its business and views the markets it serves. The Company manages its businesses separately in North America and the ROW as components of an enterprise for which separate information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate

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Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

resources and assess performance. Prior to the PGP Acquisition, all of the Company’s revenues were derived domestically through one reportable segment. Following the PGP Acquisition, the Company expanded into Western Europe, Canada, the United Kingdom and Australia. In addition to managing the Company’s results of operations in the two reportable segments, the Company manages revenues at a brand level.

An operating segment’s performance is primarily evaluated based on segment operating income, which excludes interest, and is used by the chief operating decision maker to evaluate the success of a specific region. The Company believes that segment operating income is an appropriate measure for evaluating the operating performance of its segments. However, this measure should be considered in addition to, not a substitute for, or superior to, income from operations or other measures of financial performance prepared in accordance with generally accepted accounting principles.

The following represents the Company’s segment operating profit and a reconciliation to its condensed consolidated income before taxes for the quarters ended March 31, 2010 and 2009:

The following table presents total net revenues by product for the quarters ended March 31, 2010 and 2009:

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Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

The following tables present capital expenditures, amortization of intangible assets and depreciation expense for the quarters ended March 31, 2010 and 2009:

The following table presents total revenue by significant country of domicile for the quarters ended March 31, 2010 and 2009:

16. Reliance on Significant Suppliers

The following table shows revenue generated from products provided by significant suppliers as a percentage of total revenues. In the event that a supplier suffers an event that causes it to be unable to manufacture the Company’s product requirements for a sustained period and we are unable to obtain the product requirements from an alternative supplier, the resulting shortages of inventory could have a material adverse effect on the business of the Company.

17. Comprehensive Income

ASC Topic 220, “Comprehensive Income”, requires foreign currency translation adjustments and certain other items, which were reported in shareholders’ equity to be separately disclosed as other comprehensive income / (loss). Other comprehensive income / (loss) is comprised of net income plus the period activity within accumulated other comprehensive income / (loss). Other comprehensive income was $(28,925) and $45,108 for the quarters ended March 31, 2010 and 2009, respectively. In the quarter ended March 31, 2009, other comprehensive income included unrealized gains/(losses) on the Company’s interest rate swap contract.

The components of accumulated other comprehensive income / (loss) consist of:

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Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

18. Retirement Plans

As a result of the PGP Acquisition, the Company assumed defined benefit retirement pension plans covering certain employees in Western Europe. Retirement benefits are generally based on an employee’s years of service and compensation. Funding requirements are determined on an individual country and plan basis and subject to local country practices and market circumstances. Prior to the PGP Acquisition, the Company did not offer any defined benefit pension plans and, therefore, there is no net periodic benefit cost for the quarter ended March 31, 2009.

The net periodic benefit cost of the Company’s defined benefit plans for the quarter ended March 31, 2010 included the following components:

Company Contributions

For the three months ended March 31, 2010, the Company contributed $55,976 to non-U.S. retirement plans.

19. Subsequent Events

Sanofi

In April 2010, the Company and Sanofi entered into an amendment to the Actonel Collaboration Agreement. Under the terms of the amendment, the Company took full operational control over the promotion, marketing and R&D decisions for ACTONEL in the United States and Puerto Rico, and assumed responsibility for all associated costs relating to those activities. Prior to the amendment, the Company shared such costs with Sanofi in these territories. The Company remained the principal in transactions with customers in the United States and Puerto Rico and continues to invoice all sales in these territories. In return, it was agreed that Sanofi would receive as part of the global collaboration payments between the parties, collaboration payments from the Company based on an agreed upon percentage of U.S. and Puerto Rico net sales for the remainder of the term of the Actonel Collaboration Agreement, which expires on January 1, 2015. Prior to the amendment, net profits from the sale of ACTONEL in these territories were allocated between the Company and Sanofi based on contractual percentages.

Dong-A

In April 2010, the Company amended its agreement with Dong-A to add the right to develop, and if approved, market, in the U.S. and Canada, Dong-A’s udenafil product, a PDE5 inhibitor, for the treatment of lower urinary tract symptoms associated with BPH. The Company currently is preparing to commence Phase II clinical trials for the BPH indication. This amendment resulted in the Company making an up-front payment to Dong-A of $20,000 in April 2010, which will be included in R&D expense in the second quarter of 2010. Under the amendment, the Company may make additional payments to Dong-A in the aggregate amount of $25,000 upon the achievement of contractually-defined milestones in relation to the BPH product. The Company also agreed to pay Dong-A a percentage of net sales of the BPH product in the U.S. and Canada, if any.

PGP France

On April 30, 2010, after receiving all needed approvals, the Company completed the acquisition of P&G’s pharmaceutical business in France (“PGP France”). During the period from the closing of the PGP Acquisition on October 30, 2009 until April 30, 2010, P&G operated PGP France for the benefit of the Company. During that period the results of operations for PGP France were for the Company’s account and were reflected in the Company’s financial statements. Upon closing of the acquisition of PGP France, the Company acquired the assets, including the profits generated after October 30, 2009, and assumed the liabilities of PGP France. No additional consideration was paid to P&G in connection with the PGP France closing.

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