CEPHALON INC_CEPH_ 10-K

					CEPHALON INC (CEPH)




10-K
Annual report pursuant to section 13 and 15(d)
Filed on 02/11/2011
Filed Period 12/31/2010
Use these links to rapidly review the document                    TABLE OF CONTENTS                   PART IV
Table of Contents


                                              UNITED STATES
                                  SECURITIES AND EXCHANGE COMMISSION
                                                                         Washington, D.C. 20549




                                                                          FORM 10-K

  (Mark One)
       ý               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                       OF 1934
                                                              For the fiscal year ended December 31, 2010
                                                                                    or
       o              TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                      ACT OF 1934
                                                                      For the transition period
                                                                   from            to
                                                                  Commission File Number 000-19119

                                                                       Cephalon, Inc.
                                                           (Exact Name of Registrant as Specified in Its Charter)
Delaware    (State or Other Jurisdiction of   Incorporation or Organization)               23-2484489     (I.R.S. Employer   Identification No.)
                           41 Moores Road                                                                      19355    (Zip Code)
                            P.O. Box 4011
 Frazer, Pennsylvania      (Address of Principal Executive Offices)
                                            Registrant's telephone number, including area code: (610) 344-0200

      Securities registered pursuant to Section 12(b) of the Act:
                                     Title of each class                                              Name of each exchange on which registered
                        Common Stock, par value $0.01 per share                                          NASDAQ Global Select Market
      Securities registered pursuant to Section 12(g) of the Act:

                                                                         None      (Title of Class)




      Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý           No o

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ý No o

      Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes ý No o

       Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. o

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.:


Large accelerated filer ý Accelerated filer o Non-accelerated filer o      (Do not check if a    smaller reporting company) Smaller reporting company o
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

      The aggregate market value of the voting stock held by non-affiliates of the registrant, as of June 30, 2010, was approximately $3.1 billion. Such
aggregate market value was computed by reference to the closing price of the Common Stock as reported on the NASDAQ Global Select Market on June 30,
2010. For purposes of making this calculation only, the registrant has defined affiliates as including only directors and executive officers and shareholders
holding greater than 10% of the voting stock of the registrant as of June 30, 2010.

      The number of shares of the registrant's Common Stock outstanding as of February 4, 2011 was 75,730,236.

                                                   DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant's definitive proxy statement for its 2011 annual meeting of stockholders are incorporated by reference into Items 10, 11, 12,
13, and 14 of Part III of this Form 10-K.
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                                                           TABLE OF CONTENTS




                                                                                                                                      Page
              Cautionary Note Regarding Forward-Looking Statements                                                                           ii
                                                                         PART I
              Item 1.    Business                                                                                                         1
              Item 1A.   Risk Factors                                                                                                    18
              Item 1B.   Unresolved Staff Comments                                                                                       32
              Item 2.    Properties                                                                                                      32
              Item 3.    Legal Proceedings                                                                                               33
              Item 4.    Removed and Reserved                                                                                            33
                                                                          PART II
              Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities      36
              Item 6.  Selected Financial Data                                                                                           38
              Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations                             40
              Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                                        74
              Item 8.  Financial Statements and Supplementary Data                                                                       75
              Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                             145
              Item 9A. Controls and Procedures                                                                                          145
                                                                          PART III
              Item 10. Directors, Executive Officers and Corporate Governance                                                           146
              Item 11. Executive Compensation                                                                                           146
              Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   146
              Item 13. Certain Relationships and Related Transactions, and Director Independence                                        146
              Item 14. Principal Accountant Fees and Services                                                                           146
                                                                          PART IV
              Item 15. Exhibits and Financial Statement Schedules                                                                       147
              SIGNATURES                                                                                                                161
                                                                       i
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                                                 CAUTIONARY NOTE REGARDING FORWARD-LOOKING
                                                              STATEMENTS

     In addition to historical facts or statements of current condition, this report and the documents into which this report is and will be incorporated contain
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Forward-looking statements contained in this report or incorporated herein by reference constitute our expectations or forecasts of future
events as of the date this report was filed with the Securities and Exchange Commission and are not statements of historical fact. You can identify these
statements by the fact that they do not relate strictly to historical or current facts. Such statements may include words such as "anticipate," "will," "estimate,"
"expect," "project," "intend," "should," "plan," "believe," "hope," and other words and terms of similar meaning in connection with any discussion of, among
other things, future operating or financial performance, strategic initiatives and business strategies, regulatory or competitive environments, our intellectual
property and product development. In particular, these forward-looking statements include, among others, statements about:

      •      our dependence on sales of PROVIGIL® (modafinil) Tablets [C-IV] and NUVIGIL® (armodafinil) Tablets [C-IV] in the United States and the
             market prospects and future marketing efforts for PROVIGIL, NUVIGIL, FENTORA® (fentanyl buccal tablet) [C-II], AMRIX®
             (cyclobenzaprine hydrochloride extended-release capsules) and TREANDA® (bendamustine hydrochloride);
      •      any potential approval of our product candidates, including with respect to any expanded indications for TREANDA, NUVIGIL and/or
             FENTORA;
      •      our anticipated scientific progress in our research programs and our development of potential pharmaceutical products including our ongoing or
             planned clinical trials, the timing and costs of such trials and the likelihood or timing of revenues from these products, if any;
      •      our ability to adequately protect our technology and enforce our intellectual property rights and the future expiration of patent and/or regulatory
             exclusivity on certain of our products;
      •      our ability to comply fully with the terms of our settlement agreements (including our Corporate Integrity Agreement) with the U.S. Attorney's
             Office ("USAO"), the U.S. Department of Justice ("DOJ"), the Office of the Inspector General of the Department of Health and Human Services
             ("OIG") and other federal government entities, the Offices of the Attorneys General of Connecticut and Massachusetts and the various states;
      •      our ongoing litigation matters, including the patent infringement lawsuits and other proceedings described in Note 18 to our Consolidated
             Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference;
      •      our future cash flow, our ability to service or repay our existing debt and our ability to raise additional funds, if needed, in light of our current and
             projected level of operations, acquisition activity and general economic conditions; and
      •      other statements regarding matters that are not historical facts or statements of current condition.

     Any or all of our forward-looking statements in this report and in the documents we have referred you to may turn out to be wrong. They can be affected
by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Therefore, you should not place undue reliance on any such

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forward-looking statements. The factors that could cause actual results to differ from those expressed or implied by our forward-looking statements include,
among others:

     •      the acceptance of our products by physicians and patients in the marketplace, particularly with respect to our recently launched products;
     •      our ability to obtain regulatory approvals to sell our product candidates, including any additional future indications for TREANDA, FENTORA
            and NUVIGIL, and to launch such products or indications successfully;
     •      scientific or regulatory setbacks with respect to research programs, clinical trials, manufacturing activities and/or our existing products;
     •      the timing and unpredictability of regulatory approvals;
     •      unanticipated cash requirements to support current operations, expand our business or incur capital expenditures;
     •      a finding that our patents are invalid or unenforceable or that generic versions of our marketed products do not infringe our patents or the "at
            risk" launch of generic versions of our products;
     •      the loss of key management or scientific personnel;
     •      the activities of our competitors in the industry;
     •      regulatory, legal or other setbacks or delays with respect to the settlement agreements with the USAO, the DOJ, the OIG and other federal
            entities, the state settlement agreements and Corporate Integrity Agreement related thereto, the settlement agreements with the Offices of the
            Attorneys General of Connecticut and Massachusetts, our settlements of the PROVIGIL patent litigation and the ongoing litigation related to
            such settlements, and the patent infringement lawsuits and other proceedings described in Note 18 to our Consolidated Financial Statements
            included in Part II, Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference;
     •      our ability to integrate successfully technologies, products and businesses we acquire and realize the expected benefits from those acquisitions,
            including our recent acquisitions of Mepha GmbH ("Mepha"), Ception Therapeutics, Inc. ("Ception") and BioAssets Development
            Corporation, Inc. ("BDC"), our investment in ChemGenex Pharmaceuticals Limited ("ChemGenex"), and our strategic alliance with
            Mesoblast Ltd. ("Mesoblast");
     •      adverse decisions of government entities and third-party payers regarding reimbursement for our products;
     •      unanticipated conversion of our convertible notes by our note holders;
     •      market conditions generally or in the biopharmaceutical industry that make raising capital or consummating acquisitions difficult, expensive or
            both;
     •      the effect of volatility of currency exchange rates; and
     •      enactment of new government laws, regulations, court decisions, regulatory interpretations or other initiatives that are adverse to us or our
            interests.

    We do not intend to update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.
We discuss in more detail the risks that we anticipate in Part I, Item 1a of this Annual Report on Form 10-K. This discussion is permitted by the Private
Securities Litigation Reform Act of 1995.

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                                                                            PART I

ITEM 1.    BUSINESS

Overview

     Cephalon is a global biopharmaceutical company dedicated to discovering, developing and bringing to market medications to improve the quality of life
of individuals around the world. Since its inception in 1987, Cephalon's strategy is to bring first-in-class and best-in-class medicines to patients in several
therapeutic areas, with a particular focus on central nervous system ("CNS") disorders, pain, oncology, inflammatory disease and regenerative medicine. We
market numerous branded and generic products around the world. In total, Cephalon sells more than 150 products in nearly 100 countries. Consistent with our
core therapeutic areas, we have aligned our approximately 735-person U.S. field sales and sales management teams by area. We have a sales and marketing
organization numbering approximately 660 persons that supports our presence throughout Europe, the Middle East and Africa. For the year ended
December 31, 2010, our total revenues and net income attributable to Cephalon, Inc. were $2.8 billion and $425.7 million, respectively. Our revenues from
U.S. and European operations are detailed in Note 21 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-
K.

    On December 16, 2010, our founder, Chairman and Chief Executive Officer, Dr. Frank Baldino, Jr. passed away. J. Kevin Buchi, formerly our Chief
Operating Officer, was named Chief Executive Officer by our Board of Directors (the "Board") on December 21, 2010. On February 1, 2011, our Board
named William P. Egan, an independent member of the Board since 1988 and formerly the Board's presiding director, as Chairman of the Board.

     During 2010, we completed certain transactions intended to build a portfolio of marketed and potential products, including:

     •       entry into a strategic alliance with Mesoblast Ltd., an Australian public company, to develop and commercialize novel adult Mesenchymal
             Precursor Stem Cell ("MPC") therapeutics for degenerative conditions of the cardiovascular and central nervous systems and for augmenting
             hematopoietic stem cell transplantation in cancer patients;
     •       entry into a convertible note subscription agreement and option agreement with ChemGenex Pharmaceuticals Limited, an Australian-based
             oncology focused biopharmaceutical company to fund clinical activities to complete a planned New Drug Application submission to the U.S.
             Food and Drug Administration for omacetaxine for the treatment of chronic myelogenous leukemia ("CML") patients who have failed two or
             more tyrosine kinase inhibitor ("TKIs");
     •       acquisition of Mepha GmbH, a privately-held, Swiss-based pharmaceutical company that markets branded and non-branded generics as well as
             specialty products in more than 50 countries;
     •       acquisition of BioAssets Development Corporation, a privately-held company, whose intellectual property estate covers the use of cytokine
             inhibitors, including TNF inhibitors, for sciatic pain in patients with intervertebral disk herniation, as well as other spinal disorders; and
     •       acquisition of Ception Therapeutics, Inc., a privately-held biotechnology company, whose lead product, CINQUIL (reslizumab), a humanized
             monoclonal antibody compound, entered into Phase III studies for patients with eosinophilic asthma in late 2010.

For more information regarding these transactions, please see Note 2 to our Consolidated Financial Statements included in Part II, Item 8 of the Annual
Report on Form 10-K.

     We have significant discovery research programs focused on developing oncology and inflammatory disease therapeutics. Our oncology technology
principally focuses on an understanding of kinases and proteases and the role they play in cellular integrity survival and proliferation. We have coupled this
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knowledge with a library of novel, small, orally-active synthetic molecules that inhibit the activities of specific kinases. We also have reinforced our
commitment to the treatment of inflammatory diseases through the use of biologics. Our entry into the biologics space combined with our efforts with our
small molecule products creates opportunities to address unmet medical needs. We also work with our collaborative partners to provide a more diverse
therapeutic breadth and depth to our research efforts.

     As a biopharmaceutical company, we are or may become a party to litigation in the ordinary course of our business, including, among others, matters
alleging employment discrimination, product liability, patent or other intellectual property rights infringement, patent invalidity or breach of commercial
contract. In particular, our future success is highly dependent on obtaining and maintaining patent protection or regulatory exclusivity for our products and
technology. In that regard, we are currently engaged in lawsuits with respect to generic company challenges to the validity and/or enforceability of our patents
covering AMRIX, FENTORA, PROVIGIL and NUVIGIL. We intend to vigorously defend the validity, and prevent infringement, of our patents. The loss of
patent protection or regulatory exclusivity on any of our existing products, whether by third-party challenge, invalidation, circumvention, license or
expiration, could materially impact our results of operations. We are also engaged in litigation with the U.S. Federal Trade Commission ("FTC") and various
private plaintiffs, including proposed class actions, regarding our PROVIGIL patent settlement agreements with certain generic pharmaceutical companies.
We believe the FTC and private complaints are without merit. While we intend to vigorously defend ourselves in our patent and FTC litigations, these efforts
will be both expensive and time consuming and, ultimately, due to the nature of litigation, there can be no assurance that these efforts will be successful. For
more information regarding the legal proceedings described in this Overview and others, please see Note 18 to our Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.

    For additional information regarding our product revenues, other revenues and geographic areas in which we operate, see Note 21 to our Consolidated
Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.




     We are a Delaware corporation with our principal executive offices located at 41 Moores Road, P.O. Box 4011, Frazer, Pennsylvania 19355. Our
telephone number is (610) 344-0200 and our web site address is http://www.cephalon.com. Our research and development headquarters are in West Chester,
Pennsylvania and we also have offices in Wilmington, Delaware, Salt Lake City, Utah, suburban Minneapolis-St. Paul, Minnesota, France, the United
Kingdom, Ireland, Denmark, Germany, Italy, the Netherlands, Poland, Spain, Switzerland, Australia, Hong Kong and certain other countries. We have
manufacturing facilities in France for the production of certain products. We also have manufacturing facilities in Salt Lake City, Utah, for the production of
FENTORA, EFFENTORA, ACTIQ and generic OTFC for worldwide distribution and sale, and Eden Prairie and Brooklyn Park, Minnesota, for the
production of orally disintegrating versions of drugs for pharmaceutical company partners.

     Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available
free of charge through the Investor Information section of our web site as soon as reasonably practicable after such material is electronically filed with or
furnished to the Securities and Exchange Commission. We include our web site address in this Annual Report on Form 10-K only as an inactive textual
reference and do not intend it to be an active link to our web site. The contents of our corporate website are not incorporated into this Annual Report on
Form 10-K.




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Selected Products
      NUVIGIL
      NUVIGIL, a single-isomer formulation of modafinil, is indicated for the treatment of excessive sleepiness associated with narcolepsy, obstructive sleep
apnea/hypopnea syndrome ("OSA/HS") and shift work sleep disorder ("SWSD") and was launched in June 2009. NUVIGIL comprised 7% and 3% of our
total consolidated net sales for the years ended December 31, 2010 and 2009, respectively, all in the U.S. market.

      In March 2009, we announced positive results from a Phase II clinical trial of NUVIGIL as adjunctive therapy for treating major depressive disorder in
adults with bipolar I disorder. We have initiated two Phase III clinical trials, which we expect to complete in late 2011 or early 2012 and will initate a third in
2011, which we expect to complete in late 2012 or early 2013. In June 2010, we announced that the primary endpoint was not met for a Phase II study of
NUVIGIL as an adjunctive therapy for the treatment of the negative symptoms of schizophrenia. In 2010, we also decided to discontinue our clinical studies
regarding NUVIGIL as a treatment of traumatic brain injury due to slow patient enrollment. In December 2010, we announced that we will not pursue further
a jet lag indication for NUVIGIL. In January 2011, we announced positive results from a phase IV clinical trial of NUVIGIL in patients experiencing
excessive sleepiness associated with shift work disorder, specifically during the end of their night shifts (i.e., 4:00 a.m. to 8:00 a.m.), including the commute
home. The study data showed statistically significant improvement in overall clinical condition related to late-shift sleepiness in patients receiving NUVIGIL
compared to the placebo group. This was the largest trial ever conducted in this patient population, with more than 380 patients randomized to treatment with
NUVIGIL or placebo.

    In clinical studies, NUVIGIL was generally well-tolerated. The most common side effects were mainly mild to moderate in severity and included nausea,
headaches, dizziness, diarrhea, decreased appetite and upset stomach.
      PROVIGIL
     PROVIGIL is indicated for the treatment of excessive sleepiness associated with narcolepsy, OSA/HS and SWSD and was launched in 1999. PROVIGIL
comprised 41% and 48% of our total consolidated net sales for the years ended December 31, 2010 and 2009, respectively, of which 94% was in the U.S.
market for each year. We expect that PROVIGIL will face generic competition in the United States beginning in April 2012 and, as a result, PROVIGIL sales
will materially decline. In clinical studies, PROVIGIL was generally well-tolerated, with a low incidence of adverse events relative to placebo. The most
commonly observed adverse events were headache, infection, nausea, nervousness, anxiety and insomnia.

      Outside of the U.S., modafinil currently is approved in more than 30 countries, including France, the United Kingdom, Ireland, Italy and Germany, for
the treatment of excessive daytime sleepiness associated with narcolepsy. In certain of these countries, we also have approval to market modafinil to treat
excessive daytime sleepiness in patients with OSA/HS and/or SWSD.
      GABITRIL
     GABITRIL is a selective GABA (gamma-aminobutyric acid) reuptake inhibitor approved for use as adjunctive therapy in the treatment of partial
seizures in epileptic patients. We currently have worldwide product rights to GABITRIL, excluding Canada and Latin America, and we market GABITRIL in
the United States, France, the United Kingdom and Germany, among other countries. The first of four Orange Book-listed patents for GABITRIL is set to
expire in September 2011, and we could face generic competition at that time. As a result, GABITRIL sales may materially decline.

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      FENTORA/ACTIQ/Generic OTFC
     FENTORA and ACTIQ (including our generic version of ACTIQ ("generic OTFC")) together comprised 13% and 17% of our total consolidated net
sales for the year ended December 31, 2010 and 2009, respectively, of which 75% and 80% were in the U.S. market, respectively.
      FENTORA
     We received U.S. Food and Drug Administration ("FDA") approval of FENTORA in late September 2006 and launched the product in the United States
in early October 2006. FENTORA is indicated for the management of breakthrough pain in patients with cancer who are already receiving and are tolerant to
opioid therapy for their underlying persistent cancer pain and was launched in October 2006. In April 2008, we received marketing authorization from the
European Commission for EFFENTORA for the same indication as FENTORA and launched the product in certain European countries in January 2009.

     We have focused our clinical strategy for FENTORA on studying the product in opioid-tolerant patients with breakthrough pain associated with chronic
pain conditions, such as neuropathic pain and back pain. In November 2007, we submitted a supplemental new drug application ("sNDA") to the FDA seeking
approval to market FENTORA for the management of breakthrough pain in opioid tolerant patients with chronic pain conditions. In December 2008, we
received a supplement request letter from the FDA requesting that we submit a Risk Evaluation and Mitigation Strategy (the "REMS Program") with respect
to FENTORA. We have been engaged in ongoing discussions with the agency regarding our REMS program for FENTORA and ACTIQ, and we expect to
receive a response from the FDA in the first half of 2011. We believe that, by working with the FDA, we can design and implement a REMS Program to meet
the FDA's requests and possibly to provide a potential avenue for approval of the sNDA. We anticipate initiating the REMS Program upon receipt of approval
from the FDA.

     In clinical trials, FENTORA was generally well tolerated. Most adverse events occurring with FENTORA are typical opioid side effects. The most
serious adverse events associated with all opioids are respiratory depression (potentially leading to apnea or respiratory arrest), circulatory depression,
hypotension, and shock. The most common (greater or equal to 10 percent) adverse events observed in clinical trials of FENTORA in patients with cancer
were nausea, vomiting, application site abnormalities, fatigue, anemia, dizziness, constipation, edema, asthenia, dehydration, and headache. In clinical trials in
patients with other chronic pain conditions, the most common (greater or equal to 10 percent) adverse events were nausea, vomiting, back pain, dizziness,
headache, and somnolence. Application site adverse events were reported in 12 percent of patients. Most side effects were mild to moderate in severity.
      ACTIQ/Generic OTFC
     ACTIQ is approved in the United States and certain countries in Europe for the management of breakthrough cancer pain in opioid-tolerant patients.
Generic OTFC is the generic version of ACTIQ sold through our sales agent, Watson Pharmaceuticals, Inc. in the United States. The FDA has notified us that
we must implement a REMS Program for ACTIQ and generic OTFC. Subject to the timing and nature of further discussions with the FDA, we expect to
receive a response from the FDA in the first half of 2011. ACTIQ sales have been meaningfully eroded by the launch of FENTORA and other fentanyl-based
products and by generic OTFC products sold since June 2006.
      AMRIX
     AMRIX is approved in the United States for short-term use as an adjunct to rest and physical therapy for relief of muscle spasm associated with acute,
painful musculoskeletal conditions and was

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launched in November 2007. With convenient, once-daily dosing, AMRIX provides relief from muscle spasm comparable to that with cyclobenzaprine
hydrochloride taken three times daily. AMRIX is intended for use up to two or three weeks. The most common side effects of AMRIX in Phase III clinical
trials were dry mouth, dizziness, fatigue, constipation, nausea and dyspepsia.
     TREANDA
    TREANDA is approved in the United States for the treatment of patients with chronic lymphocytic leukemia and patients with indolent B-cell non-
Hodgkin's lymphoma ("NHL") whose disease has progressed during or within six months of treatment with rituximab or a rituximab-containing regimen.
TREANDA comprised 14% and 10% of our total consolidated net sales for the years ended December 31, 2010 and 2009, respectively, all in the U.S. market.
      We are currently conducting a Phase III clinical trial of TREANDA in combination with RITUXAN as a front-line treatment for NHL. While not a
currently approved indication by the FDA, TREANDA was recently listed in the 2010 NCCN clinical practice guidelines and the Clinical Pharmacology
compendia as a front-line treatment for NHL. Separately, the results of an independent Phase III clinical study conducted by the German Study for Indolent
Lymphomas Group ("StiL Group") in Giessen, Germany were announced in December 2009. The study for the first-line treatment of patients with advanced
follicular, indolent, and mantle cell lymphomas, indicated better tolerability and more than a 20-month improvement in median progression free survival when
treated with TREANDA in combination with rituximab compared to cyclophosphamide, doxorubicin, vincristine, and prednisone ("CHOP") in combination
with rituximab. The indications covered by the study are not currently FDA-approved indications for TREANDA. We plan to submit the StiL Group's study
results to support an sNDA for TREANDA for the treatment of front-line NHL in 2011.
     Selected Products Intellectual Property and Exclusivity
     We place considerable importance on obtaining patent protection for new technologies, products and processes. We also rely on trade secrets, know-how
and continuing technological advancements to support our competitive position. Our intellectual property protection is crucial for our company to stay
competitive and to maintain exclusivity over our marketed branded products.

     Regarding our ongoing FENTORA, AMRIX, and NUVIGIL patent lawsuits and the PROVIGIL settlements and related lawsuits, please see Note 18 to
our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference. While we
intend to vigorously defend our intellectual property rights and the propriety of the PROVIGIL settlements, these efforts will be both expensive and time
consuming and, ultimately, due to the nature of litigation, there can be no assurance that these efforts will be successful.

     PROVIGIL/NUVIGIL: We own various U.S. and foreign patent rights that expire between 2014 and 2015 and cover pharmaceutical compositions and
uses of modafinil, including the commercial formulation of PROVIGIL. We also hold rights to other patents and patent applications directed to polymorphs,
manufacturing processes, formulations, and uses of modafinil and to next-generation modafinil products. We also own rights to PROVIGIL and other various
trademarks for our pharmaceutical products containing the active drug substance modafinil. Ultimately, these patents and patents related to our other products
and product candidates might be found invalid if challenged by a third party, or a potential competitor could develop a competing product or product
formulation that avoids infringement of these patents.

     With respect to NUVIGIL, we successfully obtained issuance of a U.S. patent in November 2006 claiming the Form I polymorph of armodafinil, the
active drug substance in NUVIGIL. This patent is currently set to expire in 2023. Foreign patent applications directed to the Form I polymorph of armodafinil
and its use in treating sleep disorders are pending in Europe and elsewhere. In addition,

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the particle size patent described above for PROVIGIL also covers NUVIGIL. We also hold rights to other patent applications directed to other polymorphic
forms of armodafinil and to the manufacturing process related to armodafinil. We hold rights to the NUVIGIL trademark.

     GABITRIL: GABITRIL is covered by U.S. and foreign patents that are held by Novo-Nordisk A/S. The U.S. patents have been licensed in the United
States exclusively to Abbott Laboratories. We have an exclusive sublicense from Abbott to these patents in the United States and exclusive licenses from
Novo-Nordisk to corresponding foreign patents. The U.S. composition-of-matter patents covering the currently approved product include: a patent claiming
tiagabine, the active drug substance in GABITRIL; a patent claiming crystalline tiagabine hydrochloride monohydrate and its use as an anti-epileptic agent; a
patent claiming the pharmaceutical formulation; and a patent claiming anhydrous crystalline tiagabine hydrochloride and processes for its preparation. These
patents currently are set to expire in 2011, 2012, 2016 and 2017, respectively. Supplemental Protection Certificates based upon corresponding foreign patents
covering this product are set to expire in 2011. We also hold rights to the GABITRIL trademark, which is used in connection with pharmaceuticals containing
tiagabine as the active drug substance.

     FENTORA: We own patents covering formulation, methods of treatment using certain formulations and manufacturing processes for FENTORA
expiring in 2019. We also hold rights to the FENTORA trademark.

      ACTIQ: The U.S. patents covering the currently approved compressed powder pharmaceutical composition and the method for administering fentanyl
via this composition expired in September 2006. As described above, we have licensed to Barr our U.S. rights to intellectual property necessary to
manufacture and market a generic OTFC. Corresponding patents covering the current formulation of ACTIQ in foreign countries generally expired between
2009 and 2010. Our patent protection with respect to the ACTIQ formulation we sold in the United States prior to June 2003 expired in May 2005. We hold
the rights to the ACTIQ trademark.

     AMRIX: In June 2008, the U.S. Patent and Trademark Office ("PTO") issued a pharmaceutical formulation patent for AMRIX, which expires in
February 2025. Since 2008, the U.S. PTO issued two additional pharmaceutical formulation patents covering AMRIX, and two method of treatment patents
covering AMRIX, all of which expire in November 2023. We have an exclusive North American license to these patents from Eurand. We also hold rights to
the AMRIX trademark.

     TREANDA: In 2008, we received a five year New Chemical Entity exclusivity which prevents the FDA from accepting an Abbreviated New Drug
Application ("ANDA") for this product for a period of five years from the date of approval (four years if the ANDA contains a Paragraph IV certification). In
August 2007, the FDA granted orphan drug status for TREANDA for the treatment of chronic lymphocytic leukemia ("CLL"). The orphan drug designation
provides a seven-year period of marketing exclusivity for the treatment of CLL with TREANDA until March 2015. We are also prosecuting method of
treatment, polymorph, manufacturing and formulation patent applications relating to bendamustine. We also hold rights to the TREANDA trademark.
     Selected Products Manufacturing
     We have third party agreements with four companies to supply us with modafinil (which requirements include certain minimum purchase requirements)
and two companies to supply us with finished commercial supplies of PROVIGIL. With respect to NUVIGIL, we have three third parties who manufacture
the active drug substance armodafinil and one qualified manufacturer of finished supplies of NUVIGIL tablets. We have one third-party manufacturer of the
active drug substance in GABITRIL and finished commercial supplies of the product. At our facility in Salt Lake City, Utah, we manufacture FENTORA,
ACTIQ and generic OTFC for our sale in the United States and

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international markets and EFFENTORA for our sale in certain countries in Europe. We have third party agreements with one company to supply us with
AMRIX capsules and another company to package the AMRIX capsules for commercial sale. We have two third-party suppliers of the active drug substance
bendamustine hydrochloride and two third-party suppliers of finished supplies of TREANDA. We seek to maintain inventories of active drug substance and
finished products to protect against supply disruptions. Any future change in manufacturers or manufacturing processes requires regulatory approval.
     Selected Products Competition
      The conditions that our products treat, and some of the other disorders for which we are conducting additional studies, are currently treated with many
drugs, several of which have been available for a number of years or are available in inexpensive generic forms. With respect to PROVIGIL and NUVIGIL,
there are several other products used for the treatment of excessive sleepiness or narcolepsy in the United States, including methylphenidate products, and in
our other territories, many of which have been available for a number of years and are available in inexpensive generic forms. For GABITRIL, the market for
the treatment of partial seizures in epileptic patients is well served with a number of available therapeutics, including gabapentin. With respect to AMRIX, we
face significant competition from SKELAXIN®, FLEXERIL® and other inexpensive generic forms of muscle relaxants. With respect to FENTORA, we face
competition from numerous short-and long-acting opioid products, including three products—Johnson & Johnson's DURAGESIC® and Purdue
Pharmaceutical's OXYCONTIN® and MS-CONTIN®—that dominate the market. In addition, we are aware of numerous other companies developing other
technologies for rapidly delivering opioids to treat breakthrough pain that will compete against FENTORA in the market for breakthrough cancer pain in
opioid-tolerant patients. ONSOLIS® and ABSTRAL® are approved for this indication. It also is possible that the existence of generic OTFC could negatively
impact the growth of FENTORA. With respect to ACTIQ, generic competition has meaningfully eroded branded ACTIQ sales and impacted sales of our own
generic OTFC through Watson. With respect to TREANDA, we face competition from LEUKERAN®, CAMPATH® and the combination therapy of
fludarabine, cyclophosphamide and rituximab.

INTERNATIONAL OPERATIONS

Commercial Products

     We market and sell directly or through partnerships 150 different branded and generic products in nearly 100 countries worldwide. We have a strong
presence in Europe, the Middle East and Africa. In 2010, we acquired all of the issued share capital of Mepha, a privately-held, Swiss-based pharmaceutical
company, who markets its products in Europe, the Middle East, Africa, South and Central America as well as in Asia. The acquisition of Mepha allows us to
expand our geographic reach and to further diversify our business mix into the generic and branded generic arena. For the year ended December 31, 2010,
aggregate net sales outside the United States accounted for 24% of our total consolidated net sales. In 2010, our largest products in terms of net product sales
outside the United

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States are shown in the table below. Together, these products accounted for 63% of our total European segment net sales and 15% of our total consolidated
net sales for the year ended December 31, 2010.


               Product                                                    Indication                                       Key Market(s)
               ABELCET (amphotericin B lipid           Anti-fungal                                    France, Germany, U.K, .Italy, Spain, Central Eastern
                 complex)                                                                             European countries, Benelux, Poland

               ACTIQ (oral transmucosal fentanyl       Breakthrough cancer pain                       France, Germany, U.K., Italy, Netherlands, Spain
                 citrate)

               DICLOFENAC                              Non-steroidal anti-inflammatory drug           Switzerland, Africa, Middle East, Poland
                                                       (NSAID)

               EFFENTORA                               Breakthrough cancer pain                       France, Germany, Italy, Poland, Spain, U.K.

               MYOCET (liposomal doxorubicin)          Metastatic breast cancer                       France, Germany, U.K., Italy, Spain, Central Eastern
                                                                                                      European Countries, Benelux, Poland

               OMEPRAZOL                               Proton pump inhibitor for indigestion          Switzerland, Portugal, Baltic countries

               PROVIGIL (modafinil)(1)                 Excessive sleepiness associated with           France, Germany, U.K., Italy, Spain, Benelux
                                                       narcolepsy and certain other conditions

               SPASFON® (phloroglucinol)               Biliary/urinary tract spasm and irritable      France, certain African countries including Morocco,
                                                       bowel syndrome                                 Algeria, Tunisia

               TARGRETIN (bexarotene)                  Cutaneous T-cell lymphoma                      France, Germany, U.K.

               VOGALENE                                Nausea                                         France


               (1)    Marketed under the name MODIODAL® (modafinil) in France and under the name VIGIL® (modafinil) in Germany.

      In Asia, we have established an office in Hong Kong. We are seeking approval from the Chinese authorities to develop and register our products and are
exploring opportunities in China and expect this market to be a key part of our Asian growth strategy moving forward. In 2007, our licensees, Alfresa Pharma
and Mitsubishi Tanabe Pharma, launched modafinil in Japan (under the trade name MODIODAL) for the treatment of excessive daytime sleepiness associated
with narcolepsy. Nippon Shinyaku launched TRISENOX (arsenic trioxide) in Japan in 2004. We have formed relationships with other Japanese companies
that are conducting clinical trials with, and pursuing regulatory approval of, a number of our products in Japan. Cephalon recently received marketing
approval for TREANDA in Hong Kong, and we will be responsible for the marketing of the product in Hong Kong.

     In April 2008, we received marketing authorization from the European Commission for EFFENTORA for the same indication as FENTORA and
launched the product in certain European countries in January 2009. We anticipate launching EFFENTORA in additional European countries in 2011.

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     In December 2009, we entered into an agreement with UCB Pharma France under which we acquired all assets related to the development,
manufacturing, marketing and sale of VOGALENE® (metopimazine) and VOGALIB® (metopimazine) in France and French overseas territories for
$53.3 million. These products are approved for use in the symptomatic treatment of nausea and vomiting. The injectable solution is approved for the
prevention of nausea and vomiting in patients under chemotherapy.

    In February 2011, we entered an agreement with H. Lundbeck A/S for the distribution of certain of our proprietary products in Latin America and
Canada.
Manufacturing Operations

      Our manufacturing facility in Nevers, France is producing SPASFON for France and certain other countries. In Mitry-Mory, France, we produce the
active pharmaceutical ingredient for SPASFON®. We manufacture certain other products at these facilities in France for sale in Europe and also perform
warehousing, packaging and distribution activities for certain products sold in France and other export territories from these facilities. Our manufacturing
facility in Basel, Switzerland manufactures many of Mepha's branded generic products. NAXY, MONONAXY, MYOCET, ABELCET, TARGRETIN and
GABITRIL are among our European products that are manufactured for us by third party manufacturers. For these and most of our other European products,
we depend on single sources for the manufacture of both the active drug substances contained in our products and for finished commercial supplies. We seek
to maintain inventories of active drug substance and finished products to protect against supply disruptions. Any future change in manufacturers or
manufacturing processes requires regulatory approval.

European Competitive and Regulatory Environment

      In Europe, we face competition from generic versions of a number of the branded products we market. In addition, European Union pricing laws also
allow the parallel importation of branded drugs between member countries. Due to pricing variations within the European Union, it is possible that our overall
margins on our branded drugs could be impacted negatively as a result of the importation of product from relatively lower-margin member countries to
relatively higher-margin member countries.

    We also face competition from other generic versions of the generic products we market. Assuming relatively low legal and economic barriers to entry,
we expect that other parties will continue to enter generic product markets and further stratify market share.

     In addition, the manufacture and sale of our products in Europe are subject to extensive regulation by European governmental authorities. Government
efforts to control healthcare costs may result in further growth of generic competition to our proprietary products or a decrease in the selling prices of any of
our proprietary products due to associated decreases in the amount the government health care authority will reimburse for any of those products.

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Clinical Studies/Pipeline/Research and Development

     In addition to the ongoing development of our commercialized products, we currently have a number of product candidates in development. In 2011 and
beyond, we expect to continue to expend a significant amount of time and resources on our clinical programs. The following table summarizes our late-stage
clinical programs:


                                                                                                                                        TARGETED LAUNCH
        PRODUCT                                                         CLINICAL STUDY                                   STATUS                DATE
        TREANDA                              Front line NHL                                                             Phase III                          2012
        Tamper deterrent hydrocodone         Chronic Pain                                                               Phase III                          2012
        NUVIGIL                              Adjunctive therapy for treating bi-polar depression disorder in            Phase III                          2013
                                             adults
      Mesenchymal precursor cells            Cord blood expansion                                                  Phase II completed                      2014
      CEP-37247 (anti-tumor necrosis factor) Sciatica (administered via epidural injection)                            Phase I/II                          2014
      CINQUIL                                Eosinophilic asthma                                                       Phase III                           2014
      LUPUZOR                                Systemic lupus erythematosus                                              Phase IIb                           2015
      REVASCOR                               Congestive heart failure                                                   Phase II                           2015
      REVASCOR                               Acute myocardial infarction                                                Phase II                           2016
     Tamper Deterrent Hydrocodone
    Our tamper-deterrent formulation of hydrocodone was developed from our efforts to create tamper deterrent opioids utilizing our OraGuard technology.
OraGuard provides resistance against various tampering methods, including chewing, aqueous extraction for IV dosing and alcohol extraction.
     CEP-37247
     CEP-37247 is a new generation tumor necrosis factor (TNF) alpha blocker in Phase II development to treat patients with sciatica. Sciatica is a
neuropathic inflammatory pain condition that occurs when the sciatic nerve is compressed, injured or irritated. CEP-37247 is based on a new type of
therapeutic protein called a domain-based antibody. CEP-37247 is the first product incorporating domain-based antibodies (dAb) to be used in human trials.
Domain-based antibodies exhibit the binding properties to a target characteristic of a full-sized antibody, but are considerably smaller. This smaller size has
several possible advantages including improved manufacturing yield, lower immunogenicity and improved tissue penetration. In November 2010, we
exercised our option to acquire BioAssets Development Corporation ("BDC"), following receipt of interim data from a Phase II placebo-controlled proof-of-
concept study evaluating epidural administration of the TNF inhibitor, etanercept, for the treatment of sciatica in 45 patients. As part of the acquisition, we
gained the rights to the BDC intellectual property estate covering the use of cytokine inhibitors, including TNF inhibitors, for sciatic pain in patients with
intervertebral disk herniation, as well as other spinal disorders.
     CINQUIL (reslizumab)
    CINQUIL is an investigational humanized monoclonal antibody (mAb) against interleukin-5 (IL-5) in Phase III development to treat eosinophilic
asthma. IL-5 has been shown to play a crucial role in the maturation, growth and chemotaxis (movement) of eosinophils, inflammatory white blood cells

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implicated in a number of allergic diseases. Eosinophilic asthma is a type of severe asthma with persistent inflammation of the airways associated with
increased levels of eosinophils. There is an increasing body of evidence that asthma is a heterogeneous disease, with eosinophilic airway inflammation a
common feature among phenotypes. Many patients with asthma respond well to inhaled corticosteroids. However, there is a subgroup of patients with severe
asthma in whom eosinophilic airway inflammation persists despite therapy with high doses of inhaled corticosteroids. Patients with eosinophilic asthma may
experience changes in their airways, impaired lung function, more frequent asthma exacerbations, and near-fatal asthma attacks. Such patients are in need of
additional anti-inflammatory therapies to address persistent high levels of eosinophils and associated poor prognosis.

    In February 2010, we announced that a Phase II clinical trial of CINQUIL in 106 patients demonstrated improved asthma control in adult patients with
moderate to severe asthma and eosinophilic airway inflammation, as measured by the primary study endpoint, a change in Asthma-Control-Questionnaire or
ACQ score (p=0.054). In addition, an analysis of the FEV1, a measure of lung function, showed a statistically significant improvement with CINQUIL
compared to placebo (p=0.002).
     LUPUZOR
     We hold an exclusive, worldwide license to the investigational medication LUPUZOR for the treatment of systemic lupus erythematosus ("Lupus").
Under the terms of our license, we will assume all expenses for the additional Phase II and Phase III clinical studies, regulatory filings and, assuming
regulatory approval, subsequent commercialization of the product.

     Lupus is an autoimmune disease causing various effects throughout different parts of the body. Its severity can range from very mild to extremely serious
depending on which body organs are afflicted. The Lupus Foundation of America estimates that 1.5 million Americans have a form of Lupus. Approximately
90 percent of those diagnosed with the disease are women. Lupus is two to three times more prevalent among people of color, including African-Americans,
Hispanics/Latinos, Asians, and Native Americans. LUPUZOR has shown that it modulates, through a unique mechanism, a specific subset of CD4 T cells
which may play a critical role in the physiopathology of Lupus. Patents for LUPUZOR have been approved in Europe, Japan and Australia, and have been
applied for in the United States.

     In May 2010, our licensor Immupharma plc announced the final results from a Phase IIb trial of LUPUZOR in active patients with Lupus. LUPUZOR
administered at 200 mcg once-a-month for 3 months plus standard of care achieved a clinically significant improvement in patient response rate versus
standard of care plus placebo in the intention to treat (ITT) analysis. The improvement was statistically significant in a subgroup (90% of the ITT population)
of moderate to severe patients. Sixty-two percent of this sub-group of patients were responders according to both a composite clinical score and a decrease of
4 points of the SLEDAI score when treated with LUPUZOR 200 mcg once-a-month for three months compared to 41% on placebo. LUPUZOR was generally
well tolerated with fewer serious adverse event rates versus standard of care leading to discontinuation.
     REVASCOR/Mesynchymal Precursor Cells
     Cephalon and Mesoblast have entered into a strategic alliance to develop and commercialize Mesoblast's Mesenchymal Precursor Cell (MPC)
therapeutics for hematopoietic stem cell transplantation in cancer patients, as well as degenerative conditions of the cardiovascular and central nervous
systems, including congestive heart failure, acute myocardial infarction, Parkinson's Disease, and Alzheimer's Disease.

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    Human stem cells are the immature cells that give rise to all of the different types of mature cells that make up the organs and tissues of the adult body.
Mesoblast MCPs are derived from volunteer adult donors.

     MPCs from a given donor do not activate immune cells from unrelated recipients. This property is likely to enable Cephalon and Mesoblast to generate a
range of "off-the-shelf" MPC products from universal donors, simplifying the process and costs of batch quality assurance/quality control testing, reducing
cost-of-goods, and increasing product margins. It is anticipated that MPC-derived products from allogeneic, or unrelated, donors will be available to the
clinician on demand, and used in a similar way as any pharmaceutical product. Unlike embryonic stem cells, there are no ethical issues with the use of MPCs.
     In January 2011, we announced with Mesoblast positive interim results from Mesoblast's ongoing multi-center Phase II trial of REVASCOR, its "off-the-
shelf" proprietary adult stem cell product for patients with congestive heart failure. Patients who received a single injection of REVASCOR into damaged
heart muscle have had less cardiac events, deaths, and hospitalizations during the follow-up period to date than control patients. In the randomized, placebo-
controlled Phase II trial in 60 patients with moderate-severe congestive heart failure, a single injection of REVASCOR at one of three progressively
increasing doses has been administered to 45 patients randomized to receive cell therapy in addition to standard-of-care, while 15 control patients have been
concomitantly randomized to receive standard-of-care and a sham injection. The trial will be completed when all available patients have been followed-up for
12 months. REVASCOR is delivered to damaged areas of the heart by a minimally invasive cardiac catheterization procedure performed under local
anaesthesia while the patient is awake. Patients undergoing the procedure are usually released from the hospital within 24 hours.

     A scheduled interim analysis of safety and of time-dependent hard efficacy endpoints was performed when the last of the 60 enrolled patients had
completed six months of follow-up in December 2010. At this time point, the 45 patients who received REVASCOR had been followed for a mean of
18.5 months/patient and the 15 controls had been followed for a mean of 18 months/patient. There have been no cell-related adverse events in any of the 45
patients treated with REVASCOR, demonstrating that all three doses of the cell therapy product are safe over both the short and medium term. Analyses of
time-dependent hard efficacy endpoints showed that a single injection of REVASCOR significantly reduced the number of patients who developed any
serious adverse events over the follow-up period from 93.3% in the control group to 44.4% in the treated patients (p=0.001). REVASCOR also significantly
reduced the number of patients who developed any major adverse cardiac events (MACE, defined as the composite of cardiac death, heart attack, or coronary
revascularization procedures) from 40% to 6.7% (p=0.005). A single injection of REVASCOR reduced the overall monthly event rate of a MACE by 84%
compared with controls (p=0.01), and every dose tested demonstrated a similar protective effect. Death from cardiac causes was reduced from 13.3% to 0%
over this period (p=0.059) and the overall monthly rate of cardiac-related hospitalizations was reduced by 48% (p=0.07).

     Congestive heart failure remains a leading cause of hospital admissions, morbidity and mortality in the Western world. The American Heart Association
and the National Heart, Lung, and Blood Institute have estimated that cardiovascular disease and stroke cost the United States at least $448.5 billion annually,
and the burden continues to grow as the population ages. In the United States alone, congestive heart failure has an annual incidence of 670,000 patients, a
prevalence of 6.2 million patients, and causes over 1.1 million hospitalizations and 300,000 deaths per year. Heart failure affects around 10 million in Europe
and as many as 20 million worldwide.

     We anticipate finalizing with Mesoblast the Chemistry, Manufacturing Controls requirements during 2011 and prior to beginning any Phase III program.
In 2011, we plan to finalize the Phase III

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protocol for a cord blood expansion clinical study, conduct an end of Phase II meeting with the FDA for the congestive heart failure clinical study and
commence a Phase II program for the treatment of acute myocardial infarction.
     Research and Development
      In addition to ongoing clinical programs supporting our marketed products and internally generated compounds and biologics at various stages of clinical
investigation, our discovery research and development efforts focus primarily on three therapeutic areas: oncology, inflammatory disease and pain. Our
research strategy is guided by four core principles: 1) balancing risk; 2) utilizing multiple technologies within a therapeutics focus; 3) establishing strategic
alliances to complement internal expertise; and 4) innovative research and development that focuses on unmet medical needs.
     In August 2009, we completed our acquisition of Arana Therapeutics Limited ("Arana"), which allows us to increase our research and development
efforts, particularly with biologics, expand our discovery research technology platform, diversify our therapeutic interests and broaden our pipeline
opportunities. In 2009, we restructured our discovery research organization to focus on our pipeline opportunities, primarily in oncology, inflammatory
disease and pain, with an emphasis on our biologic opportunities, wound down our internal discovery research efforts in CNS and reduced our overall cost
structure.

     For the years ended December 31, 2010, 2009 and 2008, our research and development costs were $440.0 million, $395.4 million, and $362.2 million,
respectively. Additionally, for 2010, 2009 and 2008, we incurred charges associated with acquired in-process research and development of $100.0 million,
$46.1 million and $42.0 million, respectively.
     Oncology
    Our current oncology research program includes two main therapeutic targets: solid tumors, which are associated with a broad range of cancers, and
hematological cancers, including acute myeloid leukemia ("AML"), multiple myeloma and myeloproliferative disorders ("MPD").

    We have synthesized a number of proprietary, orally active molecules that are potent, dual inhibitors of VEGF and Tie-2 kinases. These molecules have
been shown to potently inhibit the formation of blood vessels and thereby slow growth and/or induce regressions of a variety of tumors in pre-clinical models.
A potential drug candidate, CEP-11981, has been identified incorporating both of these important mechanisms, and we are currently testing this molecule in
Phase I clinical trials.

     Many current cancer therapies are designed to arrest and kill rapidly dividing cells non-selectively via damage to DNA. Thus, traditional chemotherapy
and radiation therapy kill all rapidly dividing cells, including both normal and cancerous cells, and the benefits of these therapies are often limited by their
toxicity to normal cells. In addition, DNA repair mechanisms in tumor cells are up-regulated, further limiting the ability of these treatments to be completely
successful. PARP is an integral DNA repair enzyme that corrects single and double strand DNA breaks in normal cells, cancer cells and after chemo- or
radiation therapy. Using pre-clinical models, we have shown that inhibiting this key repair mechanism sensitizes the tumor to the anti-tumor killing effects of
chemo and radiation therapy and thereby overcomes tumor resistance. CEP-9722 was chosen from a library of proprietary potent, orally active PARP
inhibitors. We filed an Investigational Medicinal Product Dossier, the European equivalent of an IND, for CEP-9722 in the fourth quarter of 2008 and are
currently in Phase II clinical trials.

     As part of the Arana acquisition, we acquired rights to the biologics CEP-37250 and CEP-37251. CEP-37250 is being investigated as a potential
treatment for colorectal cancer as part of a collaboration with Kyowa Hakko Kirin ("Kyowa"). Targeting a tumor selective carbohydrate, CEP-37250 is active

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against wild type and K-Ras mutations. This biologic has demonstrated in vitro and in vivo efficacy and potent cell-killing activity.

     We are actively pursuing the development of novel inhibitors of the proteosome, a multifunctional protease integral to normal cellular functioning. Based
on clinical and pre-clinical studies, we believe that proteosome inhibitors may have utility in the treatment of hematological cancers, particularly multiple
myeloma. We have identified proprietary proteosome inhibitors that in preclinical models of cancer display greater efficacy and tolerability than currently
available therapies. These proteosome inhibitors also may be useful in the treatment of solid tumors. CEP-18770, a potent, proprietary proteosome inhibitor, is
currently in Phase II clinical investigation.
      Inflammatory Disease
     We acquired CEP-37248 as part of the Arana acquisition. CEP-37248 is a humanized antibody targeting cytokines IL 12/23. By blocking IL 12/23, we
believe CEP-37248 can reduce inflammation associated with certain autoimmune diseases. We plan to file an IND for this biologic product in 2012.
      CNS Disorders
     While we have wound down our CNS discovery research, we continue to develop CEP-26401, a histamine H3 receptor antagonist/inverse agonist.
CEP-26401 is one of the first GPCR-directed compound entering into IND-enabling development activities with the therapeutic potential for treatment of the
cognitive disorders associated with the negative symptoms of schizophrenia and/or symptomatic improvement in the cognitive dysfunction in Alzheimer's
disease. We filed an IND and began a Phase I study for CEP-26401 in 2009.

GOVERNMENT REGULATION

     The manufacture and sale of therapeutics are subject to extensive regulation by U.S. and foreign governmental authorities. In particular, pharmaceutical
products are subject to rigorous preclinical and clinical trials and other approval requirements as well as other post-approval requirements by the FDA under
the Federal Food, Drug, and Cosmetic Act and by analogous agencies in countries outside the United States.

     As an initial step in the FDA regulatory approval process, preclinical studies are typically conducted in animals to identify potential safety problems and,
in some cases, to evaluate potential efficacy. The results of the preclinical studies are submitted to regulatory authorities as a part of an IND that is filed with
regulatory agencies prior to beginning studies in humans. However, for several of our drug candidates, no animal model exists that is potentially predictive of
results in humans. As a result, no in vivo indication of efficacy is available until these drug candidates progress to human clinical trials.

      Clinical trials are typically conducted in three sequential phases, although the phases may overlap. Phase I typically begins with the initial introduction of
the drug into human subjects prior to introduction into patients. In Phase I, the compound is tested for safety, dosage tolerance, and pharmacokinetics, as well
as, if possible, to gain early information on effectiveness. Phase II typically involves studies in a small sample of the intended patient population to assess the
efficacy of the drug for a specific indication, determine the optimal dose range, and to gather additional information relating to safety and potential adverse
effects. Phase III trials are undertaken to further evaluate clinical safety and efficacy in an expanded patient population, generally at multiple study sites, to
determine the overall risk-benefit ratio of the drug and to provide an adequate basis for product labeling. Each trial is conducted in accordance with certain
standards under protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. In the
United States, each protocol must be submitted to the FDA as part of the IND.

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Further, one or more independent Institutional Review Boards must evaluate each clinical study. The Institutional Review Board considers, among other
things, ethical factors, the safety of the study, the adequacy of informed consent by human subjects and the possible liability of the institution. Similar
procedures and requirements must be fulfilled to conduct studies in other countries. The process of completing clinical trials for a new drug is likely to take a
number of years and require the expenditure of substantial resources.

      Promising data from preclinical and clinical trials are submitted to the FDA in an NDA (or a Biologic License Application ("BLA") for biologics) for
marketing approval and to foreign regulatory authorities under applicable requirements. Preparing an NDA, BLA or foreign application involves considerable
data collection, verification, analyses and expense, and there can be no assurance that the applicable regulatory authority will accept the application or grant
an approval on a timely basis, if at all. The marketing or sale of pharmaceuticals in the United States may not begin without FDA approval. The approval
process is affected by a number of factors, including primarily the safety and efficacy demonstrated in clinical trials and the severity of the disease.
Regulatory authorities may deny an application if, in their sole discretion, they determine that applicable regulatory criteria have not been satisfied or if, in
their judgment, additional testing or information is required to ensure the efficacy and safety of the product. One of the conditions for initial marketing
approval, as well as continued post-approval marketing, is that a prospective manufacturer's quality control and manufacturing procedures conform to the
current Good Manufacturing Practice regulations of the regulatory authority. In complying with these regulations, a manufacturer must continue to expend
time, money and effort in the area of production, quality control and quality assurance to ensure full compliance. Manufacturing establishments, both foreign
and domestic, also are subject to inspections by or under the authority of the FDA and by other federal, state, local or foreign agencies. Discovery of
previously unknown problems with a product or manufacturer may result in restrictions on such product or manufacturer, including withdrawal of the product
from the market.

     After regulatory approval has been obtained, further studies, including Phase IV post-marketing studies, may be required to provide additional data on
safety, to validate surrogate efficacy endpoints, or for other reasons, and the failure of such studies can result in a range of regulatory actions, including
withdrawal of the product from the market. Further studies will be required to gain approval for the use of a product as a treatment for clinical indications
other than those for which the product was initially approved. Results of post-marketing programs may limit or expand the further marketing of the products.
Further, if there are any modifications to the drug, including any change in indication, manufacturing process, labeling or manufacturing facility, it may be
necessary to submit an application seeking approval of such changes to the FDA or foreign regulatory authority. Finally, the FDA can place restrictions on
approval and marketing utilizing its authority under applicable regulations. For example, ACTIQ was approved under subpart H of FDA approval regulations,
which gives the FDA the authority to pre-approve promotional materials and permits an expedited market withdrawal procedure if issues arise regarding the
safe use of ACTIQ. Moreover, marketed products are subject to continued regulatory oversight by the Office of Medical Policy Division of Drug Marketing,
Advertising, and Communications, and the failure to comply with applicable regulations could result in marketing restrictions, financial penalties and/or other
sanctions.

      Whether or not FDA approval has been obtained, approval of a product by regulatory authorities in foreign countries must be obtained prior to the
commencement of commercial sales of the product in such countries. The requirements governing the conduct of clinical trials and product approvals vary
widely from country to country, and the time required for approval may be longer or shorter than that required for FDA approval. Although there are
procedures for unified filings for most European countries, in general, each country also has its own additional procedures and requirements, especially
related to pricing of new pharmaceuticals. Further, the FDA and other federal agencies regulate the

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export of products produced in the United States and, in some circumstances, may prohibit or restrict the export even if such products are approved for sale in
other countries.

     In the United States, the Orphan Drug Act provides incentives to drug manufacturers to develop and manufacture drugs for the treatment of rare diseases,
currently defined as diseases that affect fewer than 200,000 individuals in the United States, or for a disease that affects more than 200,000 individuals in the
United States, where the sponsor does not realistically anticipate its product becoming profitable. Under the Orphan Drug Act, a manufacturer of a designated
orphan product can seek certain tax benefits, and the holder of the first FDA approval of a designated orphan product will be granted a seven-year period of
marketing exclusivity for that product for the orphan indication. For example, TREANDA received orphan drug status for the treatment of CLL. While the
marketing exclusivity of an orphan drug would prevent other sponsors from obtaining approval of the same drug compound for the same indication unless the
subsequent sponsors could demonstrate clinical superiority or a market shortage occurs, it would not prevent other sponsors from obtaining approval of the
same compound for other indications or the use of other types of drugs for the same use as the orphan drug. Orphan drug designation generally does not
confer any special or preferential treatment in the regulatory review process. The U.S. Congress has considered, and may consider in the future, legislation
that would restrict the duration or scope of the market exclusivity of an orphan drug and, thus, we cannot be sure that the benefits of the existing statute will
remain in effect. Additionally, we cannot be sure that other governmental regulations applicable to our products will not change.

      In addition to the market exclusivity period under the Orphan Drug Act, the U.S. Drug Price Competition and Patent Term Restoration Act of 1984
permits a sponsor to petition for an extension of the term of a patent for a period of time following the initial FDA approval of an NDA. The statute
specifically allows a patent owner acting with due diligence to extend the term of the patent for a period equal to one-half the period of time elapsed between
the approval of the IND and the filing of the corresponding NDA, plus the period of time between the filing of the NDA and FDA approval, up to a maximum
of five years of patent term extension. Any such extension, however, cannot extend the patent term beyond a maximum term of fourteen years following FDA
approval and is subject to other restrictions. Additionally, under this statute, five years of marketing exclusivity is granted for the first approval of a New
Chemical Entity ("NCE"). During this period of exclusivity, an ANDA or a 505(b)(2) application cannot be submitted to the FDA for a drug product
equivalent or identical to the NCE. An ANDA is the application form typically used by manufacturers seeking approval of a generic version of an approved
drug. There is also a possibility that Congress will revise the underlying statute in the next few years, which may affect these provisions in ways that we
cannot foresee. Additionally, the FDA regulates the labeling, storage, record keeping, advertising and promotion of prescription pharmaceuticals. Drug
manufacturing establishments must register with the FDA and list their products with the FDA.

      The Controlled Substances Act imposes various registration, record-keeping and reporting requirements, procurement and manufacturing quotas,
labeling and packaging requirements, security controls and a restriction on prescription refills on certain pharmaceutical products. A principal factor in
determining the particular requirements of this act, if any, applicable to a product is its actual or potential abuse profile. A pharmaceutical product may be
listed as a Schedule II, III, IV or V substance, with Schedule II substances considered to present the highest risk of substance abuse and Schedule V
substances the lowest. Modafinil, the active drug substance in PROVIGIL, and armodafinil, the active ingredient in NUVIGIL, have been scheduled under the
Controlled Substances Act as a Schedule IV substance. Schedule IV substances are subject to special handling procedures relating to the storage, shipment,
inventory control and disposal of the product. Fentanyl, the active ingredient in FENTORA, ACTIQ and generic OTFC, is a Schedule II controlled substance.
Schedule II substances are subject to even stricter handling and record keeping requirements and prescribing restrictions than Schedule III or IV products. In
addition to federal scheduling, PROVIGIL, FENTORA, NUVIGIL,

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ACTIQ and generic OTFC are subject to state controlled substance regulation, and may be placed in more restrictive schedules than those determined by the
DEA and FDA. However, to date, modafinil, armodafinil and fentanyl have not been placed in a more restrictive schedule by any state.

     In 2010, the U.S. government enacted a sweeping health care reform law. We expect that this law will have certain negative effects and currently non-
estimable positive effects upon our business. In particular, the law increased the Medicaid rebate to 23.1%, extended rebates to Medicaid Managed Care
Organziations and incrementally increased Public Health Service ("PHS") pricing discounts. We also expect that we will be negatively affected by other
provisions of the health reform law to be implemented in 2011, including:

      •      To expand Medicare Part D coverage, pharmaceutical companies will provide a 50% discount (increasing to 75% by 2020) for all Part D branded
             pharmaceutical products for Medicare beneficiaries in the coverage gap (commonly referred to as the "Doughnut Hole"); and
      •      Branded pharmaceutical companies will pay an annual fee based on all prior year product sales to U.S. government programs (such as TriCare,
             Medicaid, and Medicare Part D).

The U.S. government is currently drafting rules and regulations regarding these and many other of the law's provisions, which, once finalized, will provide
further guidance regarding the full extent of the effects of the U.S. health reform law on our business. We also anticipate that one of the positive effects of this
law is that, beginning in 2014, more patients will become insured, providing, from the patient's standpoint, greater and more cost-effective access to our
products. The benefits of this law upon our business are currently not estimable. For more information regarding the financial impact of this law, please see
Part II, Item 7 "Liquidity and Capital Resources—Outlook—U.S. Health Care Reform."

    In addition to the statutes and regulations described above, we also are subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other federal, state and local regulations.

     Outside the United States and as described in "International Operations—European Competitive and Regulatory Environment" above, we are subject to
many analogous laws and regulations in countries where we operate. These laws and regulations govern, among other things, the authorization and conduct of
clinical trials, the marketing authorization process for medicinal products, manufacturing and import activities, and post-authorization activities including
pharmacovigilance, drug safety, effectiveness and pricing. Our ability to market new products outside the United States is dependent upon receiving
marketing approval from applicable regulatory authorities. While the specific process for approval may differ in certain respects from the FDA process, we
are generally subject to the same risks described above. With respect to product pricing, regulatory approval is typically required. Additionally, certain
countries have regularly imposed new or additional cost containment measures for pharmaceuticals, such as restrictions on physician prescription levels and
patient reimbursements, emphasis on greater use of generic drugs and/or enacted across-the-board price cuts.

CUSTOMERS

     Our principal customers are wholesale drug distributors. These customers comprise a significant part of the distribution network for all pharmaceutical
products in the United States. Three large wholesale drug distributors, Cardinal Health, Inc., McKesson Corporation and AmerisourceBergen Corporation,
control a significant share of this network. These three wholesale customers, in the aggregate, accounted for 71% of our total consolidated gross sales for the
year ended December 31, 2010. In Europe, we have many distributors for our products, but, unlike the United States, no significant customers.

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LEGAL MATTERS

    For a summary of legal matters, see Note 18 of the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K,
which is incorporated herein by reference.

EMPLOYEES

      As of December 31, 2010, we had a total of 3,726 full-time employees, of which 2,026 were employed in the United States, 1,637 were located at our
facilities in Europe and 63 were located at our facilities in Australia and Asia. We believe that we have been successful in attracting skilled and experienced
personnel; however, competition for such personnel is intense.

ITEM
1A. RISK FACTORS

     You should carefully consider the risks described below, in addition to the other information contained in this report, before making an investment
decision. Our business, financial condition or results of operations could be harmed by any of these risks. The risks and uncertainties described below are not
the only ones we face. Additional risks not presently known to us or other factors not perceived by us to present significant risks to our business at this time
also may impair our business operations.

Our largest revenue product, PROVIGIL, will be subject to generic competition beginning in April 2012.

     For the year ended December 31, 2010, approximately 38% of our total consolidated net sales were derived from sales of PROVIGIL in the United
States. In late 2005 and early 2006, we entered into PROVIGIL patent settlement agreements with certain generic pharmaceutical companies. As part of these
separate settlements, we agreed to grant to each of these parties a non-exclusive royalty-bearing license to market and sell a generic version of PROVIGIL in
the United States, effective in April 2012, subject to applicable regulatory considerations. Outside the United States, we agreed with Teva to generally allow
for entry in October 2012. We expect that PROVIGIL sales will erode beginning in April 2012 and beyond, and it is possible that NUVIGIL sales will also be
affected by PROVIGIL generic competition.

Our near term profitability will depend on the growth of NUVIGIL and TREANDA and the continued acceptance of AMRIX and FENTORA.

      For the year ended December 31, 2010, approximately 7%, 14%, 7% and 4% of our total consolidated net sales were derived from sales of NUVIGIL,
TREANDA, FENTORA and AMRIX, respectively. With respect to NUVIGIL, we cannot be sure that our sales and marketing efforts will be successful or
that it will be accepted in the market. With respect to TREANDA, we cannot be certain that it will continue to be accepted in its market or that we will be able
to achieve projected levels of sales growth. We will also need AMRIX and FENTORA to continue to be accepted in the market.

     Specifically, the following factors, among others, could affect the level of market acceptance of these products:

     •       a change in the perception of the healthcare community of the safety and efficacy of the products, both in an absolute sense and relative to that of
             competing products;
     •       the level and effectiveness of our sales and marketing efforts;
     •       the extent to which the products are studied in clinical trials in the future and the results of any such studies;
     •       any unfavorable publicity regarding these or similar products;
     •       the price of the products relative to the benefits they convey and to other competing drugs or treatments, including the impact of the availability
             of generic versions of our products on the market acceptance of those products;

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      •      any changes in government and other third-party payer reimbursement policies and practices; and
      •      regulatory developments affecting the manufacture, marketing or use of these products.

     Any adverse developments with respect to the sale or use of these products could significantly reduce our product revenues and have a material adverse
effect on our ability to generate net income and positive net cash flow from operations.

We may be unsuccessful in our efforts to obtain regulatory approval for new products or for new formulations or expanded indications of our existing
products, which would significantly hamper future sales and earnings growth.
     Our long-term prospects, particularly with respect to the growth of our future sales and earnings, depend to a large extent on our ability to obtain FDA
approvals of new product candidates (including any product candidates for which we may have an option-to-acquire) or of expanded indications of our
existing products such as TREANDA, FENTORA and NUVIGIL.

      We are currently conducting a Phase III clinical trial of TREANDA in combination with RITUXAN as a front-line treatment for NHL. While not a
currently approved indication by the FDA, TREANDA was recently listed in the 2010 NCCN clinical practice guidelines and the Clinical Pharmacology
compendia as a front-line treatment for NHL. Separately, the results of an independent Phase III clinical study conducted by the German Study for Indolent
Lymphomas Group ("StiL Group") in Giessen, Germany were announced in December 2009. The study for the first-line treatment of patients with advanced
follicular, indolent, and mantle cell lymphomas, indicated better tolerability and more than a 20-month improvement in median progression free survival when
treated with TREANDA in combination with rituximab compared to CHOP in combination with rituximab. The study covered indications that are not
currently FDA-approved indications for TREANDA. We plan to submit the StiL Group's study results to support an sNDA for TREANDA for the treatment
of front-line NHL in 2011.

     We have focused our clinical strategy for FENTORA on studying the product in opioid-tolerant patients with breakthrough pain associated with chronic
pain conditions, such as neuropathic pain and back pain. In November 2007, we submitted an sNDA to the FDA seeking approval to market FENTORA for
the management of breakthrough pain in opioid tolerant patients with chronic pain conditions. In December 2008, we received a supplement request letter
from the FDA requesting that we submit a REMS Program with respect to FENTORA. We have been engaged in ongoing discussions with the agency
regarding our REMS program for FENTORA and ACTIQ, and we expect to receive a response from the FDA in the first half of 2011. We believe that, by
working with the FDA, we can design and implement a REMS Program to meet the FDA's requests and possibly to provide a potential avenue for approval of
the sNDA. While we plan to initiate the REMS Program upon receipt of approval from the FDA, we may be unsuccessful, ultimately, in designing and
implementing a REMS Program acceptable to the FDA.

     In March 2009, we announced positive results from a Phase II clinical trial of NUVIGIL as adjunctive therapy for treating major depressive disorder in
adults with bipolar I disorder. We have initiated three Phase III clinical trials, two of which we expect to complete in late 2011 or early 2012 and the third of
which we expect to complete in late 2012 or early 2013. In June 2010, we announced that the primary endpoint was not met for a Phase II study of NUVIGIL
as an adjunctive therapy for the treatment of the negative symptoms of schizophrenia. In 2010, we also decided to discontinue our clinical studies regarding
NUVIGIL as a treatment of traumatic brain injury due to slow patient enrollment. In December 2010, we announced that we will not pursue further a jet lag
indication for NUVIGIL.

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     There can be no assurance that our applications to market for these new indications or for product candidates will be submitted or reviewed in a timely
manner or that the FDA will approve the new indications or product candidates on the basis of the data contained in the applications. Even if approval is
granted to market a new indication or a product candidate, there can be no assurance that we will be able to successfully commercialize the product in the
marketplace or achieve a profitable level of sales.

We may not be able to maintain adequate protection for our intellectual property or market exclusivity for our key products and, therefore, competitors
may develop competing products, which could result in a decrease in sales and market share, cause us to reduce prices to compete successfully and limit
our commercial success.
     We place considerable importance on obtaining patent protection for new technologies, products and processes. To that end, we file applications for
patents covering the compositions or uses of our drug candidates or our proprietary processes. The patent positions of pharmaceutical and biotechnology
companies can be highly uncertain and involve complex legal, scientific and factual questions. Accordingly, the patents and patent applications relating to our
products, product candidates and technologies may be challenged, invalidated or circumvented by third parties and might not protect us against competitors
with similar products or technology. Patent disputes in our industry are frequent and can preclude commercialization of products. If we ultimately engage in
and lose any such disputes, we could be subject to competition or significant liabilities, we could be required to enter into third party licenses or we could be
required to cease using the technology or product in dispute. In addition, even if such licenses are available, the terms of any license requested by a third party
could be unacceptable to us.

      Competition from generic manufacturers is a particularly significant risk to our business. Upon the expiration of, or successful challenge to, our patents
covering a product, generic competitors may introduce a generic version of that product at a lower price. Some generic manufacturers have also demonstrated
a willingness to launch generic versions of branded products before the final resolution of related patent litigation (known as an "at-risk launch"). A launch of
a generic version of one of our products could have a material adverse effect on our business and we could suffer a significant loss of sales and market share
in a short period of time. As described above, we expect generic competition to PROVIGIL to begin in April 2012.

     We also rely on trade secrets, know-how and continuing technological advancements to support our competitive position. Although we have entered into
confidentiality and invention rights agreements with our employees, consultants, advisors and collaborators, these parties could fail to honor such agreements
or we could be unable to effectively protect our rights to our unpatented trade secrets and know-how. Moreover, others could independently develop
substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how. In addition, many of our
scientific and management personnel have been recruited from other biotechnology and pharmaceutical companies where they were conducting research in
areas similar to those that we now pursue. As a result, we could be subject to allegations of trade secret violations and other claims.

     We are currently engaged in lawsuits with respect to generic company challenges to the validity and/or enforceability of our patents covering AMRIX,
FENTORA, PROVIGIL and NUVIGIL. While we intend to vigorously defend the validity, and prevent infringement, of our patents, these efforts will be both
expensive and time consuming and, ultimately, due to the nature of litigation, there can be no assurance that these efforts will be successful. The loss of patent
protection or regulatory exclusivity on any of our existing products, whether by third-party challenge, invalidation, circumvention, license or expiration, could
materially impact our results of operations. For more information regarding the legal proceedings described in this Overview and others, please see Note 18 to
our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.

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     In late 2005 and early 2006, we entered into PROVIGIL patent settlement agreements with certain generic pharmaceutical companies. As part of these
separate settlements, we agreed to grant to each of these parties a non-exclusive royalty-bearing license to market and sell a generic version of PROVIGIL in
the United States, effective in April 2012, subject to applicable regulatory considerations. Under the agreements, the licenses could become effective prior to
April 2012 only if a generic version of PROVIGIL is sold in the United States prior to this date. Various factors could lead to the sale of a generic version of
PROVIGIL in the United States at any time prior to April 2012, including if (i) we lose patent protection for PROVIGIL due to an adverse judicial decision in
a patent infringement lawsuit; (ii) all parties with first-to file ANDAs relinquish their right to the 180-day period of marketing exclusivity, which could allow
a subsequent ANDA filer, if approved by the FDA, to launch a generic version of PROVIGIL in the United States at-risk; (iii) we breach or the applicable
counterparty breaches a PROVIGIL settlement agreement; or (iv) the FTC prevails in its lawsuit against us in the U.S. District Court for the Eastern District
of Pennsylvania described below. We filed each of the settlements with both the U.S. Federal Trade Commission (the "FTC") and the Antitrust Division of the
U.S. Department of Justice (the "DOJ") as required by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Medicare
Modernization Act"). The FTC conducted an investigation of each of the PROVIGIL settlements and, in February 2008, filed suit against us challenging the
validity of the settlements and related agreements. The complaint alleges a violation of Section 5(a) of the Federal Trade Commission Act and seeks to
permanently enjoin us from maintaining or enforcing these agreements and from engaging in similar conduct in the future. Various private plaintiffs, some of
whom seek to represent various classes of plaintiffs, have also filed complaitns challenging the PROVIGIL settlements. We believe the FTC and private
complaints are without merit. While we intend to vigorously defend ourselves and the propriety of the settlement agreements, these efforts will be both
expensive and time consuming and, ultimately, due to the nature of litigation, there can be no assurance that these efforts will be successful. For more
information regarding our PROVIGIL settlements and related litigation, please see Note 18 to our Consolidated Financial Statements included in Part II,
Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.

Our activities and products are subject to significant government regulations and approvals, which are often costly and could result in adverse
consequences to our business if we fail to comply.

     We currently have a number of products that have been approved for sale in the United States, foreign countries or both. All of our approved products are
subject to extensive continuing regulations relating to, among other things, testing, manufacturing, quality control, labeling, and promotion. The failure to
comply with any rules and regulations of the FDA or any foreign medical authority, or the post-approval discovery of previously unknown problems relating
to our products, could result in, among other things:

      •      fines, recalls or seizures of products;
      •      total or partial suspension of manufacturing or commercial activities;
      •      non-approval of product license applications;
      •      restrictions on our ability to enter into strategic relationships; and
      •      criminal prosecution.

     Over the past few years, a significant number of pharmaceutical and biotechnology companies have been the target of inquiries and investigations by
various federal and state regulatory, investigative, prosecutorial and administrative entities, including the DOJ and various U.S. Attorney's Offices, the Office
of Inspector General of the Department of Health and Human Services, the FDA, the FTC and various state Attorney General offices. These investigations
have alleged violations of various federal

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and state laws and regulations, including claims asserting antitrust violations, violations of the Food, Drug and Cosmetic Act, the False Claims Act, the
Prescription Drug Marketing Act, anti-kickback laws, and other alleged violations in connection with off-label promotion of products, pricing and Medicare
and/or Medicaid reimbursement.

     Because of the broad scope and complexity of these laws and regulations, the high degree of prosecutorial resources and attention being devoted to the
sales practices of pharmaceutical companies by law enforcement authorities, and the risk of potential exclusion from federal government reimbursement
programs, numerous companies have determined that it is highly advisable that they enter into settlement agreements in these matters, particularly those
brought by federal authorities. Companies that have chosen to settle these alleged violations have typically paid multi-million dollar fines to the government
and agreed to abide by corporate integrity agreements. In some instances, such fines have exceeded $1 billion.

     In September 2008, as part of our settlement with the U.S. government regarding their investigation of our promotional practices with respect to ACTIQ,
GABITRIL and PROVIGIL, we entered into a five-year Corporate Integrity Agreement (the "CIA") with the Office of Inspector General of the Department of
Health and Human Services. The CIA provides criteria for establishing and maintaining compliance with federal laws governing the marketing and promotion
of our products. We are also subject to periodic reporting and certification requirements attesting that the provisions of the CIA are being implemented and
followed. For more information regarding our settlement with the U.S. government and the CIA, please see Note 18 to the Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K is incorporated herein by reference.

     Although we have resolved the previously outstanding federal and state government investigations into our sales and promotional practices, there can be
no assurance that there will not be regulatory or other actions brought by governmental entities who are not party to the settlement agreements we have
entered. We may also become subject to claims by private parties with respect to the alleged conduct which was the subject of our settlements with the federal
and state governmental entities. In addition, while we intend to comply fully with the terms of the settlement agreements, the settlement agreements provide
for sanctions and penalties for violations of specific provisions therein. We cannot predict when or if any such actions may occur or reasonably estimate the
amount of any fines, penalties, or other payments or the possible effect of any non-monetary restrictions that might result from either settlement of, or an
adverse outcome from, any such actions. Further, while we have initiated, and will initiate, compliance programs to prevent conduct similar to the alleged
conduct subject to these agreements, we cannot provide complete assurance that conduct similar to the alleged conduct will not occur in the future, subjecting
us to future claims and actions. Failure to comply with the terms of the CIA could result in, among other things, substantial civil penalties and/or our
exclusion from government health care programs, which could materially reduce our sales and adversely affect our financial condition and results of
operations.

     It is both costly and time-consuming for us to comply with these inquiries and with the extensive regulations to which we are subject. Additionally,
incidents of adverse drug reactions, unintended side effects or misuse relating to our products could result in additional regulatory controls or restrictions, or
even lead to withdrawal of a product from the market.

     With respect to our product candidates, we conduct research, preclinical testing and clinical trials, each of which requires us to comply with extensive
government regulations. We cannot market these product candidates or these new indications in the United States or other countries without receiving
approval from the FDA or the appropriate foreign medical authority. The approval process is highly uncertain and requires substantial time, effort and
financial resources. Ultimately, we may never obtain approval in a timely manner, or at all. Without these required approvals, our ability to substantially grow
revenues in the future could be adversely affected.

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      In addition, because PROVIGIL, NUVIGIL, FENTORA, EFFENTORA, ACTIQ and generic OTFC contain active ingredients that are controlled
substances, we are subject to regulation by the U.S. Drug Enforcement Agency ("DEA") and analogous foreign organizations relating to the manufacture,
shipment, sale and use of the applicable products. These regulations also are imposed on prescribing physicians and other third parties, making the storage,
transport and use of such products relatively complicated and expensive. With the increased concern for safety by the FDA and the DEA with respect to
products containing controlled substances and the heightened level of media attention given to this issue, it is possible that these regulatory agencies could
impose additional restrictions on marketing or even withdraw regulatory approval for such products. In addition, adverse publicity may bring about a rejection
of the product by the medical community. If the DEA, FDA or analogous foreign authorities withdrew the approval of, or placed additional significant
restrictions on the marketing of any of our products, our ability to promote our products and product sales could be substantially affected.
Manufacturing, supply and distribution problems may create supply disruptions that could result in a reduction of product sales revenue and an increase
in costs of sales, and damage commercial prospects for our products.

     The manufacture, supply and distribution of pharmaceutical products, both inside and outside the United States, is highly regulated and complex. We,
and the third parties we rely upon for the manufacturing and distribution of our products, must comply with all applicable regulatory requirements of the FDA
and foreign authorities, including current Good Manufacturing Practice regulations.

     We also must comply with all applicable regulatory requirements of the DEA and analogous foreign authorities for certain of our products that contain
controlled substances. The DEA also has authority to grant or deny requests for quota of controlled substances such as the fentanyl that is the active ingredient
in FENTORA and EFFENTORA or the fentanyl citrate that is the active ingredient in ACTIQ and generic OTFC.

     The facilities used to manufacture, store and distribute our products also are subject to inspection by regulatory authorities at any time to determine
compliance with regulations. These regulations are complex, and any failure to comply with them could lead to remedial action, civil and criminal penalties
and delays in production or distribution of material. With respect to our transition of manufacturing activities from our Eden Prairie, Minnesota facilty to our
Salt Lake City, Utah facility, it is possible that we may not complete the transition on a timely basis or to the satisfaction of our third party partners or relevant
regulatory agencies.

      We rely on third parties for the timely supply of specified raw materials, equipment, contract manufacturing, formulation or packaging services, product
distribution services, customer service activities and product returns processing. Although we actively manage these third party relationships to ensure
continuity and quality, some events beyond our control could result in the complete or partial failure of these goods and services. Any such failure could have
a material adverse effect on our financial condition and result of operations.

     For certain of our products in the United States and abroad, we depend upon single sources for the manufacture of both the active drug substances
contained in our products and for finished commercial supplies. The process of changing or adding a manufacturer or changing a formulation requires prior
FDA and/or analogous foreign medical authority approval and is very time-consuming. If we are unable to manage this process effectively or if an unforeseen
event occurs at any facility, we could face supply disruptions that would result in significant costs and delays, undermine goodwill established with physicians
and patients, damage commercial prospects for our products and adversely affect operating results.

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As our products are used commercially, unintended side effects, adverse reactions or incidents of misuse may occur that could result in additional
regulatory controls, changes to product labeling, adverse publicity and reduced sales of our products.

     During research and development, the use of pharmaceutical products, such as ours, is limited principally to clinical trial patients under controlled
conditions and under the care of expert physicians. The widespread commercial use of our products could identify undesirable or unintended side effects that
have not been evident in our clinical trials or the commercial use as of the filing date of this report. For example, in 2009, we updated the prescribing
information for TREANDA to note the increased risk of severe skin toxicity (including Stevens Johnson Syndrome/toxic epidermal necrolysis) when
TREANDA and allopurinol are administered concomitantly. As described above, we are also in process of developing REMS Programs for certain of our
products to mitigate serious risks associated with the use of certain of our products. In October 2010, the FDA approved our REMS Programs for PROVIGIL
and NUVIGIL. In addition, in patients who take multiple medications, drug interactions could occur that can be difficult to predict. Additionally, incidents of
product misuse, product diversion or theft may occur, particularly with respect to products such as FENTORA, EFFENTORA, ACTIQ, generic OTFC,
NUVIGIL and PROVIGIL, which contain controlled substances.

      In November 2010, the Committee for Medicinal Products for Human Use ("CHMP"), the scientific committee of the European Medicines Agency
("EMEA"), issued a final recommendation to restrict the use of modafinil in the European Union only to the treatment for excessive sleepiness associated with
narcolepsy. Based on broad scientific evidence, clinical experience and patient use, we do not agree with the CHMP recommendation. On January 27, 2011,
the European Commission (EC) adopted the CHMP opinion. There can be no assurance that the FDA or other regulatory agencies will, in the future, review
the risk/benefit profile for our modafinil-based products, PROVIGIL and NUVIGIL, or, for that matter, any of our products.

      These events, among others, could result in adverse publicity that harms the commercial prospects of our products or lead to additional regulatory
controls that could limit the circumstances under which the product is prescribed or even lead to the withdrawal of the product from the market. In particular,
FENTORA and ACTIQ have been approved under regulations concerning drugs with certain safety profiles, under which the FDA has established special
restrictions to ensure safe use. Any violation of these special restrictions could lead to the imposition of further restrictions or withdrawal of the product from
the market.

We face significant product liability risks, which may have a negative effect on our financial performance.

     The administration of drugs to humans, whether in clinical trials or commercially, can result in product liability claims whether or not the drugs are
actually at fault for causing an injury. Furthermore, our products may cause, or may appear to have caused, adverse side effects (including death) or
potentially dangerous drug interactions that we may not learn about or understand fully until the drug has been administered to patients for some time. As our
products are used more widely and in patients with varying medical conditions, the likelihood of an adverse drug reaction, unintended side effect or incidence
of misuse may increase. Product liability claims can be expensive to defend and may result in large judgments or settlements against us, which could have a
negative effect on our financial performance. The cost of product liability insurance has increased in recent years, and the availability of coverage has
decreased. Nevertheless, we maintain product liability insurance and significant self-insurance retentions held by our wholly-owned Bermuda-based insurance
captive in amounts we believe to be commercially reasonable but which would be unlikely to cover the potential liability associated with a significant
unforeseen safety issue. Product liability coverage maintained by our captive is reserved for, based on Cephalon's historical claims as well as historical claims
within the industry. Reserves held by the captive are fully funded. Any claims could easily exceed our current coverage limits. Even if a product liability
claim is not successful, the adverse publicity and time and expense of defending such a claim may interfere with our business.

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Our product sales and related financial results will fluctuate, and these fluctuations may cause our stock price to fall, especially if investors do not
anticipate them.

     A number of analysts and investors who follow our stock have developed models to attempt to forecast future product sales and expenses, and have
established earnings expectations based upon those models. These models, in turn, are based in part on estimates of projected revenue and earnings that we
disclose publicly. Forecasting future revenues is difficult, especially when the level of market acceptance of our products is changing rapidly. As a result, it is
reasonably likely that our product sales will fluctuate to an extent that may not meet with market expectations and that also may adversely affect our stock
price. There are a number of other factors that could cause our financial results to fluctuate unexpectedly, including:

      •      cost of product sales;
      •      achievement and timing of research and development milestones;
      •      collaboration revenues;
      •      cost and timing of clinical trials, regulatory approvals and product launches;
      •      "at-risk" generic launches;
      •      marketing and other expenses;
      •      manufacturing or supply disruptions;
      •      unanticipated conversion of our convertible notes; and
      •      costs associated with the operations of recently-acquired businesses and technologies.

We may be unable to repay our substantial indebtedness and other obligations.
      All of our convertible notes outstanding contain restricted conversion prices. As of December 31, 2010, our 2.0% Notes are convertible because the
closing price of our common stock on that date was higher than the restricted conversion prices of these notes. As a result, our 2.0% Notes have been
classified as current liabilities on our consolidated balance sheet as of December 31, 2010. Under the terms of the indentures governing the notes, we are
obligated to repay in cash the aggregate principal balance of any such notes presented for conversion. As of the filing date of this report, we do not have
available cash, cash equivalents and investments sufficient to repay all of the convertible notes, if presented. In addition, other than the restrictive covenants
contained in our credit agreement, there are no restrictions on our use of this cash and the cash available to repay indebtedness may decline over time. If we
do not have sufficient funds available to repay the principal balance of notes presented for conversion, we will be required to raise additional funds. Because
the financing markets may be unwilling to provide funding to us or may only be willing to provide funding on terms that we would consider unacceptable, we
may not have cash available or be able to obtain funding to permit us to meet our repayment obligations, thus adversely affecting the market price for our
securities.

The restrictive covenants contained in our credit agreement may limit our activities.

     With respect to our $200 million, three-year revolving credit facility, the credit agreement contains restrictive covenants which affect, and in many
respects could limit or prohibit, among other things, our ability to:

      •      incur indebtedness;
      •      create liens;
      •      make investments or loans;

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      •      engage in transactions with affiliates;
      •      pay dividends or make other distributions on, or redeem or repurchase, our capital stock;
      •      enter into various types of swap contracts or hedging agreements;
      •      make capital contributions;
      •      sell assets; or
      •      pursue mergers or acquisitions.

     Failure to comply with the restrictive covenants in our credit agreement could preclude our ability to borrow or accelerate the repayment of any debt
outstanding under the credit agreement. Additionally, as a result of these restrictive covenants, we may be at a disadvantage compared to our competitors that
have greater operating and financing flexibility than we do.

Our research and development, manufacturing and marketing efforts are often dependent on corporate collaborators and other third parties who may not
devote sufficient time, resources and attention to our programs, which may limit our efforts to develop and market potential products

    To maximize our growth opportunities, we have entered into a number of collaboration agreements with third parties. In certain countries outside the
United States, we have entered into agreements with a number of partners with respect to the development, manufacturing and marketing of our products. In
some cases, our collaboration agreements call for our partners to control:

      •      the supply of bulk or formulated drugs for use in clinical trials or for commercial use;
      •      the design and execution of clinical studies;
      •      the process of obtaining regulatory approval to market the product; and/or
      •      marketing and selling of an approved product.

      In each of these areas, our partners may not support fully our research and commercial interests because our program may compete for time, attention
and resources with the internal programs of our corporate collaborators. As such, our program may not move forward as effectively, or advance as rapidly, as
it might if we had retained complete control of all research, development, regulatory and commercialization decisions. We also rely on some of these
collaborators and other third parties for the production of compounds and the manufacture and supply of pharmaceutical products. Additionally, we may find
it necessary from time to time to seek new or additional partners to assist us in commercializing our products, though we ultimately might not be successful in
establishing any such new or additional relationships.

The efforts of government entities and third party payers to contain or reduce the costs of health care may adversely affect our sales and limit the
commercial success of our products.

     In certain foreign markets, pricing or profitability of pharmaceutical products is subject to various forms of direct and indirect governmental control,
including the control over the amount of reimbursements provided to the patient who is prescribed specific pharmaceutical products.

     In the United States, there have been, and we expect there will continue to be, various proposals to implement similar controls. Certain members of
Congress have introduced legislation to restrict or significantly limit branded pharmaceutical companies' ability to enter into patent litigation settlement
agreements with generic companies. For example, the U.S. health care reform law will have certain estimable negative effects and possible, non-estimable
effects on our business. Congress is also considering legislation to provide for FDA approval of generic versions of branded biologic products. The
commercial success of our products could be limited if federal or state governments adopt any

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such proposals. In addition, in the United States and elsewhere, sales of pharmaceutical products depend in part on the availability of reimbursement to the
consumer from third party payers, such as government and private insurance plans. These third party payers are increasingly utilizing their significant
purchasing power to challenge the prices charged for pharmaceutical products and seek to limit reimbursement levels offered to consumers for such products.
Moreover, many governments and private insurance plans have instituted reimbursement schemes that favor the substitution of generic pharmaceuticals for
more expensive brand-name pharmaceuticals. In the United States in particular, generic substitution statutes have been enacted in virtually all states and
permit or require the dispensing pharmacist to substitute a less expensive generic drug instead of an original branded drug. These third party payers are
focusing their cost control efforts on our products, especially with respect to prices of and reimbursement levels for products prescribed outside their labeled
indications. In these cases, their efforts may negatively impact our product sales and profitability.
We experience intense competition in our fields of interest, which may adversely affect our business.

     Large and small companies, academic institutions, governmental agencies and other public and private research organizations conduct research, seek
patent protection and establish collaborative arrangements for product development in competition with us. Products developed by any of these entities may
compete directly with those we develop or sell.

      The conditions that our products treat, and some of the other disorders for which we are conducting additional studies, are currently treated with many
drugs, several of which have been available for a number of years or are available in inexpensive generic forms. With respect to PROVIGIL and NUVIGIL,
there are several other products used for the treatment of excessive sleepiness or narcolepsy in the United States, including methylphenidate products, and in
our other territories, many of which have been available for a number of years and are available in inexpensive generic forms. For GABITRIL, the market for
the treatment of partial seizures in epileptic patients is well served with a number of available therapeutics, including gabapentin. With respect to AMRIX, we
face significant competition from SKELAXIN®, FLEXERIL® and other inexpensive generic forms of muscle relaxants. With respect to FENTORA, we face
competition from numerous short-and long-acting opioid products, including three products—Johnson & Johnson's DURAGESIC® and Purdue
Pharmaceutical's OXYCONTIN® and MS-CONTIN®—that dominate the market. In addition, we are aware of numerous other companies developing other
technologies for rapidly delivering opioids to treat breakthrough pain that will compete against FENTORA in the market for breakthrough cancer pain in
opioid-tolerant patients. ONSOLIS® and ABSTRAL® are approved for this indication. It also is possible that the existence of generic OTFC could negatively
impact the growth of FENTORA. With respect to ACTIQ, generic competition from Barr has meaningfully eroded branded ACTIQ sales and impacted sales
of our own generic OTFC through Watson. Our generic sales also could be significantly impacted by the entrance into the market of additional generic OTFC
products, which could occur at any time. In October 2009, we understand that the FDA approved ANDAs by Barr and Covidien to market and sell generic
OTFC and that Covidien launched its generic OTFC in the United States in March 2010. With respect to TREANDA, we face competition from
LEUKERAN®, CAMPATH® and the combination therapy of fludarabine, cyclophosphamide and rituximab.

      For all of our products, we need to demonstrate to physicians, patients and third party payers that the cost of our products is reasonable and appropriate in
the light of their safety and efficacy, the price of competing products and the related health care benefits to the patient.

     Many of our competitors have substantially greater capital resources, research and development staffs and facilities than we have, and substantially
greater experience in conducting clinical trials, obtaining regulatory approvals and manufacturing and marketing pharmaceutical products. These entities
represent significant competition for us. In addition, competitors who are developing products for the treatment of neurological or oncological disorders might
succeed in developing technologies and

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products that are more effective than any that we develop or sell or that would render our technology and products obsolete or noncompetitive. Competition
and innovation from these or other sources, including advances in current treatment methods, could potentially affect sales of our products negatively or make
our products obsolete. Furthermore, we may be at a competitive marketing disadvantage against companies that have broader product lines and whose sales
personnel are able to offer more complementary products than we can. Any failure to maintain our competitive position could adversely affect our business
and results of operations.

We plan to consider and, as appropriate, make acquisitions of technologies, products and businesses, which may subject us to a number of risks and/or
result in us experiencing significant charges to earnings that may adversely affect our stock price, operating results and financial condition.
      As part of our efforts to acquire businesses or to enter into other significant transactions, we conduct business, legal and financial due diligence with the
goal of identifying and evaluating material risks involved in the transaction. Despite our efforts, we ultimately may be unsuccessful in ascertaining or
evaluating all such risks and, as a result, we might not realize the intended advantages of the acquisition. If we fail to realize the expected benefits from
acquisitions we have consummated or may consummate in the future, whether as a result of unidentified risks, integration difficulties, regulatory setbacks or
other events, our business, results of operations and financial condition could be adversely affected. In connection with an acquisition, we must estimate the
value of the transaction by making certain assumptions about, among other things, likelihood of regulatory approval for unapproved products and the market
potential for marketed products and/or product candidates. Ultimately, our assumptions may prove to be incorrect, which could cause us to fail to realize the
anticipated benefits of a transaction. As part of our efforts to hedge risks associated with the uncertainty of acquisitions generally and pharmaceutical
development specifically, we have structured certain transactions as options-to-acquire. Pursuant to this structure, we typically make an upfront payment to
secure the option, set forth the appropriate "trigger" for the option in an option agreement and, should we exercise the option, make a subsequent payment to
finalize the product or company acquisition. Our option transaction with BDC was an example of this option structure. While we believe that this structure
helps us to manage risk appropriately, it is possible that we will not "trigger" an option-to-acquire, and therefore receive nothing of tangible value in return for
our upfront payment to secure the option-to-acquire.

     In addition, we have experienced, and will likely continue to experience, significant charges to earnings related to our efforts to consummate
acquisitions. For transactions that ultimately are not consummated, these charges may include fees and expenses for investment bankers, attorneys,
accountants and other advisers in connection with our efforts. Even if our efforts are successful, we may incur as part of a transaction substantial charges for
closure costs associated with the elimination of duplicate operations and facilities and acquired in-process research and development charges. In either case,
the incurrence of these charges could adversely affect our results of operations for particular quarterly or annual periods.

We may be unable to successfully consolidate and integrate the operations of businesses we acquire, which may adversely affect our stock price, operating
results and financial condition.

     We must consolidate and integrate the operations of acquired businesses with our business. Integration efforts often take a significant amount of time,
place a significant strain on our managerial, operational and financial resources and could prove to be more difficult and expensive than we predicted. The
diversion of our management's attention and any delays or difficulties encountered in connection with these recent acquisitions, and any future acquisitions we
may consummate, could result in the disruption of our ongoing business or inconsistencies in standards, controls, procedures and

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policies that could negatively affect our ability to maintain relationships with customers, suppliers, employees and others with whom we have business
dealings.

The results and timing of our research and development activities, including future clinical trials, are difficult to predict, subject to potential future
setbacks and, ultimately, may not result in viable pharmaceutical products, which may adversely affect our business.

     In order to sustain our business, we focus substantial resources on the search for new pharmaceutical products. These activities include engaging in
discovery research and process development, conducting preclinical and clinical studies and the development of new indications for our existing products and
seeking regulatory approval in the United States and abroad. In all of these areas, we have relatively limited resources and compete against larger,
multinational pharmaceutical companies. Moreover, even if we undertake these activities in an effective and efficient manner, regulatory approval for the sale
of new pharmaceutical products remains highly uncertain because the majority of compounds discovered do not enter clinical studies and the majority of
therapeutic candidates fail to show the human safety and efficacy necessary for regulatory approval and successful commercialization.

      In the pharmaceutical business, the research and development process generally takes 12 years or longer, from discovery to commercial product launch.
During each stage of this process, there is a substantial risk of failure. Preclinical testing and clinical trials must demonstrate that a product candidate is safe
and efficacious. The results from preclinical testing and early clinical trials may not be predictive of results obtained in subsequent clinical trials, and these
clinical trials may not demonstrate the safety and efficacy necessary to obtain regulatory approval for any product candidates. A number of companies in the
biotechnology and pharmaceutical industries have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier
trials. For ethical reasons, certain clinical trials are conducted with patients having the most advanced stages of disease and who have failed treatment with
alternative therapies. During the course of treatment, these patients often die or suffer other adverse medical effects for reasons that may not be related to the
pharmaceutical agent being tested. Such events can have a negative impact on the statistical analysis of clinical trial results.

     The completion of clinical trials of our product candidates may be delayed by many factors, including the rate of enrollment of patients. Neither we nor
our collaborators can control the rate at which patients present themselves for enrollment, and the rate of patient enrollment may not be consistent with our
expectations or sufficient to enable clinical trials of our product candidates to be completed in a timely manner or at all. In addition, we may not be permitted
by regulatory authorities to undertake additional clinical trials for one or more of our product candidates. Even if such trials are conducted, our product
candidates may not prove to be safe and efficacious or receive regulatory approvals. Any significant delays in, or termination of, clinical trials of our product
candidates could impact our ability to generate product sales from these product candidates in the future.

The price of our common stock has been and may continue to be highly volatile, which may make it difficult for stockholders to sell our common stock
when desired or at attractive prices.

    The market price of our common stock is highly volatile, and we expect it to continue to be volatile for the foreseeable future. For example, from
January 1, 2010 through February 4, 2011 our common stock traded at a high price of $72.87 and a low price of $55.00. Negative announcements, including,
among others:

      •      adverse regulatory decisions;
      •      disappointing clinical trial results;

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      •      legal challenges, disputes and/or other adverse developments impacting our patents or other proprietary products; or
      •      sales or operating results that fall below the market's expectations

could trigger significant declines in the price of our common stock. In addition, external events, such as news concerning economic conditions, our
competitors or our customers, changes in government regulations impacting the biotechnology or pharmaceutical industries or the movement of capital into or
out of our industry, also are likely to affect the price of our common stock, regardless of our operating performance.
Our internal controls over financial reporting may not be considered effective, which could result in possible regulatory sanctions and a decline in our
stock price.

     Section 404 of the Sarbanes-Oxley Act of 2002 requires us to furnish annually a report on our internal controls over financial reporting and to maintain
effective disclosure controls and procedures and internal controls over financial reporting. In order for management to evaluate our internal controls, we must
regularly review and document our internal control processes and procedures and test such controls. Ultimately, we or our independent auditors could
conclude that our internal control over financial reporting may not be effective if, among others things:

      •      any material weakness in our internal controls over financial reporting exist; or
      •      we fail to remediate assessed deficiencies.

     We have implemented a number of information technology systems, including SAP®, to assist us to meet our internal controls for financial reporting.
While we believe our systems are effective for that purpose, we cannot be certain that they will continue to be effective in the future or adaptable for future
needs. Due to the number of controls to be examined, the complexity of our processes, the subjectivity involved in determining the effectiveness of controls,
and, more generally, the laws and regulations to which we are subject as a global company, we cannot be certain that, in the future, all of our controls will
continue to be considered effective by management or, if considered effective by our management, that our auditors will agree with such assessment.

     If, in the future, we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion on
the effectiveness of our internal control over financial reporting, we could be subject to regulatory sanctions or lose investor confidence in the accuracy and
completeness of our financial reports, either of which could have an adverse effect on the market price for our securities.

A portion of our revenues and expenses is subject to exchange rate fluctuations in the normal course of business, which could adversely affect our
reported results of operations.

     Historically, a portion of our revenues and expenses has been earned and incurred, respectively, in currencies other than the U.S. dollar. For the year
ended December 31, 2010, 24% of our revenues were denominated in currencies other than the U.S. dollar. With our acquisition of Mepha, the percentage of
revenues denominated in foreign currencies has increased, thereby increasing our exposure to foreign currency exchange risk. We translate revenues earned
and expenses incurred into U.S. dollars at the average exchange rate applicable during the relevant period. A weakening of the U.S. dollar would, therefore,
increase both our revenues and expenses. Fluctuations in the rate of exchange between the U.S. dollar and the euro and other currencies may affect period-to-
period comparisons of our operating results. Historically, we have not hedged our exposure to these fluctuations in exchange rates.

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Our customer base is highly concentrated.

     Our principal customers are wholesale drug distributors. These customers comprise a significant part of the distribution network for pharmaceutical
products in the United States. Three large wholesale distributors, Cardinal Health, Inc., McKesson Corporation and AmerisourceBergen Corporation, control
a significant share of this network. These three wholesaler customers, in the aggregate, accounted for 71% of our total consolidated gross sales for the year
ended December 31, 2010. Fluctuations in the buying patterns of these customers, which may result from seasonality, wholesaler buying decisions or other
factors outside of our control, could significantly affect the level of our net sales on a period to period basis. Because of this, the amounts purchased by these
customers during any quarterly or annual period may not correlate to the level of underlying demand evidenced by the number of prescriptions written for
such products, as reported by IMS Health Incorporated.

We are involved, or may become involved in the future, in legal proceedings that, if adversely adjudicated or settled, could materially impact our financial
condition.

     As a biopharmaceutical company, we are or may become a party to litigation in the ordinary course of our business, including, among others, matters
alleging employment discrimination, product liability, patent or other intellectual property rights infringement, patent invalidity or breach of commercial
contract. In general, litigation claims can be expensive and time consuming to bring or defend against and could result in settlements or damages that could
significantly impact results of operations and financial condition. We currently are vigorously defending ourselves against those matters specifically described
in Note 18 of the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, as well as numerous other litigation
matters. While we currently do not believe that the settlement or adverse adjudication of these other litigation matters would materially impact our results of
operations or financial condition, the final resolution of these matters and the impact, if any, on our results of operations, financial condition or cash flows is
unknown but could be material.

Unfavorable general economic conditions could adversely affect our business.

     Our business, financial condition and results of operations may be affected by various general economic factors and conditions. Periods of economic
slowdown or recession in any of the countries in which we operate could lead to a decline in the use of our products and therefore could have an adverse
effect on our business. In addition, if we are unable to access the capital markets due to general economic conditions, we may not have the cash available or
be able to obtain funding to permit us to meet our business requirements and objectives, thus adversely affecting our business and the market price for our
securities.

Our dependence on key executives and scientists could impact the management and development of our business.

     We are highly dependent upon our ability to attract and retain qualified scientific, technical and managerial personnel. There is intense competition for
qualified personnel in the pharmaceutical and biotechnology industries, and we cannot be sure that we will be able to continue to attract and retain the
qualified personnel necessary for the development and management of our business. Although we do not believe the loss of one individual would materially
harm our business, our business might be harmed by the loss of the services of multiple existing personnel, as well as the failure to recruit additional key
scientific, technical and managerial personnel in a timely manner. Much of the know-how we have developed resides in our scientific and technical personnel
and is not readily transferable to other personnel. While we have employment agreements with our key executives, we do not ordinarily enter into
employment agreements with our other key scientific, technical and managerial employees. We do not maintain "key man" life insurance on any of our
employees.

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We may be required to incur significant costs to comply with environmental laws and regulations, and our related compliance may limit any future
profitability.

     Our research, development and manufacturing activities involve the controlled use of hazardous, infectious and radioactive materials that could be
hazardous to human health and safety or the environment. We store these materials, and various wastes resulting from their use, at our facilities pending
ultimate use and disposal. We are subject to a variety of federal, state and local laws and regulations governing the use, generation, manufacture, storage,
handling and disposal of these materials and wastes, and we may be required to incur significant costs to comply with related existing and future
environmental laws and regulations.
     While we believe that our safety procedures for handling and disposing of these materials comply with foreign, federal, state and local laws and
regulations, we cannot completely eliminate the risk of accidental injury or contamination from these materials. In the event of an accident, we could be held
liable for any resulting damages, which could include fines and remedial costs. These damages could require payment by us of significant amounts over a
number of years, which could adversely affect our results of operations and financial condition.

Anti-takeover provisions may delay or prevent changes in control of our management or deter a third party from acquiring us, limiting our stockholders'
ability to profit from such a transaction.

     Our Board of Directors has the authority to issue up to 5,000,000 shares of preferred stock, $0.01 par value, of which 1,000,000 have been reserved for
issuance in connection with our stockholder rights plan, and to determine the price, rights, preferences and privileges of those shares without any further vote
or action by our stockholders. Our stockholder rights plan could have the effect of making it more difficult for a third party to acquire a majority of our
outstanding voting stock.

     We are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prohibits us from engaging in a "business
combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person becomes an interested
stockholder, unless the business combination is approved in a prescribed manner. The application of Section 203 could have the effect of delaying or
preventing a change of control of Cephalon. Section 203, the rights plan, and certain provisions of our certificate of incorporation, our bylaws and Delaware
corporate law, may have the effect of deterring hostile takeovers, or delaying or preventing changes in control of our management, including transactions in
which stockholders might otherwise receive a premium for their shares over then-current market prices.

ITEM 1B. UNRESOLVED STAFF
COMMENTS

     None.

ITEM
2. PROPERTIES

      We lease our corporate headquarters, which is located in Frazer, Pennsylvania and consists of approximately 190,000 square feet of administrative office
space. We own approximately 160,000 square feet of research and office space in West Chester, Pennsylvania, at the site of our former corporate
headquarters. We also lease approximately 215,000 square feet of office, administrative, research and warehouse space that is near our Frazer and West
Chester facilities. In Salt Lake City, Utah, we own approximately 200,000 square feet of manufacturing, warehousing and laboratory space and lease
approximately 123,000 square feet for administrative, research and pilot plant functions. At our facility in Brooklyn Park, Minnesota, we own approximately
104,000 square feet dedicated to research and development activity. We also lease 96,000 square feet in Eden Prairie, Minnesota, primarily dedicated to our
manufacturing and warehousing operations. In 2008, we began the transition of manufacturing activities primarily performed at the Eden Prairie, Minnesota
facility to our recently expanded

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manufacturing facility in Salt Lake City, Utah. As part of that transition we also consolidated at our Brooklyn Park facility certain drug delivery research and
development activities formerly performed in Salt Lake City. The transition of manufacturing activities and the closure of the Eden Prairie facility are
expected to be completed in 2011.

     In France, we own administrative facilities, a development facility, two manufacturing facilities, a packaging facility and various warehouses totaling
approximately 355,000 square feet. On September 18, 2008, our subsidiary Cephalon France SAS informed the French Works Councils of its intention to
search for a potential acquirer of the manufacturing facility at Mitry-Mory, France. We are considering the proposed divestiture due to a reduction of
manufacturing activities at the Mitry-Mory manufacturing site. The proposed divestiture is subject to completion of a formal consultation process with the
French Works Councils and employee representatives.

    In Switzerland, we own administrative and production facilities totaling approximately 200,000 square feet. We lease warehouse space totaling
approximately 150,000 square feet.

     In Australia, we lease two administrative and development facilities totaling approximately 40,000 square feet.

     We lease office space for satellite offices in a number of countries worldwide.

     We believe that our current facilities are adequate for our present purposes.

ITEM
3. LEGAL PROCEEDINGS

     The information set forth in Note 18 of the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K is
incorporated herein by reference.

Executive Officers of the Registrant

     The names, ages and positions held by our executive officers as of the filing date of this Annual Report on Form 10-K are as follows:


                Name                                                  Age                                           Position
                J. Kevin Buchi                                              55 Chief Executive Officer
                                                                            59
                Alain Aragues.                                                 Executive Vice President and President of Cephalon Europe
                                                                            50
                Valli F. Baldassano.                                           Executive Vice President and Chief Compliance Officer
                                                                            64
                Peter E. Grebow, Ph.D.                                         Executive Vice President, Cephalon Ventures
                                                                            53
                Wilco Groenhuysen.                                             Executive Vice President and Chief Financial Officer
                                                                            47
                Gerald J. Pappert                                              Executive Vice President, General Counsel and Secretary
                                                                            50
                Lesley Russell, MB.Ch.B., MRCP.                                Executive Vice President and Chief Medical Officer
                                                                            61
                Carl A. Savini                                                 Executive Vice President and Chief Administrative Officer
                                                                            60
                Jeffry L. Vaught, Ph.D.                                        Executive Vice President and Chief Scientific Officer
                                                                                33
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      All executive officers are elected by the Board of Directors to serve in their respective capacities until their successors are elected and qualified or until
their earlier resignation or removal.

     Mr. Buchi joined Cephalon in March 1991 and, since December 2010, he has served as Chief Executive Officer. From January 2010 through December
2010, Mr. Buchi was Chief Operating Officer. In this role, he managed the company's global sales and marketing functions, as well as product manufacturing,
business development and investor relations. From February 2006 through January 2010, Mr. Buchi served as Chief Financial Officer and, from 2004, head of
business development for the company. At various times in his career at Cephalon, Mr. Buchi has had oversight of corporate finance, accounting, information
systems, facilities, human resources and administration. Mr. Buchi joined Cephalon in 1991 as controller. Mr. Buchi graduated from Cornell University with a
Bachelor of Arts degree in chemistry. He was a synthetic organic chemist for the Eastman Kodak Company before going on to obtain a master's degree in
management from the J.L. Kellogg Graduate School of Management at Northwestern University. He worked for a large public accounting firm before
beginning his career in the pharmaceutical industry with E.I. du Pont de Nemours and Company in 1983. Mr. Buchi serves as a member of the board of
directors of Mesoblast Limited, a public company traded on the Australian Stock Exchange.

     Mr. Aragues was appointed as Executive Vice President and President of Cephalon Europe in January 2010. Mr. Aragues joined Cephalon in 2002 to
lead the company's expansion in France following its 2001 acquisition of Group Lafon and was appointed President of Cephalon Europe in February 2005.
Prior to joining Cephalon, Mr. Aragues held various senior positions in the pharmaceutical industry at DuPont Pharmaceuticals in Europe and in the United
States as well as at Bristol-Myers Squibb Pharma France. In February 2008, Mr. Aragues was awarded the highest French Distinction as Chevalier de la
Légion d'Honneur by the French Minister of Health, Mrs. Roselyne Bachelot. Mr. Aragues graduated from Institut des Sciences Politiques of Toulouse in
France with a Master in Economy, Finance and Business Administration.

     Ms. Baldassano joined Cephalon in October 2007 as Executive Vice President and Chief Compliance Officer. From April to September 2007,
Ms. Baldassano served as Partner with Fox Rothschild LLP in Philadelphia where she was a member of the litigation department and the founding member of
the White Collar Compliance and Defense Practice Group. Between January 2004 and March 2007, Ms. Baldassano served as Vice President Global
Compliance for Schering-Plough. Between 1999 and 2003, Ms. Baldassano served as Senior Director, Global Compliance and Associate General Counsel for
Pharmacia. Between 1990 and 1998, Ms. Baldassano was with the U.S. Attorney's Office in the Eastern District of Pennsylvania. Ms. Baldassano graduated
from Georgetown University and received her J.D. from Syracuse University.

     Dr. Grebow joined Cephalon in January 1991 and, since April 2010 he has served as Executive Vice President, Cephalon Ventures. From February 2005
to April 2010, Dr. Grebow also has served as Executive Vice President, Worldwide Technical Operations. Dr. Grebow also has served as Senior Vice
President, Worldwide Technical Operations; Senior Vice President, Business Development, and Vice President, Drug Development. From 1988 to 1990,
Dr. Grebow served as Vice President of Drug Development for Rorer Central Research, a division of Rhone-Poulenc Rorer Pharmaceuticals Inc., a
pharmaceutical company. Dr. Grebow serves as a member of the board of directors of Optimer Pharmaceuticals, Inc., a publicly-traded biotechnology
company. Dr. Grebow received a PhD. in Chemistry from the University of California, Santa Barbara.

      Mr. Groenhuysen joined Cephalon in August 2007 and since January 2010, he has held the position of Executive Vice President & CFO with
responsibility for Worldwide Finance, Commercial Operations and Risk Management. Prior to this appointment, Mr. Groenhuysen held the position of Senior
Vice President of Finance. Prior to joining Cephalon he spent 20 years with Philips Electronics in various assignments in Europe, Asia and the United States,
the latest of which started in 2002 when

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he was promoted to Senior Vice President and Chief Financial Officer of Philips Electronics North America Corporation. Mr. Groenhuysen holds a Master's
Degree in Business Economics from VU University Amsterdam and graduated as Registered Public Controller at VU University Amsterdam.

      Mr. Pappert joined Cephalon in May 2008 as Executive Vice President and General Counsel. In October 2008, Mr. Pappert assumed the responsibilities
of the Company Secretary. Prior to coming to Cephalon, Mr. Pappert was a partner with Ballard Spahr Andrews & Ingersoll LLP in Philadelphia, PA, where
he was a member of the Litigation Department. From 2003 to 2005, Mr. Pappert was the Commonwealth of Pennsylvania Attorney General. From 1997 to
2003, he held the position of First Deputy Attorney General of Pennsylvania. From 1988 to 1997 he practiced law with a large Philadelphia firm. Mr. Pappert
is a graduate of Villanova University and earned his Juris Doctorate from the University of Notre Dame Law School.
     Dr. Russell joined Cephalon in January 2000 and, since August 2008, she has served as Executive Vice President and Chief Medical Officer. From
November 2006 to August 2008, Dr. Russell served as Executive Vice President, Worldwide Medical and Regulatory Operations. From January 2000 to
August 2006, Dr. Russell was Senior Vice President of Worldwide Clinical Research with the Company. Dr. Russell came to Cephalon in January 2000 from
US Bioscience Inc./Medimmune Oncology, where she was Vice President Clinical Research, responsible for directing and implementing the clinical programs
in oncology and HIV research. Prior to joining US Bioscience, Dr. Russell was Director of Clinical Research at USB Pharma Ltd, the European subsidiary of
US Bioscience. Before her work at USB Pharma, Dr. Russell was a Clinical Research Physician at Eli Lilly UK, responsible for the oncology clinical trial
program in the UK. Dr. Russell was Medical Director at Amgen UK from May 1992 to May 1995. Before joining the pharmaceutical industry, Dr. Russell
was trained in Hematology/Oncology at Royal Infirmary of Edinburgh, and Royal Hospital for Sick Children Edinburgh UK and was a Research Fellow at
University of Edinburgh Faculty of Medicine. Dr. Russell serves as a member of the board of directors of AMAG Pharmaceuticals, Inc., a biopharmaceutical
company. Dr. Russell received MB.Ch.B. from University of Edinburgh, Scotland, Faculty of Medicine and is a member of the Royal College of Physicians,
UK.

     Mr. Savini joined Cephalon in June 1993 and, since February 2006, he has served as Executive Vice President and Chief Administrative Officer.
Mr. Savini has served in various capacities with the Company, including Senior Vice President, Administration and Senior Vice President, Human Resources.
From 1983 to 1993, Mr. Savini was employed by Bristol-Myers Squibb Company and from 1981 to 1983 he was employed by Johnson & Johnson's McNeil
Pharmaceuticals. Mr. Savini graduated from The Pennsylvania State University and received a Master of Business Administration degree from La Salle
College.

     Dr. Vaught joined Cephalon in August 1991 and, since August 2008, he has served as Executive Vice President and Chief Scientific Officer responsible
for directing Cephalon's research operations. Prior to joining Cephalon, Dr. Vaught was employed by the R. W. Johnson Pharmaceutical Research Institute, a
subsidiary of Johnson & Johnson. Dr. Vaught received a PhD. in Pharmacology from the University of Minnesota.

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                                                                             PART II

ITEM 5. MARKET FOR REGISTRANT'S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES

     Our common stock is quoted on the NASDAQ Global Select Market under the symbol "CEPH." The following table sets forth the range of high and low
sales prices for the common stock as reported on the NASDAQ Global Select Market for the periods indicated below.


                                                                                                              High                           Low
                               2010
                               First Quarter                                                      $                   72.87        $               62.45
                               Second Quarter                                                                         68.39                        56.14
                               Third Quarter                                                                          64.61                        55.00
                               Fourth Quarter                                                                         67.50                        60.88
                               2009
                               First Quarter                                                      $                   81.35        $               60.42
                               Second Quarter                                                                         70.09                        54.63
                               Third Quarter                                                                          69.30                        52.55
                               Fourth Quarter                                                                         63.16                        53.05
     As of February 4, 2011, there were 389 holders of record of our common stock. On February 4, 2011, the last reported sale price of our common stock as
reported on the NASDAQ Global Select Market was $59.96 per share.

     We have not paid any dividends on our common stock since our inception and do not anticipate paying any dividends on our common stock in the
foreseeable future.

Issuer Purchases of Equity Securities


                                                                                                      Total Number of
                                                                                                     Shares of Common               Approximate Dollar
                                                                                                     Stock Purchased as              Value of Common
                                                    Total Number of                                    Part of Publicly            Stock that May Yet Be
                                                   Shares of Common            Average Price         Announced Plans or             Purchased Under the
               Period                               Stock Purchased(1)         Paid Per Share(2)            Programs                   Plans or Programs
               October 1 - 31, 2010                                     —           $          —                            —                               —
               November 1 - 30, 2010                                    —                      —                            —                               —
               December 1 - 31, 2010                               145,471                  63.74                           —                               —
                           Total                                   145,471          $       63.74                           —                               —


               (1)      This column reflects the surrender to Cephalon of common stock during the fourth quarter of 2010 to satisfy tax withholding
                        obligations in connection with the vesting of restricted stock units issued to employees.
               (2)      Price paid per share is a weighted average based on the closing price of our common stock on the various vesting dates.

Securities Authorized for Issuance Under Equity Compensation Plans

     The following table gives information about our common stock that may be issued upon the exercise of stock options, warrants and rights under all of
our existing equity compensation plans as of December 31, 2010, including the 2004 Equity Compensation Plan (the "2004 Plan") and the 2000 Equity
Compensation Plan for Employees and Key Advisors (the "2000 Plan").

                                                                               36
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                                                                  Equity Compensation Plan
                                                                     Information


                                                                                                                                        (c) Number of Securities
                                                                            (a) Number of Securities to       (b) Weighted Average      Remaning Available for
                                                                            be Issued Upon Exercise of           Exercise Price of     Future Issuance (Excludes
                                                                               Outstanding Options,           Outstanding Options,       Securities Reflected in
               Plan Category                                                     Warrants and Rights            Warrants and Rights           Column (a))(1)
               Equity compensation plans approved by stockholders                              7,536,241(2)           $        63.10                     1,193,407
               Equity compensation plans not approved by stockholders(3)                         819,629              $        64.92                            —
               Total                                                                           8,355,870              $        63.28                     1,193,407


               (1)    The 2004 Plan permits our Board of Directors or the Stock Option and Compensation Committee of our Board to award stock options
                      to participants. Up to 247,850 of the shares remaining available for issuance under equity compensation plans approved by
                      stockholders may be issued as restricted stock units. Restricted stock unit awards are not permitted to be made under the terms of the
                      2000 Plan.
               (2)    Includes awards covering 739,488 shares of unvested restricted stock units that are outstanding under the 2004 Plan.
               (3)    Issued under the 2000 Plan, which does not require the approval of, and has not been approved by, Cephalon stockholders.

2000 Equity Compensation Plan for Employees and Key Advisors

      On December 13, 2000, our Board of Directors adopted the 2000 Plan. The 2000 Plan was amended several times since its adoption, with the most recent
amendment to the 2000 Plan on July 25, 2002. The 2000 Plan provided that stock options may be granted to our employees who are not officers or directors
of Cephalon and consultants and advisors who perform services for Cephalon. At the time of its initial approval, the 2000 Plan was not submitted to, nor was
it required to be submitted to, our stockholders for approval. Amendments to the 2000 Plan, including amendments increasing the number of shares of
common stock reserved for issuance under the 2000 Plan, also did not require approval of our stockholders. In light of changes to the NASDAQ shareholder
approval requirements for stock option plans, our Board of Directors decided that it would not further increase the number of shares authorized for issuance
under the 2000 Plan, but would continue to use any shares authorized for issuance under the 2000 Plan for grants until the 2000 Plan expired in December
2010.

     The purpose of the 2000 Plan was to promote our success by linking the personal interests of our non-executive employees and consultants and advisors
to those of our stockholders and by providing participants with an incentive for outstanding performance. The 2000 Plan authorized the granting of "non-
qualified stock options" ("NQSOs") only. The 2000 Plan was administered and interpreted by the Stock Option and Compensation Committee of the Board of
Directors subject to ratification by the Board of Directors. The Stock Option and Compensation Committee determined the individuals who received a NQSO
grant under the 2000 Plan, the number of shares of common stock subject to the NQSO, the period during which the NQSO became exercisable, the term of
the NQSO (but not to exceed 10 years from the date of grant) and the other terms and conditions of the NQSO consistent with the terms of the 2000 Plan. All
of the NQSOs that are currently outstanding under the 2000 Plan become exercisable ratably over a four-year period beginning on the date of grant and expire
ten years from the date of grant. The exercise price of a NQSO granted under the 2000 Plan was determined by the Stock Option and Compensation
Committee, but may not be less than the fair market value of the underlying stock on the date of grant. A grantee may exercise a NQSO granted under the
2000 Plan by

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delivering notice of exercise to the Stock Option and Compensation Committee and paying the exercise price (i) in cash, (ii) with approval of the Stock
Option and Compensation Committee, by delivering shares of common stock already owned by the grantee and having a fair market value on the date of
exercise equal to the exercise price, or through attestation to ownership of such shares, or (iii) through such other method as the Stock Option and
Compensation Committee may approve. In the event of a "Corporate Transaction," (e.g., a merger in which 50% or more of the common stock is transferred
to a third party), all outstanding stock options will automatically accelerate and become immediately exercisable, subject to certain limitations.

     The Board of Directors had the authority to amend or terminate the 2000 Plan at any time without stockholder approval. The 2000 Plan terminated
pursuant to its terms on December 12, 2010. No amendment or termination of the 2000 Plan may adversely affect any stock option previously granted under
the 2000 Plan without the written consent of the participant, unless required by applicable law.

ITEM 6.    SELECTED FINANCIAL
DATA

(In thousands, except per share data)

    The following five year summary table includes the acquisitions of AMRIX in August 2007, Arana Therapeutics Limited from May through August
2009, Mepha GmbH, including a noncontrolling interest in Mepha Pharma AG, in April 2010, Ception Therapeutics noncontrolling interest in April 2010, and
BioAssets Development Corporation, Inc. noncontrolling interest in November 2010. The acquisitions of investments including SymBio Pharmaceuticals
Limited in March 2009, ChemGenex Pharmaceuticals Limited in October 2010 and Mesoblast Limited in December 2010 are also included.

     The summary table also includes the following, as a result of transactions that were determined to create variable interest entities in which Cephalon has
determined it is the primary beneficiary:

     •       Ception Therapeutics from January 2009 until April 2010;
     •       Acusphere Inc. from November 2008 until June 2009; and
     •       BioAssets Development Corporation, Inc. from November 2009 until November 2010.

     See Note 2 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information on these
transactions.

                                                                              38
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Five-year summary of selected financial data:


                                                                                                                        Year Ended December 31,
              Statement of operations data                                                           2010            2009          2008          2007           2006
              Net sales                                                                         $ 2,760,952 $ 2,151,548 $ 1,943,464 $ 1,727,299 $ 1,720,172
              Other revenues                                                                         50,105      40,760      31,090      45,339      43,897
              Total revenues                                                                      2,811,057 2,192,308 1,974,554 1,772,638 1,764,069
              Settlement reserve                                                                       —                  —      7,450            425,000        —
              Impairment charges                                                                       —             182,080    99,719                 —     12,417
              Acquired in-process research and development                                        100,000             46,118    41,955                 —      5,000
              Change in fair value of contingent consideration                                      6,519                 —         —                  —         —
              Restructuring charge                                                                 10,719             13,825     8,415                 —         —
              Change in fair value of investments                                                   7,931                 —         —                  —         —
              Income tax expense (benefit)                                                        201,116             78,680   (37,819)           103,153    76,524
              Net income (loss)                                                                   417,683            210,727   171,889           (226,429) 115,642
              Net loss attributable to noncontrolling interest                                      8,062            131,900    21,073                 —         —
              Net income (loss).attributable to Cephalon, Inc.                                  $ 425,745 $          342,627 $ 192,962 $         (226,429)$ 115,642
              Basic income (loss) per common share attributable to Cephalon, Inc.               $          5.66 $        4.74 $       2.84 $        (3.40)$          1.91
              Weighted average number of common shares outstanding                                    75,185          72,342        68,018        66,597         60,507
              Diluted income (loss) per common share attributable to Cephalon, Inc.             $          5.27 $        4.41 $       2.54 $        (3.40)$          1.66
              Weighted average number of common shares outstanding-assuming dilution                  80,712          77,733        76,097        66,597         69,672




                                                                                                                    December 31,
              Balance sheet data                                                  2010              2009               2008               2007                2006
              Cash, cash equivalents and investments                     $        1,160,239 $       1,647,635 $          524,459 $          826,265 $        521,724
              Total assets                                                        4,891,833         4,658,095          3,082,942          3,395,759        2,937,339
              Current portion of long-term debt                                     651,997           818,925            781,618            944,659          701,074
              Long-term debt (excluding current portion)                            391,416           363,696              3,692              3,788          206,895
              Redeemable equity                                                     170,183           207,307            248,403            292,509          322,239
              Accumulated earnings/(deficit)                                        247,086          (178,659)          (521,286)          (714,248)        (480,651)
              Total equity                                                        2,667,592         2,478,073          1,416,680          1,191,557        1,203,947
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ITEM 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide information to assist you in
better understanding and evaluating our financial condition and results of operations. We encourage you to read this MD&A in conjunction with our
consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K and the "Risk Factors" contained in Part I, Item 1A of this
Annual Report on Form 10-K.
EXECUTIVE SUMMARY

      Cephalon is a global biopharmaceutical company dedicated to discovering, developing and bringing to market medications to improve the quality of life
of individuals around the world. Since its inception in 1987, Cephalon's strategy is to bring first-in-class and best-in-class medicines to patients in several
therapeutic areas, with a particular focus on central nervous system ("CNS") disorders, pain, oncology, inflammatory disease and regenerative medicine. In
addition to conducting an active research and development program, we market numerous branded and generic products around the world. In total, Cephalon
sells more than 150 products in nearly 100 countries. Consistent with our core therapeutic areas, we have aligned our approximately 735-person U.S. field
sales and sales management teams by area. We have a sales and marketing organization numbering approximately 660 persons that supports our presence
throughout Europe, the Middle East and Africa. For the year ended December 31, 2010, our total revenues and net income attributable to Cephalon, Inc. were
$2.8 billion and $425.7 million, respectively. Our revenues from U.S. and European operations are detailed in Note 21 to our Consolidated Financial
Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

    On December 16, 2010, our founder, Chairman and Chief Executive Officer, Dr. Frank Baldino, Jr. passed away. J. Kevin Buchi, formerly our Chief
Operating Officer, was named Chief Executive Officer by our Board of Directors (the "Board") on December 21, 2010. On February 1, 2011, our Board
named William P. Egan, an independent member of the Board since 1988 and formerly the Board's presiding director, as Chairman of the Board.

     During 2010, we completed certain transactions intended to build a portfolio of marketed and potential products, including:

     •       entry into a strategic alliance with Mesoblast, an Australian public company, to develop and commercialize novel adult MPC therapeutics for
             degenerative conditions of the cardiovascular and central nervous systems and for augmenting hematopoietic stem cell transplantation in cancer
             patients;
     •       entry into a convertible note subscription agreement and option agreement with ChemGenex, an Australian-based oncology focused
             biopharmaceutical company to fund clinical activities to complete a planned New Drug Application submission to the U.S. Food and Drug
             Administration for omacetaxine for the treatment of CML patients who have failed two or more TKIs;
     •       acquisition of Mepha, a privately-held, Swiss-based pharmaceutical company that markets branded and non-branded generics as well as specialty
             products in more than 50 countries;
     •       acquisition of BDC, a privately-held company, whose intellectual property estate covers the use of cytokine inhibitors, including TNF inhibitors,
             for sciatic pain in patients with intervertebral disk herniation, as well as other spinal disorders; and
     •       acquisition of Ception, a privately-held biotechnology company, whose lead product, CINQUIL (reslizumab), a humanized monoclonal antibody
             compound, entered into Phase III studies for patients with eosinophilic asthma.

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For more information regarding these transactions, please see Note 2 to our Consolidated Financial Statements included in Part II, Item 8 of the Annual
Report on Form 10-K.

     We have significant discovery research programs focused on developing oncology and inflammatory disease therapeutics. Our oncology technology
principally focuses on an understanding of kinases and proteases and the role they play in cellular integrity survival and proliferation. We have coupled this
knowledge with a library of novel, small, orally-active synthetic molecules that inhibit the activities of specific kinases. We also have reinforced our
commitment to the treatment of inflammatory diseases through the use of biologics. Our entry into the biologics space combined with our efforts with our
small molecule products creates opportunities to address unmet medical needs. We also work with our collaborative partners to provide a more diverse
therapeutic breadth and depth to our research efforts.

     As a biopharmaceutical company, we are or may become a party to litigation in the ordinary course of our business, including, among others, matters
alleging employment discrimination, product liability, patent or other intellectual property rights infringement, patent invalidity or breach of commercial
contract. In particular, our future success is highly dependent on obtaining and maintaining patent protection or regulatory exclusivity for our products and
technology. In that regard, we are currently engaged in lawsuits with respect to generic company challenges to the validity and/or enforceability of our patents
covering AMRIX, FENTORA, PROVIGIL and NUVIGIL. We intend to vigorously defend the validity, and prevent infringement, of our patents. The loss of
patent protection or regulatory exclusivity on any of our existing products, whether by third-party challenge, invalidation, circumvention, license or
expiration, could materially impact our results of operations. We are also engaged in litigation with the FTC and various private plaintiffs, including proposed
class actions, regarding our PROVIGIL patent settlement agreements with certain generic pharmaceutical companies. We believe the FTC and private
complaints are without merit. While we intend to vigorously defend ourselves in our patent and FTC litigations, these efforts will be both expensive and time
consuming and, ultimately, due to the nature of litigation, there can be no assurance that these efforts will be successful. For more information regarding the
legal proceedings described in this Overview and others, please see Note 18 to our Consolidated Financial Statements included in Part II, Item 8 of this
Annual Report on Form 10-K, which is incorporated herein by reference.

    For additional information regarding our product revenues, other revenues and geographic areas in which we operate, see Note 21 to our Consolidated
Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

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RESULTS OF OPERATIONS                (In thousands)

Year ended December 31, 2010 compared to year ended December 31, 2009:



                                                                                    Year Ended December 31,                              % Increase
                                                                       2010                                    2009                       (Decrease)
                                                        United                                   United                            United
                                                          States      Europe          Total        States     Europe    Total        States         Europe   Total
              Sales:
              CNS
                 Proprietary CNS
                       PROVIGIL*                       $ 1,059,698 $ 64,796 $ 1,124,494 $ 961,070 $ 63,618 $ 1,024,688                    10%           2%     10%
                       NUVIGIL**                           186,190       —      186,190    73,391       —       73,391                   154           —      154
                       GABITRIL                             39,728    4,760      44,488    51,100    5,386      56,486                   (22)         (12)    (21)
                       Other Proprietary CNS                    —    10,936      10,936        —    13,292      13,292                    —           (18)    (18)
                 Generic CNS                                    —    28,257      28,257        —    10,785      10,785                    —           162     162
                                   CNS                   1,285,616 108,749 1,394,365 1,085,561      93,081 1,178,642                      18           17      18

              Pain
                 Proprietary Pain
                       FENTORA***                          159,585     22,037          181,622     136,563      4,114    140,677              17      436      29
                       AMRIX                               109,235         —           109,235     114,435         —     114,435              (5)      —       (5)
                       Other Proprietary Pain                   —         271              271          —         267        267              —         1       1
                 Generic Pain
                       ACTIQ                                63,930     66,951          130,881      75,418     71,527    146,945          (15)         (6)    (11)
                       Generic OTFC                         41,138         —            41,138      83,032         —      83,032          (50)         —      (50)
                       Other Generic Pain                       —      63,144           63,144          —       8,954      8,954           —          605     605
                                   Pain                    373,888    152,403          526,291     409,448     84,862    494,310           (9)         80       6

              Oncology
                Proprietary Oncology
                      TREANDA                              393,473         —           393,473     222,112         —     222,112              77       —       77
                      Other Proprietary Oncology            20,866     76,256           97,122      18,281     75,360     93,641              14        1       4
                Generic Oncology                                —      22,998           22,998          —      20,940     20,940              —        10      10
                      Oncology                             414,339     99,254          513,593     240,393     96,300    336,693              72        3      53

              Other
                 Other Proprietary                          15,112     5,809      20,921      17,545        —       17,545                (14)        100  19
                 Other Generic                              13,220 292,562       305,782      15,436 108,922       124,358                (14)        169 146
                       Other                                28,332 298,371       326,703      32,981 108,922       141,903                (14)        174 130
              Total Net Sales                            2,102,175 658,777 2,760,952 1,768,383 383,165 2,151,548                           19          72  28
              Other Revenues                                42,657     7,448      50,105      39,846       914      40,760                  7         715  23
              Total Revenues                           $ 2,144,832 $ 666,225 $ 2,811,057 $ 1,808,229 $ 384,079 $ 2,192,308                 19%         73% 28%


              Europe—Primarily Europe, Middle East and Africa

              Proprietary products are products which are sold under patent coverage.

              Generic products are products sold without patent coverage in the primary sales territory. Patent coverage may exist in other territories.

              *      Marketed under the name MODIODAL® (modafinil) in France and under the name VIGIL® (modafinil) in Germany.

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               **       Launched in June 2009.
               ***      Marketed under the name EFFENTORA® (fentanyl buccal tablet) in Europe.

     Total net sales:


                                                                                                                 % Increase
                                    Year ended December 31,                           % Increase               (Decrease) due to           % Increase
                                                                % Increase          (Decrease) due to             Mergers &              (Decrease) due
                                      2010           2009        (Decrease)              Currency                  Acquisitions            to Operations
               United States     $ 2,102,175 $ 1,768,383                      19%                       —%                         —%                      19%
               Europe                658,777     383,165                      72%                       (4)%                       70%                      6%
                                 $ 2,760,952 $ 2,151,548                      28%                       —%                         12%                     16%
Year ended December 31, 2010 compared to year ended December 31, 2009:

     Net sales—In the United States, we sell our proprietary products to pharmaceutical wholesalers, the largest three of which accounted for 71% and 75% of
our total consolidated gross sales for the years ended December 31, 2010 and 2009, respectively. Decisions made by these wholesalers regarding the levels of
inventory they hold (and thus the amount of product they purchase from us) can materially affect the level of our sales in any particular period and thus may
not necessarily correlate to the number of prescriptions written for our products as reported by IMS Health Incorporated.

     We have distribution service agreements with each of our wholesaler customers. These agreements obligate the wholesalers to provide us with periodic
outbound sales information and current inventory levels for our products held at their warehouse locations; additionally, the wholesalers have agreed to
manage the variability of their purchases and inventory levels within specified days on hand limits. Various factors can impact the decisions made by
wholesalers and retailers regarding the levels of inventory they hold, including, among other factors, their assessment of anticipated demand for products,
timing of sales made by them, their review of historical product usage trends, and their purchasing patterns.

     As of December 31, 2010, we received information from substantially all of our U.S. wholesaler customers about the levels of inventory they held for
our U.S. branded products. Based on this information, which we have not independently verified, we believe that total inventory held at these wholesalers is
approximately two to three weeks supply of our U.S. branded products at our current sales levels. As of our most recent retail inventory survey in June 2010,
our generic OTFC inventory held at wholesalers and retailers is approximately three months. We do not expect that potential future fluctuations in inventory
levels of generic OTFC held by retailers will have a significant impact on our financial position and results of operations.

     For the twelve months ended December 31, 2010, in addition to the factors addressed below, net sales were also impacted by changes in the product sales
allowances deducted from gross sales as described further below and by changes in the relative levels of the number of units of inventory held at wholesalers
and retailers. Changes in foreign exchange rates versus the U.S. dollar caused a decrease of approximately $14.6 million in European net sales as compared to
the year ended December 31, 2009. The other key factors that contributed to the increase in sales, period to period, are summarized by therapeutic area as
follows:

     •      In CNS, net sales increased 18 percent. U.S. results for our CNS products reflect pricing increases in November 2009 and May 2010. NUVIGIL
            was launched in June 2009 and the 154% increase in net sales is due to promotional efforts and the increased acceptance of NUVIGIL. For
            PROVIGIL, a non-promoted product, price increases were partially offset by declines in unit sales. The PROVIGIL decline in unit sales is due to
            the introduction of NUVIGIL and the

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           transition of our marketing support from PROVIGIL to NUVIGIL. For the year ended December 31, 2010 NUVIGIL represented 32% of the
           combined NUVIGIL/PROVIGIL prescriptions in the U.S. For the week ended December 31, 2010, NUVIGIL represented 38% of the combined
           prescriptions in the U.S. Europe net sales of PROVIGIL increased 2% due to higher sales volumes, offset by the unfavorable effect of exchange
           rates. Generic CNS sales increased as a result of the inclusion of Mepha products.

     •      In Pain, net sales increased 6 percent. Net sales increased primarily due to the introduction of FENTORA into several European territories and
            US pricing increases period over period as well as the inclusion of Mepha in the other generic pain category. Net sales of our pain products have
            been negatively impacted by an overall decline in the rapid onset opioid market. Sales of FENTORA and AMRIX benefited from pricing
            increases in the U.S. in November 2009 and May 2010. ACTIQ sales benefited from pricing increases in November 2009 and May and October
            2010. Net sales increases due to pricing for AMRIX and ACTIQ in the U.S. were offset by declining unit sales specifically resulting, in the case
            of ACTIQ, from market share loss to generic competition. Generic OTFC net sales decreased 50% due to the expiration in September 2009 of
            our obligation to supply Barr with generic OTFC and the entrance of an additional generic supplier in the marketplace. In several European
            territories FENTORA sales increased due to the introduction of FENTORA into Europe and increased unit sales period over period. Other
            generic pain sales increased as a result of the inclusion of Mepha products.
     •      In Oncology, net sales increased 53 percent. This increase was attributable to increased acceptance of TREANDA. Generic oncology sales
            increased as a result of the inclusion of Mepha products.
     •      Other generic net sales increased 146% due to the inclusion of Mepha product net sales of $177.2 million.

     Other Revenues—The increase of 23% from period to period is primarily due to an increase in license royalties recognized by Cephalon Australia and by
revenues earned from VOGALENE/VOGALIB, which we purchased from UCB Pharma France in December 2009.

    Analysis of gross sales to net sales—The following table presents the product sales allowances deducted from gross sales to arrive at a net sales figure:


                                                                                                  Year Ended December 31,
                                                                                                  2010              2009              Change      % Change
               Gross sales                                                                   $    3,161,241    $    2,469,314     $    691,927            28%
               Product sales allowances:
                        Prompt payment discounts                                                     46,691            42,814            3,877             9
                        Wholesaler discounts                                                         30,224            21,011            9,213            44
                        Returns                                                                      35,836            63,680          (27,844)          (44)
                        Coupons                                                                      37,402            31,779            5,623            18
                        Medicaid discounts                                                           79,106            42,628           36,478            86
                        Managed care and governmental contracts                                     171,030           115,854           55,176            48
                                                                                                    400,289           317,766           82,523            26
               Net sales                                                                     $    2,760,952    $    2,151,548     $    609,404            28%
                Product sales allowances as a percentage of gross sales                                 12.7%             12.9%
     Prompt payment discounts increased for the year ended December 31, 2010 as compared to the year ended December 31, 2009 due to the increase in
U.S. net sales. Wholesaler discounts increased as price increases produced fewer wholesaler credits to offset wholesaler discounts in 2010 than in 2009.

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Returns decreased as a result of decreased returns experience related to ACTIQ, generic OTFC, and FENTORA. Coupons increased period over period as a
result of increased utilization for the NUVIGIL coupon programs, partially offset by the termination of the PROVIGIL coupon program in the second quarter
of 2009 and reductions in FENTORA coupon programs.

     Medicaid discounts increased for the year ended December 31, 2010 as compared to the year ended December 31, 2009 due to higher rebate rates for
certain of our products resulting from product price increases in May 2010 and November 2009 and the $16.4 million effect from the recently-enacted U.S.
health care reform law, which increased reimbursement rates from 15.1 to 23.1 percent, extended Medicaid rebates to managed care organizations and
increased Public Health Service pricing discounts. Managed care and governmental contracts increased for the year ended December 31, 2010 as compared to
the year ended December 31, 2009 due to increases in Federal Chargebacks from increases in sales of PROVIGIL and TREANDA and an increase in our
DOD Tricare expense. In the future, we expect product sales allowances as a percentage of gross sales to trend upward due to the impact of price increases on
Medicaid discounts and the effect of the recently-enacted U.S. health care reform law.


                                                                                              Year Ended December 31,
                                                                                               2010              2009           Change         % Change
               Cost of sales                                                             $       577,863 $         398,837 $       179,026              45%
               Research and development                                                          439,995           395,431          44,564              11
               Selling, general and administrative                                               958,404           822,052         136,352              17
               Change in fair value of contingent consideration                                    6,519                —            6,519             100
               Restructuring charges                                                              10,719            13,825          (3,106)            (22)
               Impairment charge                                                                      —            182,080        (182,080)           (100)
               Acquired in-process research and development                                      100,000            46,118          53,882             117
                                                                                         $     2,093,500 $       1,858,343 $       235,157              13%
     Cost of Sales—The cost of sales was 21% of net sales for the year ended December 31, 2010 and 19% of net sales for the year ended December 31,
2009. The increase in the cost of sales for the year ended December 31, 2010 was primarily due to Mepha, including $10.5 million in nonrecurring
amortization of the revaluation of their inventory to fair value upon acquisition. In 2010 we increased the reserve for excess modafinil purchase commitments
by $9.4 million. In 2009, we recognized a $3.5 million net gain in connection with a reduction of our excess modafinil purchase commitments reserve as the
result of an agreement made with one of our modafinil suppliers. Changes in foreign exchange rates versus the U.S. dollar caused a decrease of approximately
3% or $5.3 million in European expenses as compared to the year ended December 31, 2009. For the years ended December 31, 2010 and 2009, we
recognized $119.6 million and $97.5 million of amortization expense included in cost of sales, respectively. Amortization expense increased $22.1 million
primarily due to the increases in amortization recognized in connection with the acquisition of Mepha, Arana Therapeutics Limited ("Arana") and
VOGALENE/VOGALIB. We recorded accelerated depreciation charges of $15.1 million and $19.0 million in 2010 and 2009, respectively.

     Research and Development Expenses—Research and development expenses increased $44.6 million, or 11%, for the year ended December 31, 2010 as
compared to the year ended December 31, 2009. We experienced increased R&D expenditures from Mepha and Cephalon Australia as well as an increase in
clinical trial activity. For the year ended December 31, 2010 and 2009, we recognized $24.1 million and $27.3 million, respectively, of depreciation expense
included in research and development expenses.

    Selling, General and Administrative Expenses—Selling, general and administrative expenses increased $136.4 million, or 17%, for the year ended
December 31, 2010 as compared to the year ended

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December 31, 2009, primarily due the inclusion of Mepha expenses and associated integration and transaction costs, increased legal expenditures, and
increased selling and marketing expenses associated with NUVIGIL, offset by lower selling and marketing expenses associated with PROVIGIL and AMRIX.
Changes in foreign exchange rates versus the U.S. dollar caused a decrease of approximately 3% or $6.9 million increase in European expenses as compared
to the year ended December 31, 2009. For the year ended December 31, 2010 and 2009, we recognized $30.6 million and $25.6 million, respectively, of
depreciation expense included in selling general and administrative expenses.

     Change in fair value of contingent consideration—For the year ended December 31, 2010, we recorded a $6.5 million charge for the change in fair value
on Ception and BDC contingent consideration. Changes in fair value during 2010 reflect changes in our risk adjusted discount rate and accretion related to the
passage of time as development work towards the achievement of the milestones progresses since the acquisition of the noncontrolling interest in Ception in
April 2010 and BDC in November 2010.

     Restructuring charges—For the year ended December 31, 2010 and 2009, we recorded $10.7 million and $13.8 million, respectively, related to our
restructuring plan to consolidate certain manufacturing and research and development activities primarily within our U.S. locations. These charges primarily
consist of costs associated with the transfer of technology and severance for employees who have or are expected to be terminated as a result of this
restructuring plan. For additional information, please see Note 3 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on
Form 10-K, which is incorporated herein by reference.

     Impairment charges—For the year ended December 31, 2009, we recorded a $182.1 million impairment charge consisting of the reduction of our
estimate of future cash flows from an eosinophilic esophagitis ("EoE") indication for CINQUIL of $175.0 million to reduce the associated intangible asset
carrying value to its revised estimated fair value in November 2009, and a $7.1 million impairment charge to write-down our investment in SymBio
Pharmaceuticals Limited ("SymBio") to fair value.

    Acquired in-process research and development—For the year ended December 31, 2010, we incurred $100.0 million for worldwide license rights to
Mesoblast's proprietary technology platform. For the year ended December 31, 2009, we incurred expenses of:

     •       $9.4 million in connection with Acusphere for the elimination of the $15.0 million milestone and royalty payments associated with the celecoxib
             license agreement and patent rights relating to their HDDS technology;
     •       $30.0 million in exchange for the exclusive, worldwide license rights to LUPUZOR, acquired from ImmuPharma plc.;
     •       $0.8 million in exchange for the exclusive sublicense to bendamustine hydrochloride in China and Hong Kong, acquired from SymBio; and
     •       $6.0 million in exchange for license rights to certain of XOMA Ltd.'s proprietary antibody library materials.



                                                                                                    Year ended
                                                                                                     December 31,
                                                                                                 2010               2009          Change       % Change
                               Interest income                                               $       5,326 $           5,263 $           63               1%
                               Interest expense                                                    (99,257)          (90,336)        (8,921)             10
                               Change in fair value of investments                                   7,931                —           7,931             100
                               Other income (expense), net                                         (12,758)           40,515        (53,273)           (131)
                                                                                             $     (98,758) $        (44,558) $     (54,200)            122%
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    Other Income (Expense)—Other income (expense) increased $54.2 million for the year ended December 31, 2010 as compared to the year ended
December 31, 2009. The change in expenses was attributable to the following factors:

     •       an $8.9 million increase in interest expense due to the recognition of interest related to our 2.5% convertible senior subordinated notes due
             May 1, 2014, offset by a reversal of interest related to uncertain tax positions and the redemption of the Zero Coupon Notes in June 2010;
     •       a $7.9 million change in the fair value of our investments primarily due to the $12.0 million change in fair value of our Mesoblast investment for
             which we have elected the fair value option and the investees stock prices have increased since the date of our investment, offset by a
             $4.1 million decline in the fair value of our ChemGenex investment and purchase option; and
     •       a $53.3 million decrease in other income (expense), net due to the following:

             •      In 2010,

                    •      $2.0 million gain on foreign exchange contracts used to protect against currency fluctuations related to our acquisition of
                           Mesoblast;
                    •      $6.5 million proceeds received in a settlement;
                    •      $2.5 million loss on foreign exchange of Swiss Franc acquisition funds;
                    •      $9.1 million loss on foreign exchange contracts used to protect against currency fluctuations related to our acquisition of Mepha;
                           and
                    •      $9.6 million in foreign exchange losses resulting from fluctuations in European currencies during the period.

             •      In 2009,

                    •      $6.6 million gain on pre-bid Arana holdings;
                    •      $2.8 million loss on Arana contingent consideration (90% ownership incentive payment);
                    •      $10.0 million gain on the excess of Arana net assets over consideration;
                    •      $19.0 million gains on foreign exchange derivative instruments;
                    •      $1.6 million of dividend income from Arana; and
                    •      $6.1 million in foreign exchange gains primarily associated with holding Australian dollars in connection with our Arana
                           transaction.



                                                                                             Year Ended
                                                                                              December 31,
                                                                                      2010                   2009            Change           % Change
                                Income tax expense                           $           201,116       $        78,680   $       122,436                 156%
     Income Taxes—For the year ended December 31, 2010, we recognized $201.1 million of income tax expense on income before taxes of $618.8 million,
resulting in an overall effective tax rate of 32.5 percent. For the year ended December 31, 2010, we have recognized a net tax benefit of $1.9 million related to
the settlement of the 2006-2007 IRS and 2006-2008 French audits. For the year ended December 31, 2009 we recognized $78.7 million of income tax expense
on income before income taxes of $289.4 million, resulting in an overall effective tax rate of 27.2%. A tax benefit of $74.2 million associated with the
impairment charge of the Ception product rights intangible asset was recognized during 2009. In August 2009 we recognized an additional tax benefit of
$13.8 million over the benefits

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recorded at December 31, 2008, due to our closing agreement with the IRS in which both parties agreed that the nondeductible punitive portion of the
settlement agreement with the U.S. Attorney's Office is $152.3 million.


                                                                                                   Year Ended
                                                                                                    December 31,
                                                                                                2010          2009           Change          % Change
               Net loss attributable to noncontrolling interest                             $    8,062 $       131,900 $       (123,838)               (94)%
     Noncontrolling Interest—For the year ended December 31, 2010, we recorded a loss attributable to noncontrolling interest of $8.1 million, related to our
investment in pre-acquisition BDC, pre-acquisition Ception and Mepha Pharma AG. Ception and BDC noncontrolling interests were acquired in the second
quarter and fourth quarter of 2010, respectively. For the year ended December 31, 2009, we recorded a loss attributable to noncontrolling interest of
$131.9 million, related to our investment in Ception, Acusphere Inc. ("Acusphere"), BDC and Arana. In 2009, this value includes the $100.8 million net
impact consisting of the $175.0 million Ception product rights impairment charge, offset by an associated $74.2 million deferred tax benefit. Arana, Ception
and BDC became wholly owned subsidiaries in August 2009, April 2010 and November 2010, respectively. Acusphere was deconsolidated in June 2009. For
additional information, please see Note 2 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, which is
incorporated herein by reference.

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Year ended December 31, 2009 compared to year ended December 31, 2008:



                                                                                          Year Ended December 31,                                                % Increase
                                                                               2009                                        2008                                   (Decrease)
                                                             United                                        United                                     United
                                                               States          Europe        Total           States        Europe        Total          States          Europe        Total
              Sales:
              CNS
                 Proprietary CNS
                      PROVIGIL*                             $      961,070 $     63,618 $    1,024,688 $       924,986 $     63,432 $      988,418                 4%        —%           4%
                      NUVIGIL**                                     73,391           —          73,391              —            —              —                100         —          100
                      GABITRIL                                      51,100        5,386         56,486          52,441        8,256         60,697                (3)       (35)         (7)
                      Other Proprietary CNS                             —        13,292         13,292              —        13,624         13,624                —          (2)         (2)
                 Generic CNS                                            —        10,785         10,785              —        16,315         16,315                —         (34)        (34)
                                            CNS                  1,085,561       93,081      1,178,642         977,427      101,627       1,079,054               11           (8)        9

              Pain
                 Proprietary Pain
                      FENTORA***                                   136,563        4,114          140,677       155,246           —         155,246               (12)      100           (9)
                      AMRIX                                        114,435           —           114,435        73,641           —          73,641                55        —            55
                      Other Proprietary Pain                            —           267              267            —           331            331                —        (19)         (19)
                 Generic Pain
                      ACTIQ                                         75,418       71,527          146,945       105,351       71,170        176,521               (28)           1       (17)
                      Generic OTFC                                  83,032           —            83,032        95,760           —          95,760               (13)          —        (13)
                      Other Generic Pain                                —         8,954            8,954            —         7,765          7,765                —            15        15
                                            Pain                   409,448       84,862          494,310       429,998       79,266        509,264                (5)           7        (3)

              Oncology
                Proprietary Oncology
                     TREANDA                                       222,112           —           222,112        75,132           —           75,132              196           —        196
                     Other Proprietary Oncology                     18,281       75,360           93,641        18,566       70,295          88,861               (2)           7         5
                Generic Oncology                                        —        20,940           20,940            —        22,461          22,461               —            (7)       (7)
                                 Oncology                          240,393       96,300          336,693        93,698       92,756        186,454               157            4        81

              Other
                Other Proprietary                                   17,545           —            17,545        34,397           —          34,397               (49)          —        (49)
                Other Genericx                                      15,436      108,922          124,358        15,270      119,025        134,295                 1           (8)       (7)
                                 Other                              32,981      108,922          141,903        49,667      119,025        168,692               (34)          (8)      (16)
              Total Net Sales                                    1,768,383      383,165      2,151,548       1,550,790      392,674       1,943,464               14         (2)         11
              Other Revenues                                        39,846          914         40,760          29,546        1,544          31,090               35        (41)         31
              Total Revenues                                $    1,808,229 $ 384,079 $       2,192,308 $     1,580,336 $ 394,218 $        1,974,554               14%          (3)%      11%



              Europe—Primarily Europe, Middle East and Africa

              Proprietary products are products which are sold under patent coverage.

              Generic products are products sold without patent coverage in the primary sales territory. Patent coverage may exist in other territories.

              *       Marketed under the name MODIODAL® (modafinil) in France and under the name VIGIL® (modafinil) in Germany.

              **      Launched in June 2009.

              ***     Marketed under the name EFFENTORA® (fentanyl buccal tablet) in Europe.


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     Total net sales:


                                                                                                                      % Increase
                                                                                               % Increase             (Decrease)            % Increase
                                        Year ended December 31,                                (Decrease)               due to              (Decrease)
                                                                       % Increase                due to               Mergers &               due to
                                         2009             2008          (Decrease)               Currency              Acquisitions           Operations
               United States        $    1,768,383 $      1,550,790                  14%                    —%                        —%                    14%
               Europe                      383,165          392,674                  (2)%                   (8)%                      —%                     6%
                                    $    2,151,548 $      1,943,464                  11%                    (1)%                      —%                    12%
     Net sales—In the United States, we sell our proprietary products to pharmaceutical wholesalers, the largest three of which accounted for 75% and 71% of
our total consolidated gross sales for the years ended December 31, 2009 and 2008, respectively. Decisions made by these wholesalers regarding the levels of
inventory they hold (and thus the amount of product they purchase from us) can materially affect the level of our sales in any particular period and thus may
not necessarily correlate to the number of prescriptions written for our products as reported by IMS Health Incorporated.

     We have distribution service agreements with each of our wholesaler customers. These agreements obligate the wholesalers to provide us with periodic
outbound sales information and current inventory levels for our products held at their warehouse locations; additionally, the wholesalers have agreed to
manage the variability of their purchases and inventory levels within specified days on hand limits. Various factors can impact the decisions made by
wholesalers and retailers regarding the levels of inventory they hold, including, among other factors, their assessment of anticipated demand for products,
timing of sales made by them, their review of historical product usage trends, and their purchasing patterns.

     As of December 31, 2009, we received information from substantially all of our U.S. wholesaler customers about the levels of inventory they held for
our U.S. branded products. Based on this information, which we have not independently verified, we believe that total inventory held at these wholesalers is
approximately two to three weeks supply of our U.S. branded products at our current sales levels. As of our most recent retail inventory survey in June 2009,
our generic OTFC inventory held at wholesalers and retailers is approximately three months. We do not expect that potential future fluctuations in inventory
levels of generic OTFC held by retailers will have a significant impact on our financial position and results of operations.

     For the twelve months ended December 31, 2009, in addition to the factors addressed below, net sales were also impacted by changes in the product sales
allowances deducted from gross sales as described further below and by changes in the relative levels of the number of units of inventory held at wholesalers
and retailers. Declines in foreign exchange rates versus the U.S. dollar caused an 8% decrease in European net sales. The other key factors that contributed to
the increase in net sales, period to period, are summarized by product as indicated below.

     •      In CNS, net sales increased 9 percent. Net sales of NUVIGIL, launched in June 2009, contributed to an 8% increase in CNS sales in the U.S.,
            while PROVIGIL net sales in the U.S. increased by 4% due to price increases in 2008 and 2009, partially offset by a decline in unit sales due to
            the introduction of NUVIGIL and the transition of our marketing support from PROVIGIL to NUVIGIL. European net sales of PROVIGIL
            remained constant, as the unfavorable effect of exchange rates offset an increase in unit sales attributable to increased promotional efforts. Net
            sales of GABITRIL, a non-promoted product, decreased 3% in the U.S. and 35% in Europe.
     •      In Pain, net sales decreased 3 percent. Net sales of our pain products have been negatively impacted by an overall decline in the rapid onset
            opioid market. Gross sales of FENTORA

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           increased 1%, as domestic price increases in 2008 and 2009 and the introduction of FENTORA in Europe during 2009 offset decreased volume.
           Net sales of FENTORA decreased 9% due to an increase in returns percentages. Net sales of ACTIQ in the U.S. decreased by 28% due to loss of
           market share to generic competition, partially offset by price increases during 2008. Net sales of our own generic OTFC and shipments of our
           generic OTFC to Barr decreased 13%. In September 2009, our obligation to supply Barr with generic OTFC ended pursuant to the terms of a
           license and supply agreement we entered into with Barr in July 2004. Net sales of ACTIQ in Europe increased 1%, as the increase in unit sales
           exceeded the unfavorable effect of exchange rate changes. The decreases in net sales of FENTORA, ACTIQ and generic OTFC were largely
           offset by a 55% increase in AMRIX net sales. AMRIX, launched in late 2007, gained market share over prior year levels and benefited from
           average 2009 domestic price increases of 8% period to period.

     •      In Oncology, net sales increased 81 percent. This increase was attributable to the growth of TREANDA, which launched in April 2008. Net sales
            of our European oncology products increased 4% as increase in unit sales exceeded the unfavorable effect of exchange rate changes.
     •      Other proprietary and generic net sales, which consist primarily of net sales of other products and certain third party products, decreased
            16 percent, primarily due to the November 2008 termination of our agreement with Alkermes, Inc. and the unfavorable effect of exchange rate
            changes on our other products sold in Europe.

     Other revenues—The increase of 31% from period to period is primarily due to revenues and license royalties earned by Arana, offset by a decrease in
revenues from our collaborators including royalties, milestone payments and fees.
    Analysis of gross sales to net sales—The following table presents the product sales allowances deducted from gross sales to arrive at a net sales figure:


                                                                                                  Year Ended December 31,
                                                                                                  2009              2008              Change      % Change
               Gross sales                                                                   $    2,469,314    $    2,226,804     $    242,510            11%
               Product sales allowances:
                        Prompt payment discounts                                                     42,814            36,855            5,959            16
                        Wholesaler discounts                                                         21,011            13,897            7,114            51
                        Returns                                                                      63,680            49,159           14,521            30
                        Coupons                                                                      31,779            21,068           10,711            51
                        Medicaid discounts                                                           42,628            40,923            1,705             4
                        Managed care and governmental contracts                                     115,854           121,438           (5,584)           (5)
                                                                                                    317,766           283,340           34,426
               Net sales                                                                     $    2,151,548    $    1,943,464     $    208,084            11%
                 Product sales allowances as a percentage of gross sales                                 12.9%             12.7%
     Prompt payment discounts increased for the twelve months ended December 31, 2009 as compared to the twelve months ended December 31, 2008 due
to the increase in sales, the timing of discounts granted and level of discounts taken; prompt payment discounts are generally granted at 2% of gross sales.
Wholesaler discounts increased period over period because fewer discounts were required for early 2008 as a result of price increases. Returns increased as a
result of increased returns rates related to PROVIGIL and estimated returns of NUVIGIL as a result of the launch of NUVIGIL. Coupons increased as a result
of the effect of NUVIGIL coupon programs, partially offset by the termination of the PROVIGIL coupon program in the third quarter of 2009.

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     Medicaid discounts increased slightly for the twelve months ended December 31, 2009 as compared to the twelve months ended December 31, 2008 due
to price increases, partially offset by the lower Medicaid utilization of our CNS and Pain products. Managed care and governmental contracts decreased for
the twelve months ended December 31, 2009 as compared to the twelve months ended December 31, 2008 due to decreases in rebates for certain managed
care and governmental programs, particularly with respect to sales of our Pain products. In the future, we expect product sales allowances as a percentage of
gross sales to trend upward due to the impact of potential future price increases on Medicaid discounts and potential increases related to Medicaid, Medicare
Part D, managed care and governmental contracts sales.


                                                                                               Year Ended December 31,
                                                                                                2009              2008           Change        % Change
                Costs and expenses:
                Cost of sales                                                             $       398,837 $          412,234 $      (13,397)            (3)%
                Research and development                                                          395,431            362,208         33,223              9
                Selling, general and administrative                                               822,052            840,873        (18,821)            (2)
                Settlement reserve                                                                     —               7,450         (7,450)          (100)
                Restructuring charge                                                               13,825              8,415          5,410             64
                Impairment charge                                                                 182,080             99,719         82,361             83
                Acquired in-process research and development                                       46,118             41,955          4,163             10
                Loss on sale of equipment                                                              —              17,178        (17,178)          (100)
                                                                                          $     1,858,343 $        1,790,032 $       68,311              4%
     Cost of sales—The cost of sales was 18.5% of net sales for the year ended December 31, 2009 and 21.2% of net sales for the year ended December 31,
2008. Cost of sales decreased by 3%, due to the recognition of $3.5 million in net gains during 2009 in connection with a reduction of our excess modafinil
purchase commitment reserve, as compared to an additional expense of $26.0 million recorded in 2008 to increase our reserve for excess modafinil purchase
commitments, based on revised agreements with our modafinil suppliers and our analysis of estimated future requirements. In 2009, royalties paid to Teva
decreased by $10.6 million compared to 2008, as we fully satisfied royalty contractual commitments during July 2009. For the year ended December 31, 2009
and 2008, we recognized $97.5 million and $100.7 million of amortization expense included in cost of sales, respectively. Amortization expense decreased by
$5.6 million due to the increase in estimated useful life for AMRIX from 5 to 18 years and by $6.7 million due to the elimination of amortization for
VIVITROL, partially offset by increases in amortization for TREANDA and Arana. We recorded accelerated depreciation charges of $19.0 million and
$12.4 million in 2009 and 2008, respectively.

     Research and development expenses—Research and development expenses increased $33.2 million, or 9%, for the year ended December 31, 2009 as
compared to the year ended December 31, 2008. In 2009, we recognized an increase in R&D charges related to our variable interest entities ("VIEs") of
$32.7 million. Also, in 2009 we recognized R&D charges for Arana of $18.0 million for which there was no equivalent amount in the prior year. This was
offset by a decrease of $6.8 million in clinical activity expenses in the U.S. related primarily to NUVIGIL and a decrease of $7.5 million for French research
and development credits. For the year ended December 31, 2009 and 2008, we recognized $27.3 million and $24.3 million, respectively, of depreciation
expense included in research and development expenses.

     Selling, general and administrative expenses—Selling, general and administrative expenses decreased $18.8 million, or 2%, for the year ended
December 31, 2009 as compared to the year ended December 31, 2008. In 2008, we recognized $28.2 million of sunset payments due to Takeda
Pharmaceuticals North America, Inc. ("TPNA"), and $12.2 million of expenses related to the termination of our collaboration with Alkermes. In 2009, we
recognized promotional expenses

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associated with the launch of NUVIGIL, which were offset by reduced selling expenses related to PROVIGIL. In 2009, we reduced promotional expenses
resulting from the termination of the TPNA contract. This was offset by increased promotional expenses associated with AMRIX, and an increase of
$8.8 million related to our VIE's. Also in 2009, we recognized $4.1 million related to Arana for which there was no equivalent amount in the prior year. For
the year ended December 31, 2009 and 2008, we recognized $25.6 million and $20.7 million, respectively, of depreciation expense included in selling general
and administrative expenses.

     Settlement reserve—For the year ended December 31, 2008, we recognized $7.4 million for the charges relating to the settlement of investigations by the
states of Connecticut and Massachusetts, and for our estimate of attorneys' fees for the Relators as part of the U.S. Attorney's Office settlement.
     Restructuring charges—For the years ended December 31, 2009 and 2008, we recorded $13.8 million and $8.4 million, respectively, related to our
restructuring plan to consolidate certain manufacturing and research and development activities primarily within our U.S. locations. These charges mainly
consist of severance payments and accruals for employees who have or are expected to be terminated as a result of these restructuring plans.

     Impairment charges—For the year ended December 31, 2009, we recorded a $182.1 million impairment charge consisting of the reduction of our
estimate of future cash flows from an EoE indication for CINQUIL of $175.0 million to reduce the associated intangible asset carrying value to its revised
estimated fair value in November 2009, and a $7.1 million impairment charge to write-down our investment in SymBio to fair value. For the year ended
December 31, 2008, we recorded a $99.7 million impairment charge consisting of the write-off of the net book value of the VIVITROL intangible assets of
$90.4 million as a result of the termination of our collaboration with Alkermes, and a $9.3 million impairment charge for the write-down to fair value of
Acusphere's long-lived assets.

    Acquired in-process research and development—For the year ended December 31, 2009, we incurred expense of:

     •      $9.4 million in connection with Acusphere for the elimination of the $15.0 million milestone and royalty payments associated with the celecoxib
            license agreement and patent rights relating to their HDDS technology;
     •      $30.0 million in exchange for the exclusive, worldwide license rights to LUPUZOR, acquired from ImmuPharma;
     •      $0.8 million in exchange for the exclusive sublicense to bendamustine hydrochloride in China and Hong Kong, acquired from SymBio; and
     •      $6.0 million in exchange for license rights to certain of XOMA Ltd.'s proprietary antibody library materials.

    For the year ended December 31, 2008, we recorded acquired in-process research and development expense of:

     •      $10.0 million related to our license of Acusphere HDDS technology for use in oncology therapeutics;
     •      $15.0 million related to LUPUZOR, a compound in phase IIb testing for the treatment of systemic lupus erythematosus, not yet approved by the
            FDA; and
     •      $17.0 million in connection with the initial consolidation of Acusphere, a variable interest entity for which we are the primary beneficiary.

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     Loss on sale of equipment—For the year ended December 31, 2008, we recorded a $17.2 million loss on sale of equipment related to the termination of
our collaboration with Alkermes.


                                                                                             Year Ended
                                                                                              December 31,
                                                                                      2009                   2008            Change         % Change
                Other income (expense):
                 Interest income                                             $             5,263 $               16,901 $        (11,638)              (69)%
                 Interest expense                                                        (90,336)               (75,233)         (15,103)               20
                 Other income (expense), net                                              40,515                  7,880           32,635               414
                                                                             $           (44,558) $             (50,452) $         5,894               (12)%
    Other income (expense)—Other income (expense) decreased $5.9 million for the year ended December 31, 2009 as compared to the year ended
December 31, 2008. The decrease was attributable to the following factors:

     •      an $11.6 million decrease in interest income due to lower investment returns, partially offset by higher average investment balances;
     •      a $15.1 million increase in interest expense due to interest and debt discount on our 2.5% convertible notes issued in May 2009, partially offset
            by $11.3 million of estimated accrued interest related to the agreement with the U.S. Attorney's Office that we incurred in 2008 for which there is
            no comparative amount in 2009.
     •      a $32.6 million increase in other income due to the following:

            •       $6.6 million gain on pre-bid Arana holdings;
            •       $2.8 million loss on Arana contingent consideration (90% ownership incentive payment);
            •       $10.0 million gain on the excess of Arana net assets over consideration;
            •       $19.0 million gains on foreign exchange derivative instruments; and
            •       $0.2 million decrease in foreign exchange gains.



                                                                                             Year Ended
                                                                                              December 31,
                                                                                      2009                   2008            Change          % Change
                 Income tax expense (benefit)                                      $        78,680 $        (37,819) $          116,499                 308%
     Income Taxes—For the year ended December 31, 2009 we recognized $78.7 million of income tax expense on income before income taxes of
$289.4 million, resulting in an overall effective tax rate of 27.2 percent. We have recognized tax benefit of $74.2 million associated with the impairment
charge of the Ception product rights intangible asset. During 2009 we recognized an additional tax benefit of $13.8 million over the benefits recorded at
December 31, 2008, due to our closing agreement with the IRS in which both parties agreed that the nondeductible punitive portion of the Settlement
Agreement is $152.3 million. For the year ended December 31, 2009, a $7.5 million benefit for French research and development credit is recognized in R&D
expense. For the year ended December 31, 2008, we recognized $37.8 million of income tax benefit on income before income taxes of $134.1 million,
resulting in an overall effective tax rate of (28.2) percent. This includes a tax benefit of $82.3 million

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related to the settlement with the U.S. Attorney's Office, for which the related expense was recorded in 2007 and a net release of $11.1 million reserves related
to the settlement of our 2003-2005 IRS audit.


                                                                                                      Year ended
                                                                                                       December 31,
                                                                                                   2009               2008            Change          % Change
                Net loss attributable to noncontrolling interest                            $     131,900 $        21,073 $       110,827               526%
    Net loss attributable to noncontrolling interest—For the year ended December 31, 2009, we recorded a net loss attributable to noncontrolling interest of
$131.9 million, related to our investments in Ception, Acusphere and Arana, as compared to $21.1 million in 2008. In 2009, this value includes the
$100.8 million net impact consisting of the $175.0 million Ception product rights impairment charge, offset by an associated $74.2 million deferred tax
benefit. Arana became a wholly owned subsidiary on August 8, 2009.

LIQUIDITY AND
CAPITAL RESOURCES
(In thousands, except per share data)


                                                                                                                                     As of December 31,
                                                                                                                             2010          2009               2008
                Financial assets:
                Cash and cash equivalents                                                                             $ 1,160,239      $ 1,647,635        $   524,459
                Debt and Redeemable Equity:
                Current portion of long-term debt—convertible notes                                                   $   820,000 $ 1,019,968 $ 1,019,888
                Current portion of long-term debt discount—convertible notes                                             (170,183)   (207,307)   (248,403)
                Current portion of long-term debt—other debt                                                                2,180       6,264      10,133
                Long-term debt—convertible notes                                                                          500,000     500,000          —
                Long-term debt discount—convertible notes                                                                (111,357)   (137,907)         —
                Long-term debt—other debt                                                                                   2,773       1,603       3,692
                Redeemable equity                                                                                         170,183     207,307     248,403
                                              Total debt and redeemable equity                                        $ 1,213,596 $ 1,389,928 $ 1,033,713
                Select measures of liquidity and capital resources:
                Working capital surplus                                                                               $      934,960 $ 1,227,993 $            156,410
                Total cash, cash equivalents and short-term investments as a percentage of total assets                           24%         35%                  17%



                                                                                                                                Year Ended December 31,
                                                                                                                   2010                  2009                 2008
                Change in cash and cash equivalents
                Net cash provided by operating activities                                                     $        781,757 $           681,351 $            (1,877)
                Net cash used for investing activities                                                                (760,962)           (258,089)           (108,138)
                Net cash provided by (used for) financing activities                                                  (515,861)            681,413            (172,894)
                Effect of exchange rate changes on cash and cash equivalents                                             7,670              18,501             (11,301)
                Net increase (decrease) in cash and cash equivalents                                          $       (487,396) $        1,123,176 $          (294,210)
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     Our working capital surplus is calculated as current assets less current liabilities. The fluctuation in the working capital surplus between the three periods
was primarily driven by the acquisition of Mepha, BDC and Ception in 2010 and Arana in 2009, our collaboration and investment in Mesoblast in 2010, the
redemption of our 2010 and 2008 Zero Coupon Notes in 2010 and 2008, respectively, our equity and 2.5% Notes issuances in 2009, the 2008 payment to the
U.S. Attorney's Office for $425.0 million and the convertible nature of our notes over all periods. Our convertible notes contain conversion terms that will
impact whether these notes are classified as current or long-term liabilities and consequently affect our working capital position.

     On August 15, 2008, we established a $200 million, three-year revolving credit facility (the "Credit Agreement") with JP Morgan Chase Bank, N.A. and
certain other lenders. The credit facility is available for letters of credit, working capital and general corporate purposes and is guaranteed by certain of our
domestic subsidiaries. The Credit Agreement contains customary covenants, including but not limited to covenants related to total debt to Consolidated
EBITDA (as defined in the Credit Agreement), senior debt to Consolidated EBITDA, interest expense coverage and limitations on capital expenditures, asset
sales, mergers and acquisitions, indebtedness, liens, and transactions with affiliates. As of the date of filing of this Annual Report on Form 10-K, we have not
drawn any amounts under the credit facility. We expect to renew or replace the credit facility prior to its expiration in 2011.

Net Cash Provided by (Used for) Operating Activities

    For all periods presented, cash provided by operating activities is driven by income from sales of our products offset by the timing of receipts and
payments in the ordinary course of business.

     Net cash provided by operating activities was $781.8 million in 2010 as compared to $681.4 million in 2009. The change is primarily attributable to
increased net product sales. Also included within cash provided by operating activities in 2010 and 2009 are payments recorded as in-process research and
development including in 2010, $100.0 million for a worldwide license to Mesoblast's proprietary technology platform, and in 2009, $30.0 million in
exchange for the exclusive, worldwide license rights to LUPUZOR, acquired from Immupharma and $0.8 million in exchange for the license rights to
bedamustine hydrochloride in China and Hong Kong.

     The change in receivables between periods is primarily due to an increase in trade receivables in 2010 from increased product sales as compared to a
decrease in receivables in 2009 due to $67.3 million of federal tax refunds received for previously paid federal taxes.

     Net cash provided by operating activities was $681.4 million in 2009 as compared to net cash used for operating activities of $1.9 million in 2008. The
increase in 2009 is primarily attributable to the payment of $425.0 million in 2008 in association with the settlement agreement with the U.S. Attorney's
Office reflected in the change in accrued expenses and a federal tax refund of $67.3 million received in 2009 for previously paid 2008 estimated federal taxes
reflected in receivables. Other liabilities decreased in 2009 due to the reduction in the modafinil purchase commitments reserve and payments of liabilities for
the sunset payments due to TPNA originally both recorded as liabilities in 2008.

     Material non-cash items impacting 2009 cash flows from operating activities include a $182.1 million impairment charge consisting of the reduction of
our estimate of future cash flows from an eosinophilic esophagitis indication for CINQUIL of $175.0 million to reduce the associated intangible asset carrying
value to its revised estimated fair value in November 2009, and a $7.1 million impairment charge to write-down our investment in SymBio to fair value.

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Net Cash Used for Investing Activities

     Cash used for investing activities primarily relates to acquisitions of business, technologies, products and product rights and funds used for capital
expenditures in property and equipment. These uses of cash are offset by sales and maturities of investments associated with our portfolio of available-for-sale
investments.

    Net cash used for investing activities was $761.0 million in 2010 as compared to $258.1 million in 2009. The increase in cash used between periods is
primarily attributable to:

     •       $549.5 million paid in conjunction with our acquisition of Mepha, net of cash acquired;
     •       $133.9 million paid in conjunction with our investment in Mesoblast;
     •       $14.8 million paid in conjunction with our investment in ChemGenex Notes;
     •       $9.5 million of funds used to settle foreign exchange contracts; and
     •       $4.7 million of proceeds received upon the sale of our Eden Prarie facility.

    Net cash used for investing activities was $258.1 million in 2009 as compared to $108.1 million in 2008. The increase in cash used between periods is
primarily attributable to:

     •       $232.5 million paid in 2009 in conjunction with our acquisition of Arana, net of cash acquired; and
     •       $105.0 million paid in 2009 as consideration for options to purchase Ception and BDC;
     •       a $16.0 million decrease in cash flow from proceeds received in 2008 from Alkermes related to the sale of manufacturing property and
             equipment;
     •       a $53.7 million increase in cash flow due to the initial consolidation of Ception and BDC in 2009 as variable interest entities;
     •       an increase in cash flows due to proceeds of $26.8 million received in 2009 upon settlement of foreign exchange contracts;
     •       an increase in cash used on intangible asset expenditures of $28.3 million. During 2009, we paid $53.3 million for the rights to VOGALENE®
             (metopimazine) and VOGALIB® (metopimazine) in France. During 2008, we paid a $25.0 million milestone paid upon the initial FDA approval
             of TREANDA; and
     •       an increase of $117.4 million in sales and maturities of available-for-sale investments as a result of transferring our portfolio of investments into
             cash and cash equivalents with an original maturity less than 90 days.

Net Cash Provided by (Used for) Financing Activities

     Net cash used for financing activities was $515.9 million in 2010 as compared to net cash provided by financing activities of 681.4 million in 2009.

    During the second quarter of 2010, holders who converted their 2010 Notes received from us an aggregate of $170.2 million in cash. The 2010 Notes that
were not converted were redeemed by us or tendered by the holder to us for cash of $29.4 million.

    In April 2010, we paid $299.3 million to acquire the Ception noncontrolling interest. In November 2010, we paid $16.3 million to acquire the BDC
noncontrolling interest.

    Cash provided by financing activities during 2009 primarily relates to proceeds received from the issuance of common stock and convertible debt. On
May 27, 2009, we issued an aggregate of 5,000,000

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shares of common stock, resulting in net cash proceeds of $288.0 million. Also on May 27, 2009, we issued through a public offering $500.0 million
aggregate principal amount of 2.5% convertible senior subordinated notes due May 1, 2014 (the "2.5% Notes"). Concurrent with the offering of the 2.5%
Notes in May 2009, we purchased a convertible note hedge from Deutsche Bank AG ("DB") at a cost of $121.0 million and sold to DB warrants to purchase
an aggregate of 7,246,377 shares of our common stock and received net proceeds from the sale of these warrants of $37.6 million. For more information, see
Note 14 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

     All periods presented also reflect proceeds received from the exercise of stock options which will vary from period to period primarily due to fluctuations
in the market value of our stock relative to the exercise price of such options.
Commitments and Contingencies
     —Legal Proceedings
    For a description of legal proceedings, see Note 18 of the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on
Form 10-K.
     —Other Commitments and Contingencies
     The following table summarizes our obligations to make future payments under current contracts:


                                                                                                      Payments due by period
                                                                                                                                                2016 and
                Contractual obligations                                   Total            2011         2012 and 2013          2014 and 2015     thereafter
                Convertible notes*                                  $      1,320,000 $      820,000     $            —         $      500,000   $           —
                Purchase obligations                                          93,579         75,488               5,551                 5,411            7,129
                Capital lease and debt obligations                             4,954          2,180               1,897                   548              329
                Interest payments on debt                                    117,061         29,085              57,978                29,885              113
                Operating leases                                              95,645         23,139              35,057                19,274           18,175
                Projected pension contributions                               41,152          3,499               6,713                 9,742           21,198
                Total contractual obligations                       $      1,672,391 $      953,391     $       107,196        $      564,860   $       46,944


                *      This value excludes the equity component of our convertible notes attributable to debt discount. The debt discount values associated
                       with the convertible notes at December 31, 2010 total $281,540.

     As of December 31, 2010, our 2.0% Notes are convertible because the closing price of our common stock on that date was higher than the restricted
conversion prices of these notes. As a result, our 2.0% Notes have been classified as current liabilities on our consolidated balance sheet as of December 31,
2010 and are therefore included under the 2011 column in the table above. For a discussion of our obligations under our convertible notes, please see Note 14
to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.

     In addition to the above, we have committed to make potential future "milestone" payments to third parties as part of our in-licensing and development
programs primarily in the area of research and development agreements. Payments generally become due and payable only upon the achievement of certain
developmental, regulatory and/or commercial milestones. Because the achievement of these milestones is neither probable nor reasonably estimable, we have
not recorded a liability on our balance sheet for any such contingencies, with the exception of the contingent consideration recorded

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upon acquisition of Ception and BDC noncontrolling interests, which have been recorded as a liability and are revalued quarterly or more frequently, if
necessary. As of December 31, 2010, the fair value of the contingent consideration liability for Ception and BDC was $102.9 million and $32.3 million,
respectively. As of December 31, 2010, the potential milestone, option exercise payments and other contingency payments due under current contractual
agreements are $3.2 billion, including Ception and BDC. This value includes $1.7 billion associated with our Mesoblast transaction. For additional details,
please see Note 2 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, which is incorporated herein by
reference.

     The table above excludes (i) our non-current liability for net unrecognized tax benefits, which totaled $20.9 million as of December 31, 2010, since we
cannot predict with reasonable reliability the timing of cash settlements to the respective taxing authorities and (ii) contractual obligations of our variable
interest entities for intellectual property rights, equipment financing, construction financing and lease obligations as our variable interest entities creditors
have no recourse to the general credit of Cephalon.

Outlook

     We expect to use our cash, cash equivalents, credit facility and investments for working capital and general corporate purposes, the acquisition of
businesses, products, product rights, technologies, property, plant and equipment, the payment of contractual obligations, including scheduled interest
payments on our convertible notes and regulatory or sales milestones that may become due, and/or the purchase, redemption or retirement of our convertible
notes. We expect that net sales of our currently marketed products should allow us to continue to generate positive operating cash flow in 2011. While we
anticipate generic competition to PROVIGIL in 2012, which will negatively impact net earnings and cash flow from operations, we expect to generate
positive operating cash flow in 2012 as well, absent significant cash requirements for acquisitions or otherwise. However, there is uncertainty regarding the
effect of certain developments on our anticipated rate of sales in 2012 and beyond, such as the degree of market acceptance, patent protection and exclusivity
of our products, the impact of competition, the effectiveness of our sales and marketing efforts and the outcome of our current efforts to develop, receive
approval for and successfully launch our product candidates and new indications for existing products.

     Based on our current level of operations, projected sales of our existing products, and estimated sales from our product candidates, if approved,
combined with other revenues and interest income, we also believe that we will be able to service our existing debt and meet our capital expenditure and
working capital requirements in the near term. We do not expect any material changes in our capital expenditure spending during 2011. However, we cannot
be sure that our anticipated revenue growth in 2011 will be realized or that we will continue to generate significant positive cash flow from operations. We
may need to obtain additional funding for future significant strategic transactions, to repay our outstanding indebtedness, particularly if such indebtedness is
presented for conversion by holders (see "—Indebtedness" below), or for our future operational needs, and we cannot be certain that funding will be available
on terms acceptable to us, or at all.

     As part of our business strategy, we plan to consider and, as appropriate, make acquisitions of other businesses, products, product rights or technologies.
Our cash reserves and other liquid assets may be inadequate to consummate such acquisitions and it may be necessary for us to issue stock or raise substantial
additional funds to complete future transactions. In addition, as a result of our acquisition efforts, we are likely to experience significant charges to earnings
for merger and related expenses (whether or not our efforts are successful) that may include transaction costs or closure costs.

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U.S. Health Care Reform

     In 2010, the U.S. health care reform law has resulted in a negative impact on net sales of $18.1 million. In 2011, we expect that the increase of the
Medicaid rebate to 23.1%, combined with the extension of rebates to Medicaid Managed Care Organizations and the incremental increase in PHS pricing
discounts will, assuming no material changes in our product mix, have an impact of between $22 - $26 million. We also expect that we will be negatively
affected by other provisions of the health reform law to be implemented in 2011, including:

     •      To expand Medicare Part D coverage, pharmaceutical companies will provide a 50% discount (increasing to 75% by 2020) for all Part D branded
            pharmaceutical products for Medicare beneficiaries in the coverage gap (commonly referred to as the "Doughnut Hole"); and
     •      Branded pharmaceutical companies will pay an annual fee based on all prior year product sales to U.S. government programs (such as TriCare,
            Medicaid, and Medicare Part D).

     Based on our current understanding of these provisions and on expected product mix, we expect the Medicare Part D coverage provision to total between
$10 - 12 million and the annual fee to total between $9 - 12 million in 2011. The U.S. government is currently drafting rules and regulations regarding these
and many other of the law's provisions, which, once finalized, will provide further guidance regarding the full extent of the effects of the U.S. health reform
law on our business. We also anticipate that one of the positive effects of this law is that, beginning in 2014, more patients will become insured, providing,
from the patient's standpoint, greater and more cost-effective access to our products. The benefits of this law upon our business are currently not estimable.

Marketed Products and Product Candidates

     Sales growth of our wakefulness products depends, in part, on the continued effectiveness of the various settlement agreements we entered into in late
2005 and early 2006, as well as our maintenance of protection in the United States and abroad of the modafinil particle-size patent through its expiration
beginning in 2014 and our NUVIGIL polymorph patent through its expiration beginning in 2023. See Note 18 of the Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K. During 2010 we experienced a 30% decline in prescriptions of PROVIGIL over the prior
year, respectively. Growth of our wakefulness product sales in the future may depend in part on our ability to build upon the June 2009 launch of NUVIGIL in
the U.S., on our ability to secure additional indications for NUVIGIL, and on the strength of the patents covering NUVIGIL, particularly in light of the
ANDAs filed by several generic manufacturers.

     Our future growth depends in large part on our ability to achieve continued sales growth with AMRIX and TREANDA, which we launched in October
2007 and April 2008, respectively. Growth of AMRIX sales will depend in part on the strength of the patent covering the product, particularly in light of the
ANDAs filed by Barr, Mylan and Anchen, and a positive decision from the October 2010 trial related to the Barr, Mylan and Anchen ANDAs, which decision
is expected by or in the second quarter of 2011, and a possible second trial related to recently issued additional pharmaceutical formulation patents covering
AMRIX.

    Our future growth also depends, in part, on our ability to successfully market FENTORA within its current indication and to secure FDA approval of a
new broader label indication for the product outside of breakthrough cancer pain. In November 2007, we submitted an sNDA to the FDA seeking approval to
market FENTORA for the management of breakthrough pain in opioid tolerant patients with chronic pain conditions. In early April 2009, we submitted a Risk
Evaluation and Mitigation Strategy (the "REMS Program") with respect to FENTORA. Subject to the timing and nature of further discussions with the FDA,
we expect to receive a response from the FDA regarding the FENTORA REMS Program in the first half of 2011. Growth of FENTORA sales will also
depend in

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part on the strength of the patents covering the product, particularly in light of the ANDAs filed by Watson, Barr and Sandoz, and a positive decision from the
May 2010 trial related to the Watson ANDA which decision is expected at any time. For more information regarding our FENTORA REMS Program, please
see Part I, Item 1 "Pain—FENTORA" of this Annual Report on Form 10-K.

Clinical Studies

     Over the past few years, we have incurred significant expenditures related to conducting clinical studies to develop new pharmaceutical products and to
explore the utility of our existing products in treating disorders beyond those currently approved in their respective labels. In 2011, we expect to continue to
incur significant levels of research and development expenditures. We also expect to continue or begin a number of significant clinical programs including:
clinical studies evaluating TREANDA as a treatment for front-line NHL; clinical studies evaluating LUPUZOR for the treatment of systemic lupus
erythematosus; clinical studies evaluating CINQUIL for the treatment of eosonophilic asthma; clinical studies of tamper-resistant hydrocodone for the
treatment of chronic pain; clinical programs with respect to certain oncology and inflammatory diseases; and clinical program with NUVIGIL focused on
adjunctive treatment for bi-polar depression. As part of our strategic alliance with Mesoblast Ltd., we will also begin work on our clinical programs for
mesynchymal precursor cells to treat congestive heart failure and acute myocardial infarction and our clinical program for cord blood expansion.

Manufacturing, Selling and Marketing Efforts

     In 2011, we expect to continue to incur significant expenditures associated with manufacturing, selling and marketing our products. In 2011, we expect
to complete a capital expenditure project related to the transfer of manufacturing activities from our facility in Eden Prairie, Minnesota to our facility in Salt
Lake City, Utah. In the third quarter 2010, we sold the Eden Prarie facility and certain associated equipment for proceeds of $4.7 million. Pursuant to the sale
agreement, we are leasing the Eden Prarie facility from the buyer until December 2011.

     Over the past few years, we have developed a manufacturing process for the active pharmaceutical ingredient in NUVIGIL that is more cost effective
than our prior process of separating modafinil into armodafinil. As a result of using this new process coupled with the launch of NUVIGIL, we reassess, as
needed, the potential impact of these items on certain of our existing agreements to purchase modafinil and reserve for purchase commitments in excess of
current expected need. For more information regarding modafinil purchase commitments, please see Note 9 to our Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference. In the second quarter of 2010, we reassessed our
future modafinil needs and recorded a $9.4 million adjustment which increased the excess commitment reserve as well as a reserve for inventory on-hand of
$7.6 million. As of December 31, 2010, our aggregate future purchase commitments remaining totaled $8.6 million and are fully reserved.

     We have also initiated a search for a potential acquiror of our manufacturing facility in Mitry-Mory, France where we produce modafinil. As of
December 31, 2010, we had $6.5 million of property and equipment related to the Mitry-Mory facility included on our balance sheet. The resolution of these
assessments could have a negative impact on our results of operations in future periods.

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Indebtedness

     We have significant indebtedness outstanding, consisting principally of indebtedness on convertible subordinated notes. The following table summarizes
the principal terms of our most significant convertible subordinated notes outstanding as of December 31, 2010:


                                                                                              Conversion
                Security                                                     Outstanding          Price                 Redemption Rights and Obligations
                                                                              (in millions)
                2.5% Convertible Senior Subordinated Notes due May              $ 500.0          $   69.00* Generally not redeemable by the holder prior to
                   2014 (the "2.5% Notes")                                                                  November 2013.
                2.0% Convertible Senior Subordinated Notes due June             $ 820.0          $   46.70**Generally not redeemable by the holder prior to
                   2015 (the "2.0% Notes")                                                                  December 2014.


                *      Stated conversion price as per the terms of the notes; subject to adjustment (equivalent to a conversion rate of approximately 14.4928
                       shares per $1,000 principal amount of Notes.) However, each convertible note contains certain terms restricting a holder's ability to
                       convert the notes, including that a holder may only convert if any of the following conditions is satisfied: (1) during any calendar
                       quarter commencing after September 30, 2009, the closing sale price of our common stock for at least 20 trading days in the period of
                       30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which
                       the conversion occurs, is more than 130% of the conversion price per share ($89.70 based on the initial conversion price) of the notes
                       in effect on that last trading day; (2) during the 10 consecutive trading-day period that follows any five consecutive trading-day period
                       in which the trading price for the notes for each such trading day was less than 98% of the closing sale price of our common stock on
                       such date multiplied by the then current conversion rate; or (3) if we make certain significant distributions to holders of our common
                       stock, we enter into specified corporate transactions or our common stock is not listed on a U.S. national securities exchange.
                **     Stated conversion prices as per the terms of the notes. However, each convertible note contains certain terms restricting a holder's
                       ability to convert the notes, including that a holder may only convert if the closing price of our stock on the day prior to conversion is
                       higher than $56.04. For a more complete description of these notes, including the associated convertible note hedge, please see Note 14
                       to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, which is incorporated herein
                       by reference.

     During the second quarter of 2010, we delivered a notice of redemption to the holders of our Zero Coupon Notes first putable June 2010 (the "2010
Notes"). All outstanding 2010 Notes were redeemed, converted or tendered in June 2010. For more information regarding these matters, please see Note 14 to
our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.

      As of December 31, 2010, our closing stock price was $61.72, and therefore the 2.0% Notes were convertible as of December 31, 2010. Under the terms
of the indentures governing the notes, we are obligated to repay in cash the aggregate principal balance of any such notes presented for conversion. As of the
filing date of this Annual Report on Form 10-K, we do not have available cash, cash equivalents and investments sufficient to repay all of the convertible
notes, if presented. In addition, other than the restrictive covenants contained in our credit agreement, there are no restrictions on our use of this cash and the
cash available to repay indebtedness may decline over time. If we do not have

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sufficient funds available to repay any principal balance of notes presented for conversion, we will be required to raise additional funds. Because the financing
markets may be unwilling to provide funding to us or may only be willing to provide funding on terms that we would consider unacceptable, we may not have
cash available or be able to obtain funding to permit us to meet our repayment obligations, thus adversely affecting the market price for our securities.

     As of December 31, 2010, our 2.0% Notes have been classified as current liabilities on our consolidated balance sheet. See Note 14 to our Consolidated
Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for summary of our convertible debt, note hedge and call warrant. As of
February 4, 2011, the fair value of the 2.0% Notes is greater than the value of the shares into which such notes are convertible. We believe that the share price
of our common stock would have to significantly increase over the market price as of the filing date of this report before the fair value of the convertible notes
would be less than the value of the common stock shares underlying the notes and, as such, we believe it is highly unlikely that holders of the 2.0% Notes will
present significant amounts of such notes for conversion under the current terms. In the unlikely event that a significant conversion did occur, we believe that
we have the ability to raise sufficient cash to repay the principal amounts due through a combination of utilizing our existing cash on hand, accessing our
credit facility, raising money in the capital markets or selling our note hedge instruments for cash.

     The annual interest payments on our 2.0% Notes are $16.4 million, payable semi-annually on June 1 and December 1. The annual interest payments on
our 2.5% Notes are $12.5 million, payable semi-annually on May 1 and November 1. In the future, we may agree to exchanges of the notes for shares of our
common stock or debt, or may determine to use a portion of our existing cash on hand to purchase or retire all or a portion of the outstanding convertible
notes.

     Our 2.0% Notes, 2.5% Notes and 2010 Zero Coupon Notes each are included in the dilutive earnings per share calculation using the treasury stock
method. Under the treasury stock method, we must calculate the number of shares issuable under the terms of these notes based on the average market price of
our common stock during the period, and include that number in the total diluted shares figure for the period. At the time we sold our 2.0% Notes, 2.5% Notes
and 2010 Zero Coupon Notes we entered into convertible note hedge and warrant agreements that together are intended to have the economic effect of
reducing the net number of shares that will be issued upon conversion of the notes by increasing the effective conversion price for these notes, from our
perspective, to $67.92, $100.00 and $72.08, respectively. However, from an accounting principles generally accepted in the United States of America
("U.S. GAAP") perspective, since the impact of the convertible note hedge agreements is always anti-dilutive we exclude from the calculation of fully diluted
shares the number of shares of our common stock that we would receive from the counterparties to these agreements upon settlement.

     Under the treasury stock method, changes in the share price of our common stock can have a significant impact on the number of shares that we must
include in the fully diluted earnings per share calculation. The following table provides examples of how changes in our stock price will require the inclusion
of additional shares in the denominator of the fully diluted earnings per share calculation ("Total Treasury Stock Method Incremental Shares"). The table also
reflects the impact on the number

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of shares we could expect to issue upon concurrent settlement of the convertible notes, the warrant and the convertible note hedge ("Incremental Shares Issued
by Cephalon upon Conversion"):


                                                                                Total Treasury                                             Incremental
                                                                                Stock Method                 Shares Due to               Shares Issued by
                                       Convertible         Warrant               Incremental                Cephalon under                Cephalon upon
                Share Price             Notes Shares         Shares                 Shares(1)                  Note Hedge                   Conversion(2)
                $55.00                             2,650                 —                        2,650                       (2,650)                          —
                $65.00                             4,944                 —                        4,944                       (4,944)                          —
                $75.00                             7,206              1,658                       8,864                       (7,206)                       1,658
                $85.00                             9,276              3,528                      12,804                       (9,276)                       3,528
                $95.00                            10,910              5,005                      15,915                      (10,910)                       5,005
                $105.00                           12,233              6,546                      18,779                      (12,233)                       6,546


                (1)    Represents the number of incremental shares that must be included in the calculation of fully diluted shares under U.S. GAAP.
                (2)    Represents the number of incremental shares to be issued by us upon conversion of the convertible notes, assuming concurrent
                       settlement of the convertible note hedges and warrants.

   On May 18, 2009, in association with our equity offering, we exchanged 2.1 million warrants associated with our 2.0% Notes for 776,361 shares of
common stock.

     On August 15, 2008, we established a $200 million, three-year revolving credit facility with JP Morgan Chase Bank, N.A. and certain other lenders. The
credit facility is available for letters of credit, working capital and general corporate purposes and is guaranteed by certain of our domestic subsidiaries. The
credit agreement contains customary borrowing conditions and covenants, including but not limited to covenants related to total debt to Consolidated
EBITDA (as defined in the credit agreement), senior debt to Consolidated EBITDA, interest expense coverage and limitations on capital expenditures, asset
sales, mergers and acquisitions, indebtedness, liens, and transactions with affiliates. As of the date of this filing, we have not drawn any amounts under the
credit facility. We expect to renew or replace the credit facility prior to its expiration in 2011.

Acquisition Strategy

     As part of our business strategy, we plan to consider and, as appropriate, make acquisitions of other businesses, products, product rights or technologies.
Our cash reserves and other liquid assets may be inadequate to consummate such acquisitions and it may be necessary for us to issue stock or raise substantial
additional funds to complete future transactions. In addition, as a result of our acquisition efforts, we are likely to experience significant charges to earnings
for merger and related expenses (whether or not our efforts are successful) that may include transaction costs, closure costs or acquired in-process research
and development charges.

Other

     We may experience significant fluctuations in quarterly results based primarily on the level and timing of:

        •    cost of product sales;
        •    achievement and timing of research and development milestones;
        •    collaboration revenues;
        •    cost and timing of clinical trials, regulatory approvals and product launches;
        •    marketing and other expenses;

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     •       manufacturing or supply disruptions;
     •       unanticipated conversions of our convertible notes; and
     •       costs associated with the operations of recently-acquired businesses and technologies.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

(In thousands)
     Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which we have
prepared in accordance with U.S. GAAP. In preparing these financial statements, we must make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. We develop and periodically change these estimates and assumptions based on historical experience and on various
other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

     Our significant accounting policies are described in Note 1 to our Consolidated Financial Statements for the year ended December 31, 2010 included in
Part II, Item 8 of this Annual Report on Form 10-K. The Securities and Exchange Commission defines critical accounting policies as those that are, in
management's view, most important to the portrayal of the company's financial condition and results of operations and most demanding of their judgment.
Management considers the following policies to be critical to an understanding of our consolidated financial statements and the uncertainties associated with
the complex judgments made by us that could impact our results of operations, financial position and cash flows.

     Revenue recognition—In the United States, we sell our proprietary products to pharmaceutical wholesalers, the largest three of which account for 71% of
our total consolidated gross sales for the year ended December 31, 2010. Decisions made by these wholesalers regarding the levels of inventory they hold
(and thus the amount of product they purchase from us) may have materially affected the level of our sales in any particular period and thus our sales may not
correlate to the number of prescriptions written for our products as reported by IMS Health.

    We have distribution service agreements with each of our wholesaler customers. These agreements obligate the wholesalers to provide us with periodic
outbound sales information and current inventory levels for our products held at their warehouse locations; additionally, the wholesalers have agreed to
manage the variability of their purchases and inventory levels within specified days on hand limits.

     Product sales are recognized upon the transfer of ownership and risk of loss for the product to the customer. In the United States, we sell all commercial
products F.O.B. destination. Transfer of ownership and risk of loss for the product pass to the customer at the point that the product is received by the
customer. In Europe, product sales are recognized predominantly upon customer receipt of the product, except in certain contractual arrangements where
different terms may be specified.

     Payments under co-promotional or managed services agreements are recognized over the period when the products are sold or the promotional activities
are performed. The portion of the payments that represent reimbursement of our expenses is recognized as an offset to those expenses in our results of
operations.

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     We recognize revenue on new product launches when sales returns can be reasonably estimated and all other revenue recognition requirements have been
met. When determining if returns can be estimated, we consider actual returns of similar products as well as sales returns with similar customers. In cases in
which a new product is not an extension of an existing line of product or where we have no history of experience with products in a similar therapeutic
category such that we can not estimate expected returns of the new product, we defer recognition of revenue until the product has sold through the supply
chain so that the right of return no longer exists or until we have developed sufficient historical experience to estimate sales returns. In developing estimates
for sales returns, we consider inventory levels in the distribution channel, shelf life of the product and expected demand based on market data and
prescriptions.

     As of December 31, 2010, we received information from substantially all of our U.S. wholesaler customers about the levels of inventory they held for
our U.S. branded products. Based on this information, which we have not independently verified, we believe that total inventory held at these wholesalers is
approximately two to three weeks supply of our U.S. branded products at our current sales levels. As of our most recent retail inventory survey in June 2010,
our generic OTFC inventory held at wholesalers and retailers is approximately three months. We do not expect that potential future fluctuations in inventory
levels of generic OTFC held by retailers will have a significant impact on our financial position and results of operations.

     Sales of our generic OTFC product could be subject to retroactive price reductions for units that remain in the pipeline if the price of generic OTFC is
reduced, including as a result of another generic entrant into the market, and as a result any estimated impact of such adjustments is recorded at the time
revenue is recognized. This estimate of both the potential timing of a generic entrant and the amount of the price reduction is highly subjective.

     Product sales allowances—We record product sales net of the following significant categories of product sales allowances: prompt payment discounts,
wholesaler discounts, returns, coupons, Medicaid discounts and managed care and governmental contracts. Calculating each of these items involves
significant estimates and judgments and requires us to use information from external sources. In certain of the product sales allowance categories, we have
calculated the impact of changes in our estimates, which we believe represent reasonably likely changes to these estimates based on historical data adjusted
for certain unusual items such as changes in government contract rules.

      1) Prompt payment discounts—We offer our U.S. wholesaler customers a 2% prompt-pay cash discount as an incentive to remit payment within the
first thirty-five days after the date of the invoice. Prompt-pay discount calculations are based on the gross amount of each invoice. We account for these
discounts by reducing sales by the 2% discount amount when product is sold, and apply earned cash discounts at the time of payment. Since we began selling
our products commercially in 1999, our customers have routinely taken advantage of this discount. Based on common industry practices and our customers'
overall payment performance, we accrue for cash discounts on all U.S. sales recorded during the period. We adjust the accrual to reflect actual experience as
necessary and, as a result, the actual amount recognized in any period may be slightly different from our accrual amount.

     2) Wholesaler discounts—We have distribution service agreements with a number of our wholesaler customers that provide our wholesalers with the
opportunity to earn up to 2% in additional discounts in exchange for the performance of certain services. We have therefore recorded a provision equal to 2%
of U.S. gross sales for the twelve months ended December 31, 2010, less inventory appreciation adjustments for 2010 price increases. In addition, at our
discretion, we may provide additional discounts to wholesalers such as the additional discount offered to wholesalers on initial stocking orders. Actual
discounts provided could therefore exceed historical experience and our estimates of expected discounts. If these discounts were to increase by 1.0% of 2010
gross sales from

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our proprietary products marketed in the U.S., then an additional provision of $23.7 million would result.

     3) Returns—Customers can return short-dated or expired product that meets the guidelines set forth in our return goods policy. Product shelf life from
the date of manufacture for NUVIGIL is three to four years, depending on packaging, PROVIGIL is four to five years, depending on packaging, AMRIX is
four years, GABITRIL is two to three years, depending on packaging, and ACTIQ is two years and FENTORA is two to three years, depending on packaging.
Returns are accepted from wholesalers and retail pharmacies. Wholesaler customers can return short dated product with six months or less shelf life remaining
and expired product within twelve months following the expiration date. Retail pharmacies are not permitted to return short-dated product but can return full
or partial quantities of expired product only within twelve months following the expiration date. We base our estimates of product returns for each of our
products on the percentage of returns that we have experienced historically. Notwithstanding this, we may adjust our estimate of product returns if we are
aware of other factors that we believe could meaningfully impact our expected return percentages. These factors could include, among others, our estimates of
inventory levels of our products in the distribution channel, known sales trends and existing or anticipated competitive market forces such as product entrants
and/or pricing changes.

     For the year ended December 31, 2010, we recorded a provision for returns at a weighted average rate of 1.1% of gross sales, which is a decrease over
our prior year return percentages. If the returns provision percentage were to increase by 0.5% of 2010 gross sales from our proprietary products marketed in
the U.S., then an additional provision of $11.9 million would result.

    Based on fourth quarter net sales, we believe an estimate of our maximum exposure for potential returns related to product in our total supply pipeline as
of December 31, 2010 is $346.3 million.

     4) Coupons—We offer patients the opportunity to obtain free samples of our products through a program whereby physicians provide coupons to
qualified patients for redemption at retail pharmacies. We reimburse retail pharmacies for the cost of these products through a third party administrator. We
recognize the estimated cost of this reimbursement as a reduction of gross sales when product is sold. In addition, we maintain an accrual for unused coupons
based on inventory in the distribution channel and historical coupon usage rates and adjust this accrual whenever changes in such coupon usage rates occur.

     For the year ended December 31, 2010, we recorded a provision for coupons at a weighted average rate of 1.2% of gross sales. Actual coupon usage
could exceed historical experience and our estimates of expected future coupon activity. If the coupons provision percentage were to increase by 0.5% of 2010
gross sales from our proprietary products marketed in the U.S., then an additional provision of $11.9 million would result.

      5) Medicaid discounts—We record accruals for rebates to be provided through governmental rebate programs, such as the Medicaid Drug Rebate
Program, as a reduction of sales when product is sold. These reductions are based on historical rebate amounts and trends of sales eligible for these
governmental programs for a period, as well as any expected changes to the trends of our total product sales. In addition, we estimate the expected unit rebate
amounts to be used and adjust our rebate accruals based on the expected changes in rebate pricing. Rebate amounts are generally invoiced and paid quarterly
in arrears, so that our accrual consists of an estimate of the amount expected to be incurred for the current quarter's activity, plus an accrual for prior quarters'
unpaid rebates and an accrual for inventory in the distribution channel. Our accrual also includes estimates of unpaid rebates resulting from provisions of the
Patient Protection and Affordable Care Act which extended Medicaid rebates to drugs supplied to enrollees of Medicaid managed care organizations.

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     For the year ended December 31, 2010, we recorded a provision for Medicaid discounts at a weighted average rate of 2.5% of gross sales. Actual
Medicaid discounts could exceed historical experience and our estimates of expected future Medicaid patient activity or unit rebate amounts. If the Medicaid
discounts provision percentage were to increase by 0.5% of 2010 gross sales from our proprietary products marketed in the U.S., then an additional provision
of $11.9 million would result.

     6) Managed care and governmental contracts—We have entered into agreements with certain managed care customers whereby we provide agreed-
upon discounts to such entities based on market share. We record accruals for these discounts as a reduction of sales when product is sold based on the
discount rates and expected levels of market share of these managed care customers during a period. We estimate eligible sales based on historical amounts
and trends of sales by these entities and on any expected changes to the trends of our product sales. Discounts are generally invoiced and paid quarterly in
arrears, so that our accrual consists of an estimate of the amount expected to be incurred for the current quarter's activity, plus an accrual for prior quarters'
unpaid rebates and an accrual for inventory in the distribution channel.

     We have entered into agreements with certain governmental customers (other than Medicaid) whereby we provide legislatively mandated discounts and
rebates to such entities. We record accruals for these discounts and rebates as a reduction of sales when product is sold based on the discount amounts and
expected levels of performance of these governmental customers during a period. We estimate eligible sales based on historical sales amounts and trends of
sales by these entities and on any expected changes to the trends of our product sales. Generally, discounts are granted to governmental customers by our
wholesalers at time of purchase. In other cases, rebates are paid directly to governmental customers based on reported levels of patient usage. Wholesalers
charge these discounts and rebates back to us generally within one to three months. We record accruals for our estimate of unprocessed chargebacks related to
sales made during the period based on an estimate of the amount expected to be incurred for the current quarter's sales, plus an accrual based on the amount of
inventory in the distribution channel.

     For the year ended December 31, 2010, we recorded a provision for managed care and governmental contracts at a weighted average rate of 5.3% of
gross sales. Actual chargebacks and rebates could exceed historical experience and our estimates of expected future participation in these programs. If the
chargebacks and rebates provision percentage were to increase by 0.5% of 2010 gross sales from our proprietary products marketed in the U.S., then an
additional provision of $11.9 million would result.

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     The following table summarizes activity in each of the above categories for the years ended December 31, 2009 and 2010:


                                                                                                                                   Managed Care &
                                                      Prompt Payment          Wholesaler                            Medicaid        Governmental
                                                          Discounts            Discounts       Returns*   Coupons    Discounts         Contracts           Total
                Balance at January 1, 2009           $              (4,437)    $        (7,988)$ (36,423)$ (6,098) $ (22,030)         $       (48,641)$ (125,617)
                Provision:
                Current period                                     (42,814)         (21,137) (37,226) (32,367)          (42,741)             (114,740) (291,025)
                Prior periods                                           —               126 (26,454)      588               113                (1,114) (26,741)
                Total                                              (42,814)         (21,011) (63,680) (31,779)          (42,628)             (115,854) (317,766)

                Actual:
                Current period                                     38,325               21,080        —     18,096     21,784                  73,131      172,416
                Prior periods                                       4,437                7,862    34,069     5,509     21,320                  34,902      108,099
                Total                                              42,762               28,942    34,069    23,605     43,104                 108,033      280,515
                Balance at December 31, 2009         $             (4,489)     $           (57)$ (66,034)$ (14,272) $ (21,554)        $       (56,462)$   (162,868)
                Provision:
                Current period                                     (46,691)         (30,225) (42,367) (38,265)          (80,191)             (171,131) (408,870)
                Prior periods                                           —                 1    6,531      863             1,085                   101     8,581
                Total                                              (46,691)         (30,224) (35,836) (37,402)          (79,106)             (171,030) (400,289)

                Actual:
                Current period                                     41,756               20,676        —       28,138     39,227               126,627    256,424
                Prior periods                                       4,489                   56    19,985      13,408     19,666                35,269     92,873
                Total                                              46,245               20,732    19,985      41,546     58,893               161,896    349,297
                Balance at December 31, 2010         $             (4,935)     $        (9,549)$ (81,885)$   (10,128) $ (41,767)      $       (65,596)$ (213,860)


                *      Given our return goods policy, we assume that all returns in a current year relate to prior period sales.

     Inventories—Effective October 1, 2008, we changed our method of accounting for inventories previously valued using the last-in, first-out (LIFO)
method to the first-in, first-out (FIFO) method and adjusted our results for all of the periods presented. As a result of this change, all inventories are now
valued using the FIFO method. Our inventories include the cost of raw materials, labor, overhead and shipping and handling costs.

     The majority of our inventories are subject to expiration dating. We regularly evaluate the carrying value of our inventories and when, in our opinion,
factors indicate that impairment has occurred, we establish a reserve against the inventories' carrying value. Our determination that a valuation reserve might
be required, in addition to the quantification of such reserve, requires us to utilize significant judgment. We base our analysis, in part, on the level of
inventories on hand in relation to our estimated forecast of product demand, production requirements for forecasted product demand and the expiration dates
of inventories. Although we make every effort to ensure the accuracy of forecasts of future product demand, any significant unanticipated decreases in
demand could have a material impact on the carrying value of our inventories and our reported operating results. To date, inventory adjustments have not been
material.

     We expense pre-approval inventory unless we believe it is probable that the inventory will be saleable. We may have capitalized inventory costs
associated with marketed products and certain products prior to regulatory approval and product launch, based on management's judgment of

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probable future commercial use and net realizable value. With respect to capitalization of unapproved product candidates, we seek to produce inventory in
preparation for the launch of the product and in amounts sufficient to support forecasted initial market demand. Typically, capitalization of this inventory does
not begin until the product candidate is considered to have a high probability of regulatory approval. This may occur when either the product candidate is in
Phase III clinical trials or when it is a new formulation or dosage strength of a presently approved product for which we believe there is a high probability of
receiving FDA approval. If we are aware of any specific risks or contingencies that are likely to impact the expected regulatory approval process or if there
are any specific issues identified during the research process relating to safety, efficacy, manufacturing, marketing or labeling of the product candidate, we
would not capitalize the related inventory.
     When manufacturing and capitalizing inventory costs of product candidates and at each subsequent balance sheet date, we consider both the expiration
dates of the inventory and anticipated future sales once approved. Since expiration dates are impacted by the stage of completion, we seek to avoid product
expiration issues by managing the levels of inventory at each stage to optimize the shelf life of the inventory relative to anticipated market demand following
launch.

    Once we have determined to capitalize inventory for a product candidate that is not yet approved, we will monitor, on a quarterly basis, the status of this
candidate within the regulatory approval process. We could be required to expense previously capitalized costs related to pre-approval inventory upon a
change in our judgment of future commercial use and net realizable value, due to a denial or delay of approval by regulatory bodies, a delay in the timeline for
commercialization or other potential factors.

     On a quarterly basis, we evaluate all inventory, including inventory capitalized for which regulatory approval has not yet been obtained, to determine if
any lower of cost or market adjustment is required. As it relates to pre-approval inventory, we consider several factors including expected timing of FDA
approval, projected sales volume and estimated selling price. Projected sales volume is based on several factors including market research, sales of similar
products and competition in the market. Estimated sales price is based on the price of existing products sold for the same indications and expected market
demand.

     We have committed to make future minimum payments to third parties for certain raw material inventories. Over the past few years, we have developed
a manufacturing process for the active pharmaceutical ingredient in NUVIGIL that is more cost effective than our prior process of separating modafinil into
armodafinil. As a result of using this new process coupled with the launch of NUVIGIL, we reassess, as needed, the potential impact of these items on certain
of our existing agreements to purchase modafinil and reserve for purchase commitments in excess of current expected need. Most recently, in 2010, we
reassessed our future modafinil needs and recorded a $9.4 million adjustment which increased the excess commitment reserve as well as a reserve for
inventory on-hand of $7.6 million. As of December 31, 2010, our aggregate future purchase commitments remaining totaled $8.6 million and are fully
reserved. See Note 9 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

     Acquisition Related In Process Research and Development and Contingent Consideration —Effective January1, 2009, acquired businesses are
accounted for using the acquisition method of accounting which requires that the purchase prices be allocated to net assets at their respective fair values. Any
excess of the purchase price over estimated fair values of net assets is recorded as goodwill. Under the acquisition method, amounts allocated to acquired in
process research and development and contingent consideration are recorded to the balance sheet at the date of acquisition at their respective fair values. The
assumptions made in determining fair value assigned to acquired assets and liabilities as well as asset lives can materially impact the results of our operations.

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      There are several methods that can be used to determine the fair value of assets acquired and liabilities assumed. For in process research and
development, we typically use the "income method." This method begins with forecasted expected future cash flows and adjusts them to present value by
applying a discount rate that reflects risk factors associated with the cash flow stream. Some of the more significant estimates and assumptions inherent in the
fair value methods include amounts and timing of forecasted cash flows, amount and timing of costs to develop in process research and development into
commercially viable products, projected regulatory approval, discount and probability rates selected to measure risks in cash flows, assessment of asset life
cycle and competitive trends. Acquired in process research and development is designated as an indefinite lived intangible until the associated research and
development activities are completed or abandoned.
     We account for contingent consideration in accordance with applicable guidance provided within the business combination rules. In conjunction with the
exercise of our option to acquire the noncontrolling interest of Ception and BDC, we are contractually obligated to pay certain contingent consideration upon
the achievement of certain regulatory and commercial milestones and therefore recorded a contingent consideration liability at the time of the acquisitions. As
a result, we are required to update our assumptions each reporting period based on new developments and record such amounts at fair value until such
consideration is satisfied through payment or failure of the acquiree to meet the contingency.

     It is currently estimated that the Ception milestone payments will occur in 2014 and 2015. The range of undiscounted amounts we could be required to
pay under our agreement is between zero and $500.0 million. In conjunction with our BDC acquisition, it is currently estimated that the milestone payments
will occur in 2014 and 2022. The range of undiscounted amounts we could be required to pay under our agreement is between zero and $80.0 million. We
determined the fair value of the liabilities for the contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value
measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair
value of the contingent consideration liability associated with future milestone payments was based on several factors including:

     •       estimated cash flows projected from the success of unapproved product candidates in the U.S. and Europe;
     •       the probability of success for product candidates including risks associated with uncertainty, achievement and payment of milestone events;
     •       the time and resources needed to complete the development and approval of product candidates;
     •       the life of the potential commercialized products and associated risks of obtaining regulatory approvals in the U.S. and Europe; and
     •       the risk adjusted discount rate for fair value measurement.

     At December 31, 2010, the fair value of our contingent consideration liability was $135.2 million. A 0.25% change in the discount rates, assuming all
other assumptions remained consistent, from those used at December 31, 2010 would change the liability and result in additional operating income (expense)
of $1.5 million. A 10% change in probability of success from those used at December 31, 2010, assuming all other assumptions remained consistent, would
change the liability and result in additional operating income (expense) of $20.8 million.

     Valuation of Property and Equipment, Acquired Intangible Assets and Goodwill—Our property and equipment have been recorded at cost and are being
depreciated on a straight-line basis over the estimated useful life of those assets.

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     In the case of definite lived or amortized intangibles and other long lived assets, we assess for impairment whenever events or changes in circumstances
indicate the carrying amount of the asset may not be recoverable. Recoverability of assets is measured by comparing the estimated cash flows of the related
asset group to the book value of the asset group. In the event the carrying value of the asset exceeds the undiscounted cash flows, an impairment exists. An
impairment loss is measured as the excess of the assets carrying value over its fair value, generally based on a discounted cash flow method, independent
appraisals or preliminary offers from buyers. An impairment loss would be recognized in net income in the period that the impairment occurs. Calculating fair
value as well as future cash flows requires that we make a number of critical legal, economic, market and business assumptions that reflect our best estimates
as of the testing date. Goodwill and indefinite-lived intangible assets are reviewed for impairment by applying a fair-value based test on an annual basis or
more frequently if circumstances indicate a potential impairment. If it is determined that an impairment has occurred, an impairment loss is recognized for the
amount by which the carrying amount of the asset exceeds its estimated fair value. To do this, in the case of goodwill, we estimate the fair value of each of our
reporting units and compare it to the book value of their net assets. We believe the methods we use to determine these underlying assumptions and estimates
are reasonable and reflective of common practice. Notwithstanding this, our assumptions and estimates may differ significantly from actual results, or
circumstances could change that would cause us to conclude that an impairment now exists or that we previously understated the extent of impairment.

     Income taxes—We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

     We provide for income taxes at a rate equal to our estimated annual combined federal, state and foreign statutory effective rates. Subsequent adjustments
to our estimates of our ability to recover the deferred tax assets or other changes in circumstances or estimates could cause our provision for income taxes to
vary from period to period, as it has for the current year ended December 31, 2010.

      At December 31, 2010, we have a valuation allowance of $142.6 million, against a gross deferred tax asset balance of $652.9 million. This valuation
allowance is provided against deferred tax assets which include state and foreign net operating losses, and state tax credits where we have concluded at this
time that it is not more likely than not that these deferred tax assets will be realized. We will continue to review and analyze the likelihood of realizing tax
benefits related to deferred tax assets as there is more certainty surrounding our future levels of profitability related to specific company operations and the
related taxing jurisdictions. See Note 19 of our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

     The recognition and measurement of certain tax benefits includes estimates and judgments by management and inherently includes subjectivity. Changes
in estimates may create volatility in our effective tax rate in future periods due to settlements with various tax authorities (either favorable or unfavorable), the
expiration of the statute of limitations on some tax positions and obtaining new information about particular tax positions that may cause management to
change its estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

    Effective January 1, 2010, we adopted the revised accounting guidance for consolidation of variable interest entities ("VIE"), which replaces the previous
quantitative based risk and rewards calculation for determining the primary beneficiary of a VIE with an approach focused on identifying which

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enterprise has the power to direct the activities of a VIE that most significantly impact the entity's economic performance and (1) the obligation to absorb
losses or (2) the right to receive benefits. The new guidance also requires ongoing reassessments of whether an enterprise is the primary beneficiary of a
variable interest entity. We adopted the additional disclosure requirements of this new standard effective January 1, 2010. This pronouncement did not have a
material impact on our consolidated financial statements.

     In October 2009, the FASB issued revised accounting guidance for multiple-deliverable arrangements. The amendment requires that arrangement
considerations be allocated at the inception of the arrangement to all deliverables using the relative selling price method and provides for expanded
disclosures related to such arrangements. It is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after
June 15, 2010. We do not believe adoption will have a significant impact on our consolidated financial statements; however, this guidance may impact the
timing of revenue recognition related to certain arrangements.

     In March 2010, the FASB issued revised accounting guidance for milestone revenue recognition. The new guidance recognizes the milestone method as
an acceptable revenue recognition method for substantive milestones in research or development transactions. It is effective on a prospective basis to
milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. We will adopt this guidance beginning with
agreements entered into after January 1, 2011. We do not believe adoption will have a significant impact on our consolidated financial statements.

     The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, imposes an annual fee on the
pharmaceutical manufacturing industry for each calendar year beginning on or after January 1, 2011. In accordance with guidance issued by the FASB, we
will estimate and record the liability for the fee in full upon the first qualifying sale each calendar year and will record a corresponding deferred cost to be
amortized to operating expense using a straight-line method of allocation over the remaining calendar year. We anticipate this fee will total between
$9 million and $12 million in 2011.

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ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      We are exposed to foreign currency exchange risk related to our operations in European and Australian subsidiaries that have transactions, assets and
liabilities denominated in foreign currencies that are translated into U.S. dollars for consolidated financial reporting purposes, as well as transactions, assets
and liabilities of our domestic operations that are denominated in foreign currencies. For the years ended December 31, 2010 and 2009, an average 10%
weakening of the U.S. dollar relative to the currencies in which our non-U.S. subsidiaries operate would have resulted in an increase of $68.3 million and
$39.8 million, respectively, in reported total revenues. The overall impact on net profit would not be material. This sensitivity analysis of the effects of
changes in foreign currency exchange rates does not assume any changes in the level of operations of our foreign subsidiaries.

     We could enter into foreign exchange agreements to hedge foreign exchange risk associated with significant acquisitions denominated in foreign
currencies. In December 2010, Cephalon entered into a foreign exchange forward contract related to our Mesoblast transaction. This contract protects against
fluctuations between the Australian Dollar and ("A$") the U.S. Dollar, up to a value of A$106.0 million, and changes in the value of this contract are
recognized within net income. This contract will settle in February 2011. For the year ended December 31, 2010, we recognized a gain of $2.0 million from
the increase in fair value of this foreign exchange contract.

     At December 31, 2010, we held an investment in ChemGenex convertible notes which we elected to account for under the fair value method. Our
investment in ChemGenex convertible notes as well as the assets we have recorded for the options to purchase additional shares of ChemGenex are both
subject to assumptions impacted by the stock price of ChemGenex. Additionally, in December 2010 we have purchased a 12.23% interest in our affiliate
Mesoblast. While our investment is an equity method investment, we have chosen to account for our interest under the fair value option. Fair value is
measured based on the company's publicly traded market prices.

     Therefore, the fair value of these investments and instruments are subject to fluctuations due to the volatility of the stock market, changes in general
economic conditions and changes in the financial condition of the company. An assumed 25% adverse change in market prices of ChemGenex and Mesoblast
would result in a corresponding decline in total fair value of $38.6 million, which would be included as Change in fair value of investments within Other
income (expense) in our statement of operations. The ChemGenex and Mesoblast investments are also Australian Dollar investments and subject to foreign
currency exchange rate risk. A 10% weakening of the Australian Dollar to the U.S Dollar, assuming no other changes in stock price or other assumptions in
the fair value models, would result in a corresponding decline in fair value of $15.7 million which would be included as Change in fair value of investments
within Other income (expense) in our statement of operations.

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ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

                                                                        REPORT OF
                                                                      MANAGEMENT

Management's Report on Financial Statements

     Our management is responsible for the preparation, integrity and fair presentation of information in our consolidated financial statements, including
estimates and judgments. The consolidated financial statements presented in this Annual Report on Form 10-K have been prepared in accordance with
accounting principles generally accepted in the United States of America. Our management believes the consolidated financial statements and other financial
information included in this Annual Report on Form 10-K fairly present, in all material respects, our financial condition, results of operations and cash flows
as of and for the periods presented in this Annual Report on Form 10-K. The consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

Management's Report on Internal Control Over Financial Reporting

     Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the United States of America.

     Our internal control over financial reporting includes those policies and procedures that:

      •      pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;
      •      provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our financial statements in accordance with
             accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in
             accordance with authorization of our management and our directors; and
      •      provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could
             have a material effect on the consolidated financial statements.

     Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance and may not prevent or detect
misstatements. Also, projections of any evaluation of the effectiveness of such controls in future periods are subject to the risk that the controls may become
inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may deteriorate.

      Our management conducted an assessment of the effectiveness of internal control over financial reporting based on the framework in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management
concluded that, as of December 31, 2010, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the
United States of America.

    The effectiveness of our internal control over financial reporting has been audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included herein.

                                                                                75
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                                                     REPORT OF INDEPENDENT REGISTERED PUBLIC
                                                              ACCOUNTING FIRM

To the Board of Directors and Stockholders of Cephalon, Inc.:

      In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial
position of Cephalon, Inc. and its subsidiaries at December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2), presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements
and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in "Management's Report on Internal Control Over Financial Reporting" appearing under Item 8. Our responsibility
is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

    As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for business combinations in
2009.

     A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP        Philadelphia, Pennsylvania       February 11, 2011

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                                                   CEPHALON, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF OPERATIONS

                                                     (In thousands, except per share data)


                                                                                                                     Year Ended December 31,
                                                                                                              2010             2009             2008
              REVENUES:
                                           Net sales                                                     $ 2,760,952 $ 2,151,548 $ 1,943,464
                                           Other revenues                                                     50,105      40,760      31,090
                                                                                                           2,811,057   2,192,308   1,974,554
              COSTS AND EXPENSES:
                                           Cost of sales                                                       577,863          398,837          412,234
                                           Research and development                                            439,995          395,431          362,208
                                           Selling, general and administrative                                 958,404          822,052          840,873
                                           Change in fair value of contingent consideration                      6,519               —                —
                                           Restructuring charges                                                10,719           13,825            8,415
                                           Impairment charge                                                        —           182,080           99,719
                                           Acquired in-process research and development                        100,000           46,118           41,955
                                           Loss on sale of equipment                                                —                —            17,178
                                           Settlement reserve                                                       —                —             7,450
                                                                                                             2,093,500        1,858,343        1,790,032
              INCOME FROM OPERATIONS                                                                           717,557          333,965          184,522
              OTHER INCOME (EXPENSE):
                                      Interest income                                                            5,326           5,263           16,901
                                      Interest expense                                                         (99,257)        (90,336)         (75,233)
                                      Change in fair value of investments                                        7,931              —                —
                                      Other income (expense), net                                              (12,758)         40,515            7,880
                                                                                                               (98,758)        (44,558)         (50,452)
              INCOME BEFORE INCOME TAXES                                                                       618,799         289,407          134,070

              INCOME TAX EXPENSE (BENEFIT)                                                                     201,116          78,680          (37,819       )
              NET INCOME                                                                                       417,683         210,727          171,889

              NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST                                                   8,062         131,900           21,073
              NET INCOME ATTRIBUTABLE TO CEPHALON, INC.                                                  $     425,745 $       342,627 $        192,962
              BASIC INCOME PER COMMON SHARE ATTRIBUTABLE TO CEPHALON, INC.                               $           5.66 $           4.74 $           2.84
              DILUTED INCOME PER COMMON SHARE ATTRIBUTABLE TO CEPHALON, INC.                             $           5.27 $           4.41 $           2.54
              WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
               ATTRIBUTABLE TO CEPHALON, INC.                                                                   75,185          72,342           68,018
              WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING—
               ASSUMING DILUTION ATTRIBUTABLE TO CEPHALON, INC.                                                 80,712          77,733           76,097
                              The accompanying notes are an integral part of these consolidated financial statements.

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                                                          CEPHALON, INC. AND SUBSIDIARIES

                                                          CONSOLIDATED BALANCE SHEETS

                                                              (In thousands, except share data)


                                                                                                                                 December 31,       December 31,
                                                                                                                                      2010               2009*
              CURRENT ASSETS:
                Cash and cash equivalents                                                                                         $    1,160,239 $       1,647,635
                Receivables, net                                                                                                         431,333           376,076
                Inventory, net                                                                                                           291,360           240,576
                Deferred tax assets, net                                                                                                 213,798           243,246
                Other current assets                                                                                                      54,845            58,423
                                                                Total current assets                                                   2,151,575         2,565,956

                    INVESTMENTS ($155,808 at fair value in 2010)                                                                         168,494            12,427
                    PROPERTY AND EQUIPMENT, net                                                                                          502,856           451,879
                    GOODWILL                                                                                                             822,071           590,284
                    INTANGIBLE ASSETS, net                                                                                             1,212,387           981,857
                    DEBT ISSUANCE COSTS                                                                                                   14,196            18,862
                    OTHER ASSETS                                                                                                          20,254            36,830
                                                                                                                                  $    4,891,833 $       4,658,095
              CURRENT LIABILITIES:
                Current portion of long-term debt, net                                                                            $      651,997 $         818,925
                Accounts payable                                                                                                         104,477            88,829
                Accrued expenses                                                                                                         460,141           430,209
                                                                Total current liabilities                                              1,216,615         1,337,963

                    LONG-TERM DEBT                                                                                                       391,416           363,696
                    DEFERRED TAX LIABILITIES, net                                                                                        172,589           159,328
                    OTHER LIABILITIES                                                                                                    273,438           111,728
                                                                Total liabilities                                                      2,054,058         1,972,715
              COMMITMENTS AND CONTINGENCIES                                                                                                   —                 —

              REDEEMABLE EQUITY                                                                                                         170,183            207,307
              EQUITY:
              Cephalon Stockholders' Equity
                Preferred stock, $0.01 par value, 5,000,000 shares authorized, 2,500,000 shares issued, and none
                   outstanding                                                                                                                  —                  —
                Common stock, $0.01 par value, 400,000,000 shares authorized, 79,091,532 and 78,002,764 shares
                   issued, and 75,722,274 and 74,916,920 shares outstanding                                                                  791               780
                Additional paid-in capital                                                                                             2,428,450         2,534,070
                Treasury stock, at cost, 3,369,258 and 3,085,844 shares                                                                 (225,870)         (208,427)
                Accumulated earnings (deficit)                                                                                           247,086          (178,659)
                Accumulated other comprehensive income                                                                                   182,975           114,194
                                                            Total Cephalon stockholders' equity                                        2,633,432         2,261,958
              Noncontrolling Interest                                                                                                     34,160           216,115
                                                            Total equity                                                               2,667,592         2,478,073
                                                                                                                                  $    4,891,833 $       4,658,095


              *        Amounts include assets and liabilities of our variable interest entities (VIEs). Our interests and obligations with respect to our VIEs'
                       assets and liabilities are limited to those accorded to us in our agreements with our VIEs. See Note 2 to these consolidated financial
                       statements for amounts.

                                    The accompanying notes are an integral part of these consolidated financial statements.

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                                                               CEPHALON, INC. AND SUBSIDIARIES

                                  CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME

                                                                    (In thousands, except share data)


                                                                                                                                       Total
                                                                                             (Accumulated       Accumulated        Stockholders
                                         Common Stock       Additional        Treasury Stock   Deficit) /          Other              Equity
                                                             Paid-in                           Retained         Comprehensive      Attributable       Noncontrolling
                                         Shares      Amount   Capital        Shares Amount      Earnings            Income           to Cephalon          Interest          Total
              BALANCE,
               JANUARY 1, 2008          69,956,790    $ 700 $ 1,914,575 2,352,603 $(158,173)      $   (714,248)    $     148,703      $   1,191,557      $             — $1,191,557
              Net income                                                                              192,962                              192,962             (21,073)     171,889
              Foreign currency
                translation loss                                                                                        (105,042)         (105,042)                        (105,042)
              Net prior service costs
                and gains on
                retirement-related
                plans                                                                                                        (23)               (23)                            (23)
              Change in unrealized
                investment losses                                                                                               (8)                (8)                              (8)
              Comprehensive
                income                                                                                                                      87,889             (21,073)      66,816
              Issuance of common
                stock upon
                conversions of
                convertible notes         529,269          5         285                                                                       290                              290
              Exercise of
                convertible note
                hedge associated
                with conversion of
                convertible notes              —          —       36,585     524,754   (36,585)                                                 —                                   —
              Stock options
                exercised                 957,865         10      43,952                                                                    43,962                           43,962
              Tax benefit from
                equity compensation            —          —        7,323                                                                     7,323                            7,323
              Stock-based
                compensation
                expense                   253,837          2      43,972                                                                    43,974                           43,974
              Treasury stock
                acquired                       —          —                   93,042    (6,947)                                              (6,947)                         (6,947)
              Acusphere Inc.
                noncontrolling
                interest upon
                consolidation                  —          —                                                                                     —               21,073       21,073
              Adjustment to APIC
                for equity
                component of
                convertible debt                —         —       44,107                                                                    44,107                           44,107
              Other                          9,280        —        4,525                                                                     4,525                     —      4,525
              BALANCE,
                December 31, 2008 71,707,041          $ 717 $ 2,095,324 2,970,399 $(201,705)      $   (521,286)    $      43,630      $   1,416,680      $          — $1,416,680
               Net income                                                                              342,627                              342,627           (131,900) 210,727
               Foreign currency
                 translation gains                                                                                        70,170            70,170                           70,170
               Net prior service costs
                 on retirement-
                 related plans                                                                                              394                394                              394
              Comprehensive
                income                                                                                                                     413,191            (131,900)     281,291
              Issuance of common
                stock upon                     54         —              —                                                                      —                                   —
  conversions of
  convertible notes
Stock options
  exercised              235,345        2       10,209                                                            10,211                      10,211
Tax benefit from
  equity compensation                            1,979                                                             1,979                        1,979
Stock-based
  compensation
  expense                283,963        3       50,407                                                            50,410                      50,410
Treasury stock
  acquired                                                115,445   (6,722)                                        (6,722)                     (6,722)
Adjustment to APIC
  for equity
  component of
  convertible debt                              41,096                                                            41,096                      41,096
Ception Therapeutics
  Inc. noncontrolling
  interest upon
  consolidation                                                                                                       —          306,500     306,500
Arana Therapeutics
  Ltd. noncontrolling
  interest upon
  consolidation                                                                                                       —          104,730     104,730
Acquisition of Arana
  Therapeutics Ltd.
  noncontrolling
  interest shares                               (7,353)                                                            (7,353)       (103,699) (111,052)
Issuance of common
  stock in exchange
  for stock warrants     776,361        8           (8)                                                               —                           —
Issuance of common
  stock                 5,000,000      50      287,950                                                           288,000                     288,000
Issuance of
  convertible notes                            147,650                                                           147,650                     147,650
Sale of warrants              —        —        37,640                                                            37,640                      37,640
Purchase of
  convertible note
  hedge associated
  with convertible
  notes                                       (121,040)                                                         (121,040)                    (121,040)
Tax benefit from
  purchase of
  convertible note
  hedge                                         (9,784)                                                            (9,784)                     (9,784)
Deconsolidation of
  Acusphere                                                                                                           —           10,634      10,634
BioAssets
  Development Corp.
  Inc. noncontrolling
  interest upon
  consolidation                                                                                                                   28,500      28,500
Other                                               —                                                                 —            1,350       1,350
BALANCE,
  December 31, 2009 78,002,764      $ 780 $ 2,534,070 3,085,844 $(208,427)    $   (178,659)   $   114,194   $   2,261,958    $   216,115 $2,478,073
 Net income                                                                        425,745                        425,745         (8,062) 417,683
 Foreign currency
   translation gains                                                                               66,646         66,646                      66,646
 Net gains (losses) and
   prior service costs
   on retirement-
   related plans                                                                                    2,135          2,135                        2,135
Comprehensive
  income                                                                                                         494,526           (8,062)   486,464
Stock options
  exercised              533,513        6       27,385                                                            27,391                      27,391
Tax benefit from
  equity compensation                              728                                                               728                         728
Stock-based
  compensation
  expense                417,712        4       49,886                                                            49,890                      49,890
Treasury stock
  acquired                                                  145,973   (9,306)                                         (9,306)                    (9,306)
Change in redeemable
  equity associated
  with convertible
  debt                                            37,124                                                             37,124                     37,124
Acquisition of Ception
  Therapeutics, Inc.
  noncontrolling
  interest                                      (210,072)                                                          (210,072)        (183,919) (393,991)
Issuance of common
  stock upon
  conversion and
  exchange of
  convertible notes         137,543       1            5                                                                   6                          6
Exercise of
  convertible note
  hedge associated
  with conversion of
  convertible notes                                8,137    137,441   (8,137)                                              0                        —
Mepha Pharma AG
  noncontrolling
  interest upon
  acquisition                                                                                                            —           38,902     38,902
Acquisition of
  BioAssets
  Development Corp.
  noncontrolling
  interest                                       (22,347)                                                            (22,347)        (25,773)   (48,120)
Mepha Pharma AG
  reallocation of
  ownership                                        1,725                                                              1,725           (2,617)     (892)
Other                                              1,809                                                              1,809             (486)    1,323
BALANCE,
 December 31, 2010       79,091,532   $ 791 $ 2,428,450 3,369,258 $(225,870)    $   247,086   $    182,975   $     2,633,432    $    34,160 $2,667,592

                         The accompanying notes are an integral part of these consolidated financial statements.

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                                                                 CEPHALON, INC. AND SUBSIDIARIES

                                                        CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                   (In thousands)


                                                                                                                         Year Ended December 31,
                                                                                                                       2010         2009         2008
              CASH FLOWS FROM OPERATING ACTIVITIES:
                       Net income                                                                                  $    417,683 $    210,727 $   171,889
                       Adjustments to reconcile net income to net cash provided by operating activities:
                                     Deferred income tax expense (benefit)                                              (36,889)     (84,155)    (68,043)
                                     Shortfall tax benefits from stock-based compensation                                (3,915)         (38)       (511)
                                     Depreciation and amortization                                                      212,823      186,192     172,457
                                     Stock-based compensation expense                                                    49,890       50,410      43,975
                                     Loss on sale of equipment                                                               —            —       17,178
                                     Changes in fair value of investments                                                (7,931)          —           —
                                     Impairment charges                                                                      —       182,080      99,719
                                     Acquired in-process research and development                                            —         8,366      16,955
                                     Amortization of debt discount and debt issuance costs                               67,274       59,145      46,740
                                     Loss (gain) on foreign exchange contracts                                            9,499      (26,754)         —
                                     Gain on acquisition of Arana Therapeutics, Ltd.                                         —       (10,008)         —
                                     Other                                                                                2,368       (3,503)         —
                                     Changes in operating assets and liabilities, net of acquisitions:
                                                     Receivables                                                          16,888       81,022    (144,975)
                                                     Inventory                                                            36,114       (8,604)    (37,397)
                                                     Other assets                                                         54,726      (14,348)     11,792
                                                     Accounts payable, accrued expenses and deferred revenues             19,229       99,013    (376,232)
                                                     Other liabilities                                                   (56,002)     (48,194)     44,576
                                                            Net cash provided by (used for) operating activities        781,757      681,351       (1,877)
              CASH FLOWS FROM INVESTING ACTIVITIES:
                       Purchases of property and equipment                                                              (57,761)     (60,927)     (75,871)
                       Proceeds from sale of property and equipment                                                       4,748           —        16,000
                       Cash balance from consolidation of variable interest entities                                         —        53,706        1,654
                       Acquisition of intangible assets                                                                      —       (53,324)     (25,825)
                       Investment in Ception Therapeutics, Inc.                                                              —       (75,000)     (25,000)
                       Investment in BioAssets Development Corp.                                                             —       (30,000)          —
                       Purchases of investments                                                                        (148,987)     (11,797)      (6,692)
                       Acquisition of Arana Therapeutics, Ltd., net of cash acquired                                         —      (232,527)          —
                       Acquisition of Mepha GmbH, net of cash acquired                                                 (549,463)          —            —
                       (Cash settlements of) proceeds from foreign exchange contracts                                    (9,499)      26,754           —
                       Sales and maturities of available-for-sale investments                                                —       125,026        7,596
                                                            Net cash used for investing activities                     (760,962)    (258,089)    (108,138)
              CASH FLOWS FROM FINANCING ACTIVITIES:
                       Proceeds from sale of common stock                                                                    —       288,000           —
                       Proceeds from exercises of common stock options                                                   27,391       10,211       43,962
                       Windfall tax benefits from stock-based compensation                                                4,644        2,017        7,834
                       Acquisition of treasury stock                                                                     (9,306)      (6,722)      (6,947)
                       Acquisition of Ception Therapeutics, Inc. noncontrolling interest                               (299,289)          —            —
                       Acquisition of BioAssets Development Corp. noncontrolling interest                               (16,342)          —            —
                       Payments on and retirements of long-term debt                                                   (222,959)     (13,412)    (217,743)
                       Net proceeds from issuance of convertible subordinated notes                                          —       484,719           —
                       Proceeds from sale of warrants                                                                        —        37,640           —
                       Purchase of convertible note hedge                                                                    —      (121,040)          —
                                                            Net cash provided by (used for) financing activities       (515,861)     681,413     (172,894)
              EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                                                 7,670      18,501      (11,301)
              NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                                      (487,396)   1,123,176    (294,210)
              CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                           1,647,635      524,459     818,669
              CASH AND CASH EQUIVALENTS, END OF PERIOD                                                             $ 1,160,239 $ 1,647,635 $     524,459
              Supplemental disclosures of cash flow information:
              Cash payments for interest, net of capitalized interest                                              $     31,898 $     27,211 $    29,419
              Cash payments for income taxes                                                                            265,072      154,171     100,374
              Non-cash investing and financing activities:
Capital lease additions                                                                                          1,320   2,851    1,529
Acquisition of treasury stock associated with termination of convertible note hedge and warrant agreements       8,137      —    36,585
Exchange of convertible notes into common stock                                                                      6      —       824
                       The accompanying notes are an integral part of these consolidated financial statements.

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                                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                        (In thousands, except share and per share data)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      Business
     Cephalon is a global biopharmaceutical company dedicated to discovering, developing and bringing to market medications to improve the quality of life
of individuals around the world. Since its inception in 1987, Cephalon's strategy is to bring first-in-class and best-in-class medicines to patients in several
therapeutic areas, with a particular focus on central nervous system ("CNS") disorders, pain, oncology, inflammatory disease and regenerative medicine. We
market numerous branded and generic products around the world. In total, Cephalon sells more than 150 products in nearly 100 countries.
      Use of Estimates
     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of assets and liabilities. Actual
results may differ from those estimates.
      Principles of Consolidation
    The consolidated financial statements include the results of our operations and our wholly-owned subsidiaries and, when applicable, entities for which
Cephalon has a controlling financial interest. All significant intercompany accounts and transactions have been eliminated.

     For variable interest entities, we assess the terms of our interest in the entity to determine if we are the primary beneficiary. Variable interests are the
ownership, contractual, or other pecuniary interests in an entity that change with changes in the fair value of the entity's net assets excluding variable interests.
The party that consolidates the VIE (the primary beneficiary) is defined as the party with (1) the power to direct activities of the VIE that most significantly
affect the VIE's economic performance and (2) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. We have previously
consolidated the following variable interest entities:

      •      Acusphere, Inc. (consolidated November 2008; deconsolidated June 2009);
      •      Ception Therapeutics (consolidated January 2009; acquired noncontrolling interest April 2010); and
      •      BioAssets Development Corporation (consolidated November 2009; acquired noncontrolling interest November 2010).

For additional details on our recent acquisitions and transactions, see Note 2 herein.

     We use the cost method to account for our investments in companies that do not have readily determinable market values which we do not control and
for which we do not have the ability to exercise significant influence over operating and financial policies. In accordance with the cost method, these
investments are recorded at cost or fair value, as appropriate.

      For investments in which we have the ability to exercise significant influence, we utilize the equity method of accounting, unless we have selected the
fair value option for that investment, in which case we measure the investment at fair value each period and recognize changes in fair value in earnings as a
component of other income (expense).

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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
     Foreign Currency
     We enter into foreign exchange forward contracts and foreign exchange option contracts to protect against foreign currency related fluctuations. Changes
in the value of these contracts are recognized within other income (expense), net. Other income (expense), net includes $(7.0) million and $19.0 million of
gains (losses) on these foreign exchange contracts for the years ended December 31, 2010 and 2009, respectively. There were no gains (losses) on foreign
exchange contracts in 2008. In December 2010, we entered into a foreign exchange forward contract related to our Mesoblast transaction to protect against
fluctuations between the Australian Dollar ("A$") and the U.S. Dollar up to a value of A$106.0 million. The contract will mature in February 2011.

     For most of our foreign operating entities with currencies other than the U.S. dollar, the local currency is the functional currency. In cases where our
foreign entity primarily operates in an economic environment using a currency other than their local currency, the currency in which the entity conducts a
majority of its operations is the functional currency. We translate asset and liability balances at exchange rates in effect at the end of the period and income
and expense transactions at the average exchange rates in effect during the period. Resulting translation adjustments are reported as a separate component of
accumulated other comprehensive income included in stockholders' equity. Gains and losses from foreign currency transactions are included in the
consolidated statements of operations. The amount of foreign currency gains (losses) included in our consolidated statement of operations was $(12.2) million,
$6.1 million and $7.9 million for the three years ended December 31, 2010, 2009 and 2008, respectively.

     Within our Statement of Cash Flows, the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the
reconciliation of beginning and ending cash and cash equivalents. All other foreign currency cash flows are reported in the applicable line of the consolidated
statement of cash flows using an approximation of the exchange rate in effect at the time of the cash flows.
     Cash Equivalents and Short-Term Investments
      Cash equivalents include investments in liquid securities with original maturities of three months or less from the date of purchase. We consider our
short-term investments to be "available-for-sale" and carry them at fair market value. Unrealized gains and losses have been recorded as a separate component
of accumulated other comprehensive income included in stockholders' equity. All realized gains and losses on our available-for-sale securities are recognized
in results of operations.
     Significant Products
     Our most significant products are our wakefulness products, PROVIGIL® (modafinil) Tablets [C-IV] and NUVIGIL® (armodafinil) Tablets [C-IV] and
our oncology product TREANDA®. On a combined basis, our next most significant products are FENTORA® (fentanyl buccal tablet) [C-II] and

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ACTIQ® (oral transmucosal fentanyl citrate) [C-II] (including our generic version of ACTIQ ("generic OTFC")). These products comprised the following for
the years ended December 31:


                                                                                                         % of total consolidated                    % of net sales in
                                                                                                                  net sales                            U.S. market
                                                                                                      2010           2009            2008         2010        2009      2008
                PROVIGIL net sales                                                                          41%         48%              51%        94%         94%         94%
                NUVIGIL net sales                                                                            7           3               —         100         100          —
                PROVIGIL and NUVIGIL net sales                                                              48%         51%              51%        95%         94%         94%
                TREANDA net sales                                                                           14%         10%                 4%     100%        100%         100%
                FENTORA net sales                                                                            7%          7%               8%        88%         97%         100%
                ACTIQ net sales (including generic OTFC)                                                     6          10               14         61          69           74
                FENTORA and ACTIQ net sales (including generic OTFC)                                        13%         17%              22%        75%         80%          83%
     Major U.S. Customers and Concentration of Credit Risk
     In the United States, we sell our products primarily to a limited number of pharmaceutical wholesalers without requiring collateral. We periodically
assess the financial strength of these customers and establish allowances for anticipated losses, if necessary.


                                                                                      % of total trade                              % of total consolidated
                                                                                      accounts receivable                                   gross sales
                                                                                       At December 31,                              Year Ended December 31,
                                                                               2010          2009           2008            2010                 2009                2008
                Major U.S. customers:
                 AmerisourceBergen Corporation                                     13%          14%            13%                 20%                  20%                 17%
                 Cardinal Health, Inc.                                             21           23             18                  27                   29                  28
                 McKesson Corporation                                              17           16             19                  24                   26                  26
                Total                                                              51%          53%            50%                 71%                  75%                 71%
     Inventory
     Inventory is valued using the first-in, first-out (FIFO) method. We expense pre-approval inventory unless we believe it is probable that the inventory will
be saleable. We may have capitalized inventory costs associated with marketed products and certain products prior to regulatory approval and product launch,
based on management's judgment of probable future commercial use and net realizable value. With respect to capitalization of unapproved product
candidates, we seek to produce inventory in preparation for the launch of the product and in amounts sufficient to support forecasted initial market demand.
Typically, capitalization of this inventory does not begin until the product candidate is considered to have a high probability of regulatory approval. This may
occur when either the product candidate is in Phase III clinical trials or when it is a new formulation or dosage strength of a presently

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                                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                        (In thousands, except share and per share data)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
approved product for which we believe there is a high probability of receiving FDA approval. If we are aware of any specific risks or contingencies that are
likely to impact the expected regulatory approval process or if there are any specific issues identified during the research process relating to safety, efficacy,
manufacturing, marketing or labeling of the product candidate, we would not capitalize the related inventory.

     When manufacturing and capitalizing inventory costs of product candidates and at each subsequent balance sheet date, we consider both the expiration
dates of the inventory and anticipated future sales once approved. Since expiration dates are impacted by the stage of completion, we seek to avoid product
expiration issues by managing the levels of inventory at each stage to optimize the shelf life of the inventory relative to anticipated market demand following
launch.

    Once we have determined to capitalize inventory for a product candidate that is not yet approved, we will monitor, on a quarterly basis, the status of this
candidate within the regulatory approval process. We could be required to expense previously capitalized costs related to pre-approval inventory upon a
change in our judgment of future commercial use and net realizable value, due to a denial or delay of approval by regulatory bodies, a delay in the timeline for
commercialization or other potential factors.

     On a quarterly basis, we evaluate all inventory, including inventory that may be capitalized for which regulatory approval has not yet been obtained, to
determine if any lower of cost or market adjustment is required. As it relates to pre-approval inventory, we consider several factors including expected timing
of FDA approval, projected sales volume and estimated selling price. Projected sales volume is based on several factors including market research, sales of
similar products and competition in the market. Estimated sales price is based on the price of existing products sold for the same indications and expected
market demand. See Note 9 herein.
      Property and Equipment
     Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets, which range
from three to 40 years. Property and equipment under capital leases and leasehold improvements are depreciated or amortized over the shorter of the lease
term or the expected useful life of the assets. Expenditures for maintenance and repairs are charged to expense as incurred, while major renewals and
betterments are capitalized. See Note 10 herein.

     We capitalize interest in connection with the construction of plant and equipment.
      Goodwill, Intangible Assets and Other Long-Lived Assets
     Goodwill represents the excess of consideration transferred over the fair value of net assets acquired. Goodwill and indefinite lived intangible assets are
not amortized; rather, they are subject to a periodic assessment for impairment by applying a fair-value-based test. We perform our annual test of impairment
of goodwill as of July 1. We review indefinite lived intangible assets for impairment on an annual basis and review all intangible assets for impairment
whenever changes in circumstances indicate the carrying value of the asset may not be recoverable. If impairment is indicated, we measure the

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                                                       (In thousands, except share and per share data)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
amount of such impairment by comparing the carrying value to the fair value of the assets, which is usually based on the present value of the expected future
cash flows associated with the use of the asset. See Notes 11 and 12 herein.
     Revenue Recognition
     In the United States, we sell our proprietary products to pharmaceutical wholesalers, the largest three of which account for 71% of our total consolidated
gross sales for the year ended December 31, 2010. Decisions made by these wholesalers regarding the levels of inventory they hold (and thus the amount of
product they purchase from us) can materially affect the level of our sales in any particular period and thus may not correlate to the number of prescriptions
written for our products as reported by IMS Health Incorporated.

     We have distribution service agreements with each of our wholesaler customers. These agreements obligate the wholesalers to provide us with periodic
outbound sales information and current inventory levels for our products held at their warehouse locations; additionally, the wholesalers have agreed to
manage the variability of their purchases and inventory levels within specified days on hand limits. As of December 31, 2010, we received information from
substantially all of our U.S. wholesaler customers about the levels of inventory they held for our U.S. branded products. Based on this information, which we
have not independently verified, we believe that total inventory held at these wholesalers is approximately two to three weeks supply of our U.S. branded
products at our current sales levels. As of our most recent retail inventory survey in June 2010, our generic OTFC inventory held at wholesalers and retailers
is approximately three months.

     We recognize revenue from product sales when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured. Additionally, revenue
arrangements with multiple deliverables are divided into separate units of accounting if the deliverables in the arrangement meet the following criteria: the
delivered item has value to the customer on a standalone basis; there is vendor-specific objective evidence or third-party evidence of the selling price of
undelivered items; and delivery of any undelivered item is probable.

     In the United States, we sell all commercial products F.O.B. destination. Transfer of ownership and risk of loss for the product pass to the customer at the
point that the product is received by the customer. In Europe, product sales are recognized predominantly upon customer receipt of the product except in
certain contractual arrangements where different terms may be specified. We record product sales net of estimated reserves for contractual allowances,
discounts and returns. Contractual allowances result from sales under contracts with managed care organizations and government agencies.

      Other revenue, which includes revenues from collaborative agreements, consists primarily of royalty payments, payments for research and development
services, up-front fees and milestone payments. If an arrangement requires the delivery or performance of multiple deliverables or elements under a bundled
sale, we determine whether the individual elements represent "separate units of accounting." If the separate elements meet the requirements, we recognize the
revenue associated with each element separately and revenue is allocated among elements based on relative fair value. If the elements within

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
a bundled sale are not considered separate units of accounting, the delivery of an individual element is considered not to have occurred if there are undelivered
elements that are essential to the functionality. Unearned income is amortized by the straight-line method over the term of the contracts. Also, if contractual
obligations related to customer acceptance exist, revenue is not recognized for a product or service unless these obligations are satisfied. Non-refundable up-
front fees are deferred and amortized to revenue over the related performance period. We estimate our performance period based on the specific terms of each
collaborative agreement. We adjust the performance periods, if appropriate, based upon available facts and circumstances. We recognize periodic payments
on a percentage of completion basis over the period that we perform the related activities under the terms of the agreements. Revenue resulting from the
achievement of milestone events stipulated in the agreements is recognized when the milestone is achieved. Milestones are based upon the occurrence of a
substantive element specified in the contract or as a measure of substantive progress towards completion under the contract. For the years ended December 31,
2010, 2009 and 2008, incurred costs that are reflected in our operating expenses were insignificant in connection with these collaborations.

    Payments under co-promotional or managed services agreements are recognized when the products are sold or the promotional activities are performed.
The portion of the payments that represents reimbursement of our expenses is recognized as an offset to those expenses in our statement of income.

     We recognize revenue on new product launches when sales returns can be reasonably estimated and all other revenue recognition requirements have been
met. When determining if returns can be estimated, we consider actual returns of similar products as well as sales returns with similar customers. In cases in
which a new product is not an extension of an existing line of product or where we have no history of experience with products in a similar therapeutic
category such that we cannot estimate expected returns of the new product, we defer recognition of revenue until the product has sold through the supply
chain so that the right of return no longer exists or until we have developed sufficient historical experience to estimate sales returns. In developing estimates
for sales returns, we consider inventory levels in the distribution channel, shelf life of the product and expected demand based on market data and
prescriptions.

     Sales of our generic OTFC product could be subject to retroactive price reductions for units that remain in the pipeline if the price of generic OTFC is
reduced, including as a result of another generic entrant into the market, and as a result any estimated impact of such adjustments is recorded at the time
revenue is recognized. This estimate of both the potential timing of a generic entrant and the amount of the price reduction are highly subjective.
     Collaborative Arrangements
     We enter into collaborative arrangements with pharmaceutical or biotech companies to develop and produce orally disintegrating tablets ("ODT's") of
branded and generic drugs and to develop and improve nominated antibodies supplied by our collaboration partners using our humanization technology. In
these arrangements, we earn fees for work performed, license fees, royalties on product sales and/or risk based milestone payments. We also manufacture
ODT products under supply agreements. Revenues recognized from product sales are classified as net sales and revenues recognized from fees for services,
license fees, royalties and milestone payments are classified as other revenues.

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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
     Amounts recognized under collaborative arrangements consisted of the following:


                                                                                                           Year ended December 31,
                                                                                          2010                      2009                       2008
                               Net sales                                           $             28,333     $               32,980     $              34,676
                               Other revenues                                                    40,878                     38,482                    26,686
                               Total                                               $             69,211     $               71,462     $              61,362
     We have committed to make potential future "milestone" payments to third parties as part of our in-licensing and development programs primarily in the
area of research and development agreements. See Note 18 for additional details.
     Research and Development
     All research and development costs are charged to expense as incurred.
     Acquired In-Process Research and Development
     Acquired in-process research and development ("IPR&D") represents the estimated fair value assigned to research and development projects acquired in
a purchase business combination (including the initial consolidation of a variable interest entity) that have not been completed at the date of acquisition and
which have no future alternative use. Effective on January 1, 2009, IPR&D acquired in a business combination is recorded as an intangible asset, while
IPR&D acquired in an asset acquisition is charged to expense as of the acquisition date. All IPR&D acquired prior to January 1, 2009 is charged to expense as
of the acquisition date.

     The fair value assigned to IPR&D acquired in a business combination is typically determined by estimating the costs to develop the acquired technology
into commercially viable products, estimating the resulting net cash flows from the projects and discounting the net cash flows to their present value. The
revenue projections used to value IPR&D were, in some cases, reduced based on the probability of developing a new drug, and considered the relevant market
sizes and growth factors, expected trends in technology, and the nature and expected timing of new product introductions by us and our competitors. The
resulting net cash flows from such projects are based on management's estimates of cost of sales, operating expenses and income taxes from such projects.
The rates utilized to discount the net cash flows to their present value were based on estimated cost of capital calculations.

    If these projects are not successfully developed, the sales and profitability of the combined company may be adversely affected in future periods.
Additionally, the value of other acquired intangible assets may become impaired. We believed that the foregoing assumptions used in the IPR&D analysis
were reasonable at the time of the acquisition. No assurance can be given, however, that the underlying assumptions used to estimate expected project sales,
development costs or profitability or the events associated with such projects, will transpire as estimated.

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
     Income Taxes
      Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. We provide for income taxes at a rate equal to our estimated annual combined federal, state and foreign
statutory effective rates and we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based solely on the technical merits of the position. The tax benefits recognized in the financial statements
from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
Subsequent adjustments to our estimates of our ability to recover the deferred tax assets or other changes in circumstances or estimates could cause our
provision for income taxes to vary from period to period, as it has for the current year ended December 31, 2010.
     Reclassifications
      Certain reclassifications of prior year amounts have been made to conform to the current year presentation. These reclassifications have no impact on our
total assets, liabilities, stockholders' equity, net income (loss) or cash flows.
     Recent Accounting Pronouncements
     Effective January 1, 2010, we adopted the revised accounting guidance for consolidation of variable interest entities ("VIE"), which replaces the previous
quantitative based risk and rewards calculation for determining the primary beneficiary of a VIE with an approach focused on identifying which enterprise has
the power to direct the activities of a VIE that most significantly impact the entity's economic performance and (1) the obligation to absorb losses or (2) the
right to receive benefits. The new guidance also requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest
entity. We adopted the additional disclosure requirements of this new standard effective January 1, 2010. This pronouncement did not have a material impact
on our consolidated financial statements.

     In October 2009, the FASB issued revised accounting guidance for multiple-deliverable arrangements. The amendment requires that arrangement
considerations be allocated at the inception of the arrangement to all deliverables using the relative selling price method and provides for expanded
disclosures related to such arrangements. It is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after
June 15, 2010. We do not believe adoption will have a significant impact on our consolidated financial statements; however, this guidance may impact the
timing of revenue recognition related to certain arrangements.

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
     In March 2010, the FASB issued revised accounting guidance for milestone revenue recognition. The new guidance recognizes the milestone method as
an acceptable revenue recognition method for substantive milestones in research or development transactions. It is effective on a prospective basis to
milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. We will adopt this guidance beginning with
agreements entered into after January 1, 2011. We do not believe adoption will have a significant impact on our consolidated financial statements.

     The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, imposes an annual fee on the
pharmaceutical manufacturing industry for each calendar year beginning on or after January 1, 2011. In accordance with guidance issued by the FASB, we
will estimate and record the liability for the fee in full upon the first qualifying sale each calendar year and will record a corresponding deferred cost to be
amortized to operating expense using a straight-line method of allocation over the remaining calendar year.

2. ACQUISITIONS AND TRANSACTIONS
      Mesoblast Limited
    In December, 2010, we entered into a strategic alliance with Mesoblast Limited ("Mesoblast") to develop and commercialize novel adult Mesenchymal
Precursor Stem Cell (MPC) therapeutics for degenerative conditions of the cardiovascular and central nervous systems. These conditions include Congestive
Heart Failure, Acute Myocardial Infarction, Parkinson's Disease, and Alzheimer's Disease. The alliance also extends to products for augmenting
hematopoietic stem cell transplantation in cancer patients.

     As part of the development and commercialization agreement, in exchange for exclusive world-wide rights to commercialize specific products based on
Mesoblast's proprietary adult stem cell technology platform, we agreed to pay Mesoblast a nonrefundable up front payment of $130 million. In December
2010, we paid $100.0 million, which was expensed as acquired in process research and development expense. On or about February 11, 2011, we will also
pay and expense, as acquired in process research and development expense, the remaining $30 million of upfront fees as part of the collaboration agreement
as we have received Mesoblast shareholder and regulatory approval for us to purchase additional shares, as agreed to under our share purchase agreement.

     Additionally, we made a $133.9 million equity investment in Mesoblast common stock, representing a 12.2% interest in the company, included in non-
current assets on our consolidated balance sheet. At the date of acquisition, we believe we exercise significant influence over the company due to contractual
agreements in place for us to increase our ownership to 19.99% in early 2011, our Chief Executive Officer holding a voting seat on the Mesoblast Board of
Directors and the existence of various revenue arrangements between us and Mesoblast. Therefore, we consider our investment in Mesoblast to be an equity
method investment. We have elected to account for our equity method investment under the fair value option. We measured the fair value of our investment at
the date of acquisition and prospectively utilizing the company's publicly traded stock price. On the date we acquired the 12.2% interest, Mesoblast's share
price was Australian dollar ("A$") A$3.43 and the fair

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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

2. ACQUISITIONS AND TRANSACTIONS (Continued)
value of our investment was $105.4 million. We recorded the difference between the consideration paid and fair value at the date of acquisition as a change in
fair value of investments within other income (expense) on the statement of operations. On December 31, 2010, Mesoblast's share price was A$4.67 and we
remeasured the fair value of our investment at $145.9 million. The change in fair value between the date of acquisition and the balance sheet date was also
recorded as a change in fair value of investments within other income (expense) on the consolidated statement of operations. We consider Mesoblast a related
party.

    Shareholder approval occurred on February 9, 2011 and we anticipate receiving an additional 7.8% of Mesoblast shares and making the associated
payment of approximately $108 million on or about February 11, 2011.

      With respect to each product the Company chooses to commercialize, Mesoblast could receive up to $1.7 billion upon the achievement of certain
regulatory milestones. The $1.7 billion of milestone payments is estimated based on the approval of the product for the treatment of ten indications in various
territories. Mesoblast will be responsible for the conduct and expenses of certain Phase IIa clinical trials and commercial supply of the products. Cephalon
will be responsible for the conduct and expenses of all Phase IIb and III clinical trials and subsequent commercialization of the products. If the products are
commercially sold, Mesoblast will retain all manufacturing rights and will receive a percentage of net product sales.
     ChemGenex Pharmaceuticals Limited
     In October, 2010, we signed a convertible note subscription agreement with ChemGenex Pharmaceuticals Limited, an Australian-based oncology
focused biopharmaceutical company ("ChemGenex"). Under the terms of the agreement, we provided A$15 million to ChemGenex in return for a note that is
convertible at A$0.50 per share. This funding will support ChemGenex operations, including clinical activities to complete a planned New Drug Application
submission to the U.S. Food and Drug Administration for omacetaxine for the treatment of chronic myelogenous leukemia (CML) patients who have failed
two or more tyrosine kinase inhibitor (TKIs). Separately, we also entered into option agreements with two of ChemGenex's major shareholders, Stragen
International N.V. and Merck Santé S.A.S. Under those option agreements, we have the right to acquire up to an additional 19.9 percent of ChemGenex's
outstanding shares at A$0.70 per share. We have the right to exercise the options before the later of March 31, 2011, and ten business days after receipt of
certain clinical trial data and related analyses from ChemGenex (the"Exercise Period"). We have the right to convert the notes to ChemGenex shares at any
time.

     We have determined that ChemGenex is a variable interest entity; however we are not the primary beneficiary of ChemGenex. Although the Convertible
Notes agreement and the Option agreement could result in us absorbing losses up to the amount of our A$15M investment or absorbing future returns up to
our ownership interest assuming conversion of the notes and exercise of the option, we do not have the power to direct the activities that most significantly
impact the performance of ChemGenex. ChemGenex has the decision making authority and power to control its clinical research and day to day operations.
We estimate if the notes were converted and the options were exercised we would have a 28% equity interest in ChemGenex. In addition, there are no other
agreements that entitle us to receive additional returns or obligate the Company to absorb additional losses. We have

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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

2. ACQUISITIONS AND TRANSACTIONS (Continued)
elected to account for the convertible notes under the fair value option. Additionally, the option to purchase the 19.9% of ChemGenex shares is a freestanding
derivative and is marked to market each period. The convertible notes and purchase option assets of $9.9 million and $0.9 million, respectively, are recorded
at fair value at December 31, 2010 and are included within long-term investments and other current assets on our consolidated balance sheet, respectively.
Changes in fair value of both the convertible notes and the purchase option are recorded in change in fair value of investments within other income (expense).
     Mepha GmbH
    In April 2010, we acquired all of the issued share capital of Mepha GmbH ("Mepha"), a privately-held, Swiss-based pharmaceutical company, for Swiss
Francs ("CHF") 622.5 million plus contractual purchase price adjustments of CHF 26.3 million for a total of CHF 648.8 million (or approximately US
$605.4 million) in cash, funded from our available cash on hand. Founded in 1949, Mepha markets branded and non-branded generics as well as specialty
products in more than 50 countries. Mepha markets its products in Europe, the Middle East, Africa, South and Central America as well as in Asia. Mepha has
approximately 620 full-time employees, 500 of them in Switzerland, and approximately 200 contractors. The acquisition of Mepha allows us to expand our
geographic reach and to further diversify our business mix into the generic and branded generic arena. Mepha is included in our European segment.

     We applied the acquisition method of accounting to record the business combination. The following table summarizes the estimated fair values of the
identified assets and acquired liabilities assumed on April 8, 2010, the acquisition date, as well as the fair value of the noncontrolling interest on the
acquisition date:


                                                                                                                                       April 8, 2010
                               Cash and cash equivalents                                                                          $                     38,818
                               Accounts receivable                                                                                                      72,185
                               Inventory                                                                                                                85,901
                               Other current assets                                                                                                      2,313
                               Property and equipment, net                                                                                              89,458
                               Intangible assets                                                                                                       311,719
                               Goodwill                                                                                                                212,472
                               Other assets                                                                                                                477
                               Current portion of long term debt                                                                                           468
                               Accounts payable                                                                                                         15,873
                               Accrued expenses                                                                                                         25,210
                               Long term debt                                                                                                           20,742
                               Other liabilities                                                                                                        41,214
                               Deferred tax liabilities                                                                                                 85,150
                               Noncontrolling interest                                                                                                  38,902
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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

2. ACQUISITIONS AND TRANSACTIONS (Continued)

     The acquisition accounting is being finalized based on fair values of uncertain tax liabilities. The fair value of inventories acquired included a step-up in
the value of inventories of $10.5 million. We recorded nonrecurring amortization of $5.0 million and $5.5 million of the inventory revaluation in cost of sales
during the second and third quarters of 2010, respectively. Goodwill is attributable to revenue and operational synergies and is allocated to the European
segment. There is no goodwill recognized or deductible for tax purposes. The book value of the accounts receivable approximates their fair value and gross
contractual value.

    Acquisition costs of $10.3 million were expensed as incurred and are included in our statement of operations for the year ended December 31, 2010 and
have been recorded in the European segment.

     In accordance with local laws and regulations, we acquired and became the sponsor of a defined benefit pension plan in Switzerland in conjunction with
the Mepha acquisition. For more information regarding the defined benefit pension plan, please see Note 15.

     Mepha Pharma AG is a partially-owned Mepha subsidiary with primary operations in Switzerland. At April 8, 2010, Mepha had a 33.4% equity interest
and a controlling voting interest in Mepha Pharma AG. The noncontrolling interest in Mepha Pharma AG was recorded at fair value as part of the acquisition
accounting. The fair value of the noncontrolling interest in Mepha Pharma AG was estimated by applying the discounted cash flows method of the income
approach. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement. The estimate of
the fair value of the noncontrolling interest is based on an assumed discount rate of 8.5%, a long term annual earnings growth rate of 3.0%, and assumed
adjustments due to the lack of control that market participants would consider when estimating the fair value of the noncontrolling interest in Mepha Pharma
AG.

     The Mepha noncontrolling interest was a non recurring fair value measurement at the acquisition date. The following table sets forth the classification of
the noncontrolling interest within the fair value hierarchy:


                                                                               Quoted Prices in
                                                                              Active Markets for           Significant Other               Significant
                                                                               Identical Assets            Observable Inputs           Unobservable Inputs
                Description                                 April 8, 2010            (Level 1)                    (Level 2)                   (Level 3)
               Mepha noncontrolling interest                $    38,902                           —                          —                           38,902
     We entered into foreign exchange forward contracts related to our Mepha transaction to protect against fluctuations between the Swiss Franc and the
U.S. Dollar. Changes in the value of these contracts were recognized within other income. All foreign exchange contracts settled in the first half of 2010.
Other income (expense), net includes $9.1 million of loss on these foreign exchange contracts for the year ended December 31, 2010.

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

2. ACQUISITIONS AND TRANSACTIONS (Continued)
     The amounts of revenue and net loss of Mepha included in our consolidated statements of operations for the year ended December 31, 2010 are as
follows:


                                                                                                                                        April 8 through
                                                                                                                                         December 31,
                                                                                                                                                2010
                                Revenues                                                                                                    $         260,214
                                Net loss attributable to Cephalon, Inc.                                                                                (9,508)

                                 Basic loss per common share attributable to Cephalon, Inc.                                            $           (0.13     )
                                 Diluted loss per common share attributable to Cephalon, Inc.                                          $           (0.12)
     Mepha's net loss for the reporting period includes amortization of intangible assets of $22.9 million and $10.5 million in nonrecurring amortization of the
revaluation of their inventory to fair value upon acquisition.

   The following unaudited pro forma information shows the results of our operations for the years ended December 31, 2010 and 2009 as though the
Mepha acquisition had occurred at the beginning of the periods presented:


                                                                                                                                  Year ended December 31,
                                                                                                                                 2010                         2009
                                Revenues                                                                                     $     2,908,358              $     2,546,366
                                Net income attributable to Cephalon, Inc.                                                            430,093                      343,367

                                  Basic income per common share attributable to Cephalon, Inc.                                  $        5.72      $         4.75
                                  Diluted income per common share attributable to Cephalon, Inc.                                $        5.33      $         4.42
     The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the
acquisition taken place as of the beginning of the periods presented, or the results that may occur in the future. Furthermore, the pro forma results do not give
effect to all cost savings or incremental costs that may occur as a result of the integration and consolidation of the acquisition.

Ception Therapeutics, Inc.

     In January 2009, we entered into an option agreement (the "Ception Option Agreement") with Ception Therapeutics, Inc., a privately-held company
("Ception"). Under the terms of the Ception Option Agreement, we had the irrevocable option (the "Ception Option") to purchase all of the outstanding
capital stock on a fully diluted basis of Ception within a specified period of time. As consideration for the Ception Option, we paid Ception $50.0 million (the
"Ception Option Fee") and paid Ception stockholders an aggregate of $50.0 million.

    We determined that, because of our rights under the Ception Option Agreement, effective on January 13, 2009, Ception was a variable interest entity for
which we were the primary beneficiary. As a result, as of January 13, 2009, we included the financial condition and results of operations of Ception

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

2. ACQUISITIONS AND TRANSACTIONS (Continued)
in our consolidated financial statements in the United States segment. Prior to April 5, 2010, we did not have an equity interest in Ception and, therefore, we
allocated the Ception losses to noncontrolling interest in the consolidated statement of operations.

    The following summarizes the carrying amounts and classification of Ception's assets and liabilities included in our consolidated balance sheet as of
December 31, 2009 (as a VIE):


                                                                                                                                    December 31, 2009
                                 Cash and cash equivalents                                                                          $                     52,500
                                 Other current assets                                                                                                        193
                                 Property and equipment, net                                                                                                 348
                                 Goodwill                                                                                                               121,918
                                 Intangible assets                                                                                                      199,400
                                 Other assets                                                                                                                 10
                                 Current portion of long-term debt, net                                                                                    3,763
                                 Accounts payable                                                                                                          4,064
                                 Accrued expenses                                                                                                          5,526
                                 Deferred tax liabilities                                                                                                 61,911
                                 Noncontrolling interest                                                                                                188,105
     In February 2010, we exercised the Ception Option based on our evaluation of the results of a Phase II clinical trial of Ception's lead compound,
CINQUIL (reslizumab) for the treatment of eosinophilic asthma. After completing certain closing conditions, including U.S. antitrust approval, in April 2010,
we acquired Ception for $250.0 million. We also advanced $25.0 million in financing to Ception prior to the acquisition, for which the Ception stockholders
were not required to (and therefore did not) repay at the closing of the acquisition. In April 2010, Ception distributed the Ception Option Fee to its
stockholders immediately prior to the closing of the acquisition. Ception stockholders also could receive (i) additional payments related to clinical and
regulatory milestones and (ii) royalties related to net sales of products developed from Ception's program to discover small molecule, orally-active, anti-TNF
(tumor necrosis factor) receptor agents.

    As a result of acquiring the Ception noncontrolling interest in April 2010, we recognized a reduction of $210.1 million in Cephalon stockholders' equity
which reflects the difference between the fair value of all consideration paid and the balance of the noncontrolling interest on that date.

     The acquisition of Ception's noncontrolling interest includes a contingent consideration arrangement that may require additional consideration to be paid
by the company in the form of milestone payments. It is currently estimated that milestone payments will occur in 2014 and 2015. The range of undiscounted
amounts we could be required to pay under our agreement is between zero and $500.0 million. We determined the fair value of the liability for the contingent
consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the
market and thus represents a Level 3 measurement within the fair value

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

2. ACQUISITIONS AND TRANSACTIONS (Continued)
hierarchy. The fair value of the contingent consideration liability associated with future milestone payments was based on several factors including:

      •      estimated cash flows projected from the success of unapproved product candidates in the U.S. and Europe;
      •      the probability of success for product candidates including risks associated with uncertainty, achievement and payment of milestone events;
      •      the time and resources needed to complete the development and approval of product candidates;
      •      the life of the potential commercialized products and associated risks of obtaining regulatory approvals in the U.S. and Europe; and
      •      the risk adjusted discount rate for fair value measurement.

     The fair value of the liability for the contingent consideration recognized on the acquisition date of the Ception noncontrolling interest was $96.9 million.
The contingent consideration payments have been recorded as a liability and the fair value will be evaluated quarterly or more frequently if circumstances
dictate. Changes in the fair value of contingent consideration will be recorded in earnings. The change in fair value that was recognized as an operating
expense for the period between April 5 and December 31, 2010 was $6.0 million. At December 31, 2010, the fair value of the liability was $102.9 million.

     In April 2010, as a result of the exercise of the Ception Option, we began to integrate Ception into the Cephalon business and initiated restructuring
efforts. This restructuring was completed and all payments were made in the second quarter of 2010. Nineteen jobs were eliminated for a total pre-tax cost of
$3.2 million in the second quarter of 2010.
      BioAssets Development Corporation
      Effective November 2009, we signed an agreement with BioAssets Development Corporation ("BDC") that sets forth our option to acquire BDC. Under
the terms of the option agreement, we paid BDC an upfront payment of $30.0 million.

     We determined that, because of our rights under the BDC option agreement, effective on November 18, 2009, BDC was a variable interest entity for
which we were the primary beneficiary. As a result, as of November 18, 2009, we have included the financial condition and results of operations of BDC in
our consolidated financial statements in the United States segment. However, prior to November 2010, we did not have an equity interest in BDC and,
therefore, we have allocated the BDC losses to noncontrolling interest in the consolidated statement of operations.

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

2. ACQUISITIONS AND TRANSACTIONS (Continued)
    The following summarizes the carrying amounts and classification of BDC's assets and liabilities included in our consolidated balance sheet as of
December 31, 2009 (as a VIE):


                                                                                                                                December 31, 2009
                                Cash and cash equivalents                                                                      $                          9,854
                                Accounts receivable                                                                                                           69
                                Other current assets                                                                                                          27
                                Property and equipment, net                                                                                                   18
                                Goodwill                                                                                                                 20,391
                                Intangible assets                                                                                                        48,000
                                Accounts payable                                                                                                            362
                                Accrued expenses                                                                                                          1,817
                                Deferred tax liabilities                                                                                                 18,171
                                Noncontrolling interest                                                                                                  28,009
     In October 2010, we exercised the option to acquire BDC following receipt of interim data from a Phase II placebo-controlled proof-of-concept study
evaluating epidural administration of a tumor necrosis factor (TNF) inhibitor for the treatment of sciatica in 45 patients. Upon the closing of the merger in
November 2010, we purchased all of the outstanding capital stock of BDC for $12.5 million and paid an additional net working capital adjustment of
$3.8 million. BDC shareholders could receive additional payments related to regulatory and sales milestones.

     As a result of acquiring the BDC noncontrolling interest in November 2010, we recognized a reduction of $23.0 million in Cephalon stockholder's
equity, which reflects the difference between the fair value of all consideration paid and the balance of the noncontrolling interest on that date.

     The acquisition of BDC's noncontrolling interest includes a contingent consideration arrangement that may require additional consideration to be paid by
the company in the form of milestone payments. It is currently estimated the milestone payments will occur in 2014 and 2022. The range of undiscounted
amounts we could be required to pay under our agreement is between zero and $80 million. We determined the fair value of the liability for the contingent
consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the
market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration liability associated with
future milestone payments was based on several factors including:

     •       estimated cash flows projected from the success of unapproved product candidates in the U.S. and Europe;
     •       the probability of success for product candidates including risks associated with uncertainty, achievement and payment of milestone events;
     •       the time and resources needed to complete the development and approval of product candidates;
     •       the life of the potential commercialized products and associated risks of obtaining regulatory approvals in the U.S. and Europe; and

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

2. ACQUISITIONS AND TRANSACTIONS (Continued)

     •       the risk adjusted discount rate for fair value measurement.

     The fair value of the liability for the contingent consideration recognized on the acquisition date of the BDC noncontrolling interest was $31.8 million.
The contingent consideration payments have been recorded as a liability and the fair value will be evaluated quarterly or more frequently if circumstances
dictate. Changes in the fair value of contingent consideration will be recorded in earnings. The change in fair value that was recognized as an operating
expense for the period between November 19 and December 31, 2010 was $0.5 million. At December 31, 2010, the fair value of the liability was
$32.3 million.

     In November 2010, as a result of the exercise of the BDC Option, we began to integrate BDC into the Cephalon business and initiated restructuring
efforts. This restructuring was completed and all payments were made in the fourth quarter of 2010. Three jobs were eliminated for a total pre-tax cost of
$1.0 million in the fourth quarter of 2010.
     UCB Pharma France
     In December 2009, we entered into an agreement with UCB Pharma France under which we acquired all assets related to the development,
manufacturing, marketing and sale of VOGALENE® (metopimazine) and VOGALIB® (metopimazine) in France and French Overseas territories for
$53.3 million. These products are approved for use in the symptomatic treatment of nausea and vomiting. The injectible solution is approved for the
prevention of nausea and vomiting in patients under chemotherapy.
     Arana Therapeutics Limited
     On February 27, 2009, we announced that we acquired (through our wholly owned subsidiary Cephalon International Holdings, Inc. ("Cephalon
International")), approximately 19.8% of the total issued share capital (the "Equity Stake") of Arana Therapeutics Limited, an Australian company listed on
the Australian Securities Exchange ("Arana"), for $41.4 million and that we intended to initiate a takeover offer for Arana (through Cephalon International).
On March 9, 2009, through Cephalon International, we filed a Bidder's Statement with the Australian Securities and Investments Commission in connection
with our takeover offer for Arana. The offer terms consisted of the following:

     •       Payment of A$1.40 cash for each Arana ordinary share less any dividends paid by Arana;
     •       Upon Cephalon International's receipt of a relevant interest in 90% of Arana ordinary shares, the offer price would increase by A$0.05 to A$1.45
             (the "90% Premium"); and
     •       On March 2, 2009, Arana declared an A$0.05 fully franked special dividend (the "Dividend") per Arana ordinary share payable to all Arana
             shareholders on record as of March 30, 2009. The effect of the Dividend was to reduce our offer price by A$0.05.

     The takeover offer closed on June 29, 2009. Cephalon International's relevant interest in Arana as of that date was 93.1%. Cephalon International
exercised a compulsory acquisition to acquire the remaining 6.9% interest in Arana's ordinary shares, which was completed on August 8, 2009. The total
funds used to acquire Arana shares was $223.2 million, net of gains on foreign exchange contracts.

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

2. ACQUISITIONS AND TRANSACTIONS (Continued)
     Arana is a biopharmaceutical company focused on developing next generation antibody and protein based drugs that will improve the lives of patients
with inflammatory diseases and cancer. The company's lead compound, CEPH 37247, is a new generation tumor necrosis factor (TNF) alpha blocker. Arana
has a patent portfolio related to anti-TNF alpha antibodies and receives licensing income in connection with certain patents. We acquired Arana in order to
expand our technology base. Arana is included in our United States operating segment.

      Our initial investment in Arana was recorded as an available for sale investment. On May 27, 2009, we acquired additional shares for $89.8 million
which increased our Arana holdings to 50.4% of the outstanding shares. As a result, effective on that date we have included Arana in our consolidated
financial statements. The 90% Premium payment is considered contingent consideration and was initially recognized at its estimated fair value of $1.0 million
for the shares purchased on May 27, 2009. Upon satisfying the 90% criteria on June 12, 2009, the excess of the actual payments over the recorded liability for
the 90% premium of $2.8 million was recorded as a charge to other income (expense), net. The fair value of the noncontrolling interest in Arana as of May 27,
2009 was $104.7 million based on the closing stock price for Arana's shares on that date.

     The fair value of our Arana holdings of approximately 19.8% immediately prior to the acquisition on May 27, 2009 was $48.0 million. This investment
was remeasured to fair value on the acquisition date with the increase of $6.6 million over the original cost recognized in other income (expense), net. This
gain is the result of an increase in the value of the Australian dollar relative to the U.S. dollar, net of changes in the Arana share price. For the year ended
December 31, 2009, we have included $14.0 million of revenues and $14.6 million of net losses attributable to Cephalon, Inc. for Arana in our consolidated
results.

    The following summarizes the carrying amounts and classification of Arana's assets and liabilities included in our consolidated balance sheet as of
May 27, 2009:


                                Cash and cash equivalents                                                                        $                     9,606
                                Short term investments                                                                                              122,817
                                Accounts receivable                                                                                                    6,766
                                Other current assets                                                                                                   2,807
                                Property and equipment, net                                                                                            7,465
                                Intangible assets                                                                                                   125,009
                                Accounts payable                                                                                                       2,551
                                Accrued expenses                                                                                                       3,080
                                Other liabilities                                                                                                      4,258
                                Deferred tax liabilities                                                                                             12,043
                                Noncontrolling interest                                                                                             104,730
     The total purchase price consideration as measured in accordance with acquisition accounting requirements was A$311.2 million based on the fair value
of the Arana stock on May 27, 2009. The fair value of Arana's net assets on that date was A$324.1 million, which resulted in a gain of A$12.8 million (or
$10.0 million) recognized in other income (expense), net. This gain is primarily the difference between the 90% Premium payment actually made and the
assessed probability of making the 90%

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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                     (In thousands, except share and per share data)

2. ACQUISITIONS AND TRANSACTIONS (Continued)
Premium payment at the acquisition date. The actual price paid for all of Arana's outstanding stock including the 90% Premium was A$322.7 million.

     There is no goodwill recognized or deductible for tax purposes. The book value of the accounts receivable approximates their fair value and gross
contractual value.

    The following unaudited pro forma information presents results as if the acquisition occurred at the beginning of each annual reporting period presented:


                                                                                                                                 Year ended December 31,
                                                                                                                                  2009             2008
                               Revenues                                                                                      $    2,200,870 $      2,006,185
                               Net income attributable to Cephalon, Inc.                                                            335,684          186,790

                                Basic income per common share attributable to Cephalon, Inc.                                              4.64           2.75
                                Diluted income per common share attributable to Cephalon, Inc.                                            4.32           2.45
     We entered into foreign exchange forward contracts and a foreign exchange option contract related to our Arana transaction to protect against
fluctuations between the Australian Dollar and the U.S. Dollar, up to a value of $144.2 million. Changes in the value of these contracts were recognized
within net income. All foreign exchange contracts were settled during the second quarter of 2009. Other income (expense), net includes $19.0 million of gains
on these foreign exchange contracts for the nine months ended December 31, 2009.
     Acusphere, Inc.
     In November 2008, we entered into a license and convertible note transaction with Acusphere, Inc. ("Acusphere"). In connection with the transaction, we
received an exclusive worldwide license from Acusphere to all of its intellectual property relating to the development and marketing of celecoxib for all
current and future indications. Under the license, we paid Acusphere an upfront fee of $5.0 million and agreed to make a $15.0 million milestone payment, as
well as royalties on net sales. In addition, we purchased a $15.0 million senior secured three-year convertible note (the "Acusphere Note") from Acusphere,
secured by substantially all the assets of Acusphere. Separately, in March 2008, we purchased license rights for Acusphere's Hydrophobic Drug Delivery
Systems (HDDS) technology for use in oncology therapeutics for $10 million.

     On June 24, 2009, we exchanged the Acusphere Note and $1.0 million for (i) the elimination of the $15.0 million milestone payment and any future
royalty payments associated with the celecoxib license agreement and (ii) the Acusphere patent rights relating to the HDDS technology.

     We had previously determined that based on the rights afforded to us under the Acusphere Note, effective on November 3, 2008 Acusphere was a
variable interest entity for which we were the primary beneficiary and began including Acusphere in our consolidated financial statements. Effective with the
termination of the Acusphere Note, we are no longer considered the primary beneficiary and deconsolidated Acusphere, resulting in a $9.4 million charge to
acquired in-process research and

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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                     (In thousands, except share and per share data)

2. ACQUISITIONS AND TRANSACTIONS (Continued)
development as a result of the elimination of the royalty and milestone payments associated with the celecoxib license agreement.

    Effective January 1, 2009 through the deconsolidation of Acusphere on June 24, 2009, we attributed Acusphere's losses to the noncontrolling interest,
which increased net income attributable to Cephalon, Inc. by $10.6 million during the year ended December 31, 2009.
     SymBio Pharmaceuticals Limited
     In March 2009, we paid $0.8 million to exercise our option pursuant to the Option and Exclusivity Agreement with SymBio Pharmaceuticals Limited
("SymBio"), granting Cephalon an exclusive sublicense to bendamustine hydrochloride in China and Hong Kong and acquired $9.1 million of SymBio
common stock. In November 2009, we participated in an additional equity offering by SymBio and acquired $2.2 million of SymBio shares. We also re-
valued our existing holdings in SymBio to the per share price in their November 2009 equity offering and recognized a $7.1 million impairment charge. Our
investment in SymBio is recorded as a cost basis investment. As of December 31, 2010, we owned 13.3% of SymBio's outstanding common stock.
     Co-Promotion Agreement with Takeda
     With respect to the marketing of PROVIGIL in the United States, on August 29, 2008, we terminated our co-promotion agreement with Takeda
Pharmaceuticals North America, Inc. ("TPNA") effective November 1, 2008. As a result of the termination, we are required under the agreement to make
payments to TPNA during the three years following the termination of the agreement (the "Sunset Payments"). The Sunset Payments were calculated based on
a percentage of royalties to TPNA during the final twelve months of the agreement. During 2008, we recorded an accrual of $28.2 million representing the
present value of the Sunset Payments due to TPNA. Payment of this accrual will occur over the three year period ending December 10, 2011. At
December 31, 2010, remaining payments total $3.8 million.
     LUPUZOR License
     In November 2008, we entered into an option agreement (the "ImmuPharma Option Agreement") with ImmuPharma PLC ("ImmuPharma") providing us
with an option to obtain an exclusive, worldwide license to the investigational medication LUPUZOR for the treatment of systemic lupus erythematosus.
Under the terms of the ImmuPharma Option Agreement, we paid ImmuPharma a $15.0 million upfront option payment upon execution, which was expensed
as in-process research and development in the consolidated statement of operations. On January 30, 2009, we exercised the option and entered into a
Development and Commercialization Agreement with ImmuPharma based on a review of interim results of a Phase IIb study for LUPUZOR. In February
2009, we paid $30.0 million in exchange for the exclusive, worldwide license rights to LUPUZOR and expensed this amount as IPR&D.

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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

2. ACQUISITIONS AND TRANSACTIONS (Continued)
     Equity and Convertible Notes Offering
     On May 27, 2009, we issued an aggregate of 5,000,000 shares of common stock, par value $0.01 per share, at a price of $60.00 per share, resulting in net
cash proceeds of $288.0 million. Concurrently with the equity offering, we also issued $500.0 million aggregate principal amount of 2.5% convertible senior
subordinated notes due on May 1, 2014. See Note 14 herein.

3. RESTRUCTURING
     BDC restructuring
     In November 2010, as a result of the exercise of the BDC Option, we began to integrate BDC into the Cephalon business and initiated restructuring
efforts. This restructuring was completed and all payments were made in the fourth quarter of 2010. Three jobs were eliminated for a total pre-tax cost of
$1.0 million in the fourth quarter of 2010.
     Ception restructuring
     In April 2010, as a result of the exercise of the Ception Option, we began to integrate Ception into the Cephalon business and initiated restructuring
efforts. This restructuring was completed and all payments were made in the second quarter of 2010. Nineteen jobs were eliminated for a total pre-tax cost of
$3.2 million in the second quarter of 2010.
     2009 restructuring
     In October 2009, we began to restructure our discovery research organization to focus on our pipeline opportunities, primarily in oncology, inflammatory
diseases and pain, with an emphasis on our biologic opportunities, wind down our internal research efforts in CNS and reduce our overall cost structure. In
2009 and 2010, we eliminated a total of 81 jobs worldwide through a combination of voluntary resignations and terminations. These restructuring efforts were
completed in the third quarter of 2010. The pre-tax costs of these restructuring efforts were $9.4 million. Total estimated charges and payments related to
worldwide restructuring efforts recognized in the consolidated statement of operations and included primarily in the United States segment are as follows:


                                                                                                                                      Year ended
                                                                                                                                       December 31,
                                                                                                                                   2010               2009
                               Restructuring reserves, beginning of period                                                    $         7,862 $             —
                               Severance costs                                                                                            607            8,830
                               Payments                                                                                                (8,469)            (968)
                               Restructuring reserves, end of period                                                          $            — $           7,862
     CIMA restructuring
    On January 15, 2008, we announced a restructuring plan under which we intend to (i) transition manufacturing activities at our CIMA LABS INC.
("CIMA") facility in Eden Prairie, Minnesota, to our

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                                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                        (In thousands, except share and per share data)

3. RESTRUCTURING (Continued)
expanded manufacturing facility in Salt Lake City, Utah, and (ii) consolidate at CIMA's Brooklyn Park, Minnesota, facility certain drug delivery research and
development activities performed in Salt Lake City. The phased transition of manufacturing activities and the closure of the Eden Prairie facility are expected
to be completed in 2011. The consolidation of drug delivery research and development activities at Brooklyn Park was completed in 2008. The plan is
intended to increase efficiencies in manufacturing and research and development activities, reduce our cost structure and enhance competitiveness.

     As a result of this plan, we will incur certain costs associated with exit or disposal activities. As part of the plan, we estimate that approximately 90 jobs
will be eliminated in total, with approximately 175 net jobs eliminated at CIMA and approximately 85 net jobs added in Salt Lake City.

     The total estimated pre-tax costs of the plan are as follows:


                                Severance costs                                                                                  $                  14 - 16 million
                                Manufacturing and personnel transfer costs                                                       $                    7 - 8 million
                                Total                                                                                            $                  21 - 24 million
    The estimated pre-tax costs of the plan are being recognized between 2008 and 2011 and are included in the United States segment. Through
December 31, 2010, we have incurred a total of $19.3 million related to the restructuring plan.

      In September 2010, we sold the Eden Prarie facility and certain associated equipment for proceeds of $4.7 million. Pursuant to the sales agreement, we
are leasing the Eden Prarie facility and certain associated equipment from the buyer through December 31, 2011 with aggregate lease payments totaling
$0.7 million. Through December 31, 2010, we have incurred a total of $21.7 million in pre-tax, non-cash accelerated depreciation of plant and equipment
related to the restructuring. We will continue to incur non-cash accelerated depreciation of equipment not associated with the sale through the completion of
the restructuring project.

    Total charges and payments related to the restructuring plan recognized in the consolidated statement of operations and included in the United States
segment are as follows:


                                                                                                                                Year ended December 31,
                                                                                                                         2010            2009             2008
                                Restructuring reserves, beginning of period                                          $       7,083 $         3,733 $            —
                                Severance costs                                                                              2,057           3,417           6,877
                                Manufacturing and personnel transfer costs                                                   3,860           1,578           1,538
                                Payments                                                                                    (3,032)         (1,645)         (4,682)
                                Restructuring reserves, end of period                                                $       9,968 $         7,083 $         3,733
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                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                    (In thousands, except share and per share data)

4. ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT EXPENSE
    In 2010, we recognized acquired in-process research and development expense of:

     •     $100.0 million in exchange for worldwide license rights to Mesoblast's proprietary technology platform.

    In 2009, we recognized acquired in-process research and development expense of:

     •     $9.4 million in exchange for the elimination of the $15.0 million milestone and royalty payments associated with the celecoxib license agreement
           and Acusphere patent rights relating to its HDDS technology. See Note 2 herein;
     •     $30.0 million in exchange for the exclusive, worldwide license rights to LUPUZORTM, acquired from ImmuPharma;
     •     $0.8 million in exchange for exclusive sublicense rights to bendamustine hydrochloride in China and Hong Kong, acquired from SymBio; and
     •     $6.0 million in exchange for license rights to certain of XOMA Ltd.'s proprietary antibody library materials.

    In 2008, we recognized acquired in-process research and development expense of:

     •     $10.0 million related to our purchased of license rights for Acusphere's HDDS technology for use in oncology therapeutics;
     •     $15.0 million related to LUPUZOR option rights; and
     •     $17.0 million in connection with the initial consolidation of Acusphere, a variable interest entity for which we are the primary beneficiary.

5. OTHER INCOME (EXPENSE)

    Other income (expense), net consisted of the following:


                                                                                                                                   Year ended December 31,
                                                                                                                                   2010       2009         2008
                              Gains (losses) on foreign exchange derivative instruments                                        $  (7,047) $   19,022 $        —
                              Arana dividend income                                                                                   —        1,567          —
                              Loss on Arana contingent consideration (90% ownership incentive payment)                                —       (2,773)         —
                              Gain on excess of Arana net assets over consideration                                                   —       10,008          —
                              Gain on pre-bid Arana holdings                                                                          —        6,596          —
                              Gain on contract settlement                                                                          6,500
                              Foreign exchange gains (losses)                                                                    (12,211)      6,095   7,880
                                                            Other income (expense), net                                        $ (12,758) $   40,515 $ 7,880
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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

5. OTHER INCOME (EXPENSE) (Continued)
     In 2010, Cephalon entered into foreign exchange forward contracts related to our Mepha GmbH transaction. These contracts protected against
fluctuations between the Swiss Franc and the U.S. Dollar. Changes in the value of these contracts were recognized within net income. These contracts settled
in the first half of 2010. Other income (expense), net includes $9.1 million of losses on these foreign exchange contracts for the year ended December 31,
2010.

    Also in 2010, Cephalon entered into a foreign exchange forward contract related to our Mesoblast transaction. This contract protects against fluctuations
between the Australian Dollar and the U.S. Dollar and changes in the value of this contract are recognized within net income. This contract will settle in
February 2011. For the year ended December 31, 2010, we recognized a gain of $2.0 million from the increase in fair value of this foreign exchange contract.

     In 2009, Cephalon entered into foreign exchange forward contracts and a foreign exchange option contract related to our Arana transaction. Together,
these contracts protected against fluctuations between the Australian Dollar and the U.S. Dollar. Changes in the value of these contracts were recognized
within net income. All foreign exchange contracts settled as of June 30, 2009. Other income (expense), net includes $19.0 million of gains on these foreign
exchange contracts for the year ended December 31, 2009.

6. ACCUMULATED OTHER COMPREHENSIVE INCOME

     The components of accumulated other comprehensive income consisted of the following:


                                                                                                                               Year ended December 31,
                                                                                                                        2010             2009            2008
                                 Foreign currency translation gains                                                 $     178,805 $       112,159 $       41,989
                                 Net prior service costs on retirement-related plans                                        4,170           2,035          1,641
                                Accumulated other comprehensive income                                              $     182,975 $       114,194 $       43,630
     Our noncontrolling interests do not have any accumulated other comprehensive income balances.

7. FAIR VALUE DISCLOSURES

      The carrying values of cash, cash equivalents, short-term investments, accounts receivable, accounts payable, accrued expenses and debt instruments
other than our convertible debt approximate their respective fair values. Other current assets include an asset recorded for our option to purchase additional
ChemGenex shares which represents a free standing derivative. Long Term assets recorded at fair value include our investment in ChemGenex convertible
note securities and our 12.2% equity investment in Mesoblast Limited. Long-term liabilities recorded at fair-value include contingent consideration
attributable to Ception and BDC. The Mepha noncontrolling interest was also recorded at fair value at the acquisition date.

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                                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                        (In thousands, except share and per share data)

7. FAIR VALUE DISCLOSURES (Continued)
     Current accounting guidance provides a three-tier fair value hierarchy, which prioritize the inputs used in measuring fair value as follows:

      •      Level 1: Observable inputs such as quoted prices in active markets for identical assets and liabilities;
      •      Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
      •      Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

    The following table sets forth the fair value hierarchy for financial assets and liabilities carried at fair value and measured on a recurring basis as of
December 31, 2010.


                                                                                                   Quoted Prices in
                                                                                                  Active Markets for       Significant Other             Significant
                                                                             December 31,          Identical Assets        Observable Inputs         Unobservable Inputs
                Description                                                       2010                   (Level 1)                (Level 2)                 (Level 3)
                Current assets
                Purchase Option for ChemGenex Equity Securities                 $           984        $               —          $            984         $               —

                Long term assets
                 Investment in ChemGenex convertible note securities            $       9,885          $            —             $             —          $          9,885
                 Investment in Mesoblast                                              145,923                  145,923                          —                        —
                Total assets                                                    $     156,792          $       145,923            $            984         $          9,885
                Long term liabilities
                 Ception contingent consideration                               $     102,942          $               —          $             —          $       102,942
                 BDC contingent consideration                                          32,266                          —                        —                   32,266
                Total liabilities                                               $     135,208          $               —          $             —          $       135,208
      For details on our Mesoblast, Ception and BDC assets and liabilities recorded on a recurring basis and a description of the fair value methodologies
utilized, see Note 2.

      The fair value of the investment in ChemGenex convertible note securities at the investment date and remeasured quarterly is determined based on both a
probability weighted discounted cash flow analysis and a Black Scholes valuation for the conversion option. This fair value measurement is based on inputs
not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. Changes in the fair value of the investment in
ChemGenex convertible notes are recorded in change in fair value of investments within other income (expense), There were no assets and liabilities recorded
at fair value measured on a recurring basis at December 31, 2009 or 2008.

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

7. FAIR VALUE DISCLOSURES (Continued)

     In accordance with GAAP, we are allowed to elect, at specified election dates, to measure many financial instruments at fair value ("the fair value
option") that would not otherwise be required to be measured at fair value. If the fair value option is elected for a particular financial instrument or other
items, we are required to report unrealized gains and losses on those items in earnings. Our investment in ChemGenex convertible note securities and
investment in Mesoblast, an investment that would otherwise be accounted for under the equity method absent the fair value option election, are the only
eligible items for which the fair value option was elected commencing on the dates the investments were made. Currently, our investment in ChemGenex
convertible notes is our only investment in convertible note securities and our Investment in Mesoblast is our only investment that would be accounted for
under the equity method. Electing the fair value option for these investments eliminates some of the uncertainty involved with impairment considerations
since quoted market prices for these investments provide a readily determinable fair value at the balance sheet date. Our other available for sale investments
are cost basis investments in entities that are not publicly traded and for these reasons we did not elect the fair value option for such securities.

     The tables below reconcile the beginning and ending balances for assets and liabilities measured on a recurring basis using unobservable inputs (Level 3)
during the period.


                                                                                               Ception
                                                                                              Contingent               BDC Contingent              Chemgenex
                                                                                             Consideration              Consideration            Convertible Note
                                                                                                (Liability)                (Liability)               Securities
                                Balance, January 1, 2010                                       $             —             $              —           $            —
                                 Net transfer in to Level 3 (new transactions)                          (96,911)                     (31,778)                  10,767
                                 Unrealized gains/(losses) included in earnings                          (6,031)                        (488)                    (882)
                                Ending Balance, December 31, 2010                              $       (102,942)           $         (32,266)         $         9,885
     See Note 2, for a description of Mepha's and Arana's assets and liabilities recorded at fair value and measured on a non recurring basis.

     Except for our convertible notes, our debt instruments do not have readily ascertainable market values; however, the carrying values approximate the
respective fair values. As of December 31, 2010, the fair value and carrying value of our convertible debt, based on quoted market prices was:


                                                                                                                       Fair Value^       Carrying Value    Face Value
                                2.0% convertible senior subordinated notes due June 1, 2015                        $     1,152,100        $     649,817 $     820,000
                                2.5% convertible senior subordinated notes due May 1, 2014                                 564,375              388,643       500,000
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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

7. FAIR VALUE DISCLOSURES (Continued)
     As of December 31, 2009, the fair value and carrying value of our convertible debt, based on quoted market prices was:


                                                                                                                    Fair Value^     Carrying Value   Face Value
                               2.0% convertible senior subordinated notes due June 1, 2015                         $ 1,162,514           $   618,464 $ 820,000
                               2.5% convertible senior subordinated notes due May 1, 2014                              559,400               362,093   500,000
                               Zero Coupon convertible subordinated notes first putable June 2010                      227,456               194,232   199,549


                               ^      The fair values shown above represents the fair value of the total convertible debt instrument, inclusive of both the
                                      liability and equity components, while the carrying value represents the carrying value of the liability.

8. RECEIVABLES, NET

     At December 31, receivables, net consisted of the following:


                                                                                                                                  2010               2009
                               Trade receivables                                                                          $         427,650 $          350,173
                               Other receivables                                                                                     20,895             32,631
                                                                                                                                    448,545            382,804
                               Less reserve for sales discounts and allowances                                                      (17,212)            (6,728)
                                                                                                                          $         431,333 $          376,076
     Trade receivables are recorded at the invoiced amount and do not bear interest. In 2009, other receivable includes income taxes receivable of
$16.0 million. Our allowance for doubtful accounts is our best estimate of probable credit losses in our existing accounts receivable. We determine the
allowance based on a percentage of trade receivables past due, specific customer issues, and a reserve related to our specific historical write-off experience
and general industry experience. We review and adjust our allowance for doubtful accounts quarterly. Receivable balances or specific customer issues are
written off against the allowance when we feel that it is probable that the receivable amount will not be recovered. Certain European receivable balances with
government operated hospitals are over 90 days past due but we believe are collectible and are therefore, not reserved. In the past, our historical write-off
experience has not been significant. We do not have any off-balance sheet credit exposure related to our customers.

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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

9. INVENTORY, NET
     At December 31, inventory, net consisted of the following:


                                                                                                            2010                              2009
                               Raw materials                                                      $                    37,433       $                 27,105
                               Work-in-process                                                                        140,898                        144,145
                               Finished goods                                                                         113,029                         69,326
                               Total inventory, net                                               $                   291,360       $                240,576
      In June 2007, we secured final FDA approval of NUVIGIL. Prior to the commercial launch of NUVIGIL, we included net NUVIGIL inventory balances
in other non-current assets. We launched NUVIGIL commercially on June 1, 2009 and reclassified our NUVIGIL inventory balances to current inventory at
that time.

     Over the past few years, we have been developing a manufacturing process for the active pharmaceutical ingredient in NUVIGIL that is more cost
effective than our prior process of separating modafinil into armodafinil. As a result of our plan to manufacture armodafinil in the future using this new
process and the launch of NUVIGIL in 2009, we assessed the potential impact of these items on certain of our existing agreements to purchase modafinil and
recorded charges and gains as follows. In 2008, we recorded a reserve of $26.0 million for purchase commitments for modafinil raw materials not expected to
be utilized as a charge to cost of sales. In 2009, in association with the accelerated launch of NUVIGIL, we increased the reserve by $6.0 million. Also in
2009, we entered into an agreement with one of our modafinil suppliers, paying $13.5 million in exchange for a $23.0 million reduction in our existing
purchase commitments with this supplier, which resulted in a $9.5 million gain recorded in cost of sales. In 2010, we increased the reserve by $9.4 million and
recorded a reserve for inventory on-hand of $7.6 million. As of December 31, 2010, our aggregate future purchase commitments remaining totaled
$8.6 million and are fully reserved.

10. PROPERTY AND EQUIPMENT, NET

     At December 31, property and equipment, net consisted of the following:


                                                                                                             Estimated
                                                                                                              Useful Lives          2010             2009
                               Land and improvements                                                              —             $          7,151 $      8,873
                               Buildings and improvements                                                    3 - 40 years                360,075      331,879
                               Laboratory, machinery and other equipment                                     3 - 30 years                330,300      271,575
                               Computer software                                                             3 - 5 years                 102,505       95,390
                               Construction in progress                                                           —                       35,944       35,273
                                                                                                                                         835,975      742,990
                               Less accumulated depreciation and amortization                                                           (333,119)    (291,111)
                                                                                                                                $        502,856 $    451,879
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                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                     (In thousands, except share and per share data)

10. PROPERTY AND EQUIPMENT, NET (Continued)
     Depreciation and amortization expense related to property and equipment, excluding depreciation related to assets used in the production of inventory,
was $54.7 million, $52.9 million and $54.3 million for the years ended December 31, 2010, 2009 and 2008, respectively. $52.2 million and $43.7 million of
capitalized computer software costs are included in property and equipment, net, at December 31, 2010 and 2009, respectively. Depreciation and amortization
expense related to capitalized software costs was $19.4 million, $17.7 million and $15.6 million for the years ended December 31, 2010, 2009 and 2008,
respectively. We had $17.2 million and $7.8 million of capitalized software costs included in construction in progress at December 31, 2010 and 2009,
respectively.

     During 2008, our subsidiary Cephalon France SAS informed the French Works Councils of its intention to search for a potential acquiror of the
manufacturing facility at Mitry-Mory, France. We are considering the proposed divestiture due to a reduction of manufacturing activities at the Mitry-Mory
manufacturing site. The proposed divestiture is subject to completion of a formal consultation process with the French Works Councils and employees
representatives. As a result of this decision, we reevaluated the remaining carrying value and useful life of the Mitry-Mory assets and are recording
accelerated depreciation over the remaining estimated useful life. During the years ended December 31, 2010, 2009 and 2008, we have recorded pre-tax, non-
cash charges associated with accelerated depreciation of plant and equipment of $7.9 million, $13.5 million and $6.0 million, respectively, related to the
proposed divestiture. As of December 31, 2010, we had $6.5 million of net property and equipment related to the Mitry-Mory facility included on our
consolidated balance sheet. We continue to incur depreciation on the assets, as we continue to produce at the facility.

11. GOODWILL

    Goodwill consisted of the following:


                                                                                                           United States        Europe          Total
                               January 1, 2009                                                            $        344,310 $      101,022 $       445,332
                                Foreign currency translation adjustment                                                 —           2,643           2,643
                                Increase due to acquisitions, including VIE's                                      142,309             —          142,309
                               December 31, 2009                                                                   486,619        103,665         590,284
                                Foreign currency translation adjustment                                                 —          19,315          19,315
                                Acquisition of Mepha GmbH                                                               —         212,472         212,472
                               December 31, 2010                                                          $        486,619 $      335,452 $       822,071
    We completed our annual test of impairment of goodwill as of July 1, 2010 and concluded that goodwill was not impaired.

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

12. INTANGIBLE ASSETS, NET AND OTHER ASSETS
     At December 31, intangible assets, net consisted of the following:


                                                                                              2010                                               2009
                                                     Estimated          Gross                               Net              Gross                               Net
                                                      Useful           Carrying         Accumulated       Carrying          Carrying       Accumulated         Carrying
                                                         Lives           Amount          Amortization       Amount            Amount        Amortization         Amount
                Product Rights & Technology           5 - 20 years $ 1,161,807            $     540,425 $ 621,382 $ 898,325                  $     458,886 $ 439,439
                IPR&D                                  Indefinite      374,376                       —      374,376     341,206                         —    341,206
                Trademarks                           10 - 20 years     261,566                   47,315     214,251     223,383                     34,013   189,370
                Other agreements                      1 - 2 years        4,162                    1,784       2,378      22,203                     10,361    11,842
                                                                   $ 1,801,911            $     589,524 $ 1,212,387 $ 1,485,117              $     503,260 $ 981,857
     Intangible assets are amortized over their estimated useful economic life using the straight line method. Amortization expense was $119.6 million,
$97.5 million and $100.7 million for the years ended December 31, 2010, 2009 and 2008, respectively.

    Estimated amortization expense of intangible assets currently being amortized for each of the next five years is $110.2 million in 2011, $97.8 million in
2012, $87.4 million in 2013, $87.0 million in 2014 and $82.8 million in 2015.
     Impairment Charges
      In 2009, we recognized a $182.1 million impairment charge to reduce the CINQUIL intangible by $175.0 million and our investment in SymBio by
$7.1 million. The CINQUIL intangible with a carrying amount of $374.4 million was written down to its revised fair value of $199.4 million as a result of
reducing our estimate of future cash flows from an eosinophilic esophagitis ("EoE") indication for CINQUIL based on the results from a Phase IIb/III clinical
trial obtained in November 2009. In estimating future cash flows for CINQUIL, some of the more significant judgments included the expected development
costs, net product profitability and probability and timing of regulatory approval. The investment in SymBio with a carrying value of $16.3 million was
written down to the per share price in their November 2009 equity offering.

     The fair values utilized consisted of the following:


                                                                                        Fair Value Measurements at Reporting Date Using
                                                                           Quoted Prices in               Significant              Significant
                                                                           Active Markets                   Other                 Unobservable
                                                                            for Identical                Observable                  Inputs                Total Gains
                Description                        December 31, 2009         Assets (Level 1)            Inputs (Level 2)             (Level 3)               (Losses)
                CINQUIL product rights                $       199,400              $             —          $           —              $      199,400      $      (175,000)
                Investment in SymBio                            9,255                            —                   9,255                         —                (7,080)
                Total                                 $       208,655              $             —          $        9,255             $      199,400      $      (182,080)
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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

12. INTANGIBLE ASSETS, NET AND OTHER ASSETS (Continued)
     In 2008, we entered into a termination agreement (the "Termination Agreement") with Alkermes, Inc. to end our collaboration. As of December 1, 2008,
we are no longer responsible for the marketing and sale of VIVITROL in the United States. Pursuant to the Termination Agreement, we incurred certain costs
associated with exit or disposal activities. The pretax charges associated with the Termination Agreement total $119.8 million. These charges include (i) cash
charges, classified as selling, general and administrative expenses within our statement of operations, of $12.2 million, consisting of a termination payment of
$11.0 million to Alkermes and severance costs of $1.2 million and (ii) non-cash charges of $107.6 million, consisting of the $17.2 million loss on sale of the
Product Manufacturing Equipment and other Capital Improvements (as such terms are defined in the supply agreement effective as of June 23, 2005 between
the parties, as amended to date) and the $90.4 million impairment charge to write-off the net book value of the VIVITROL intangible assets from the U.S.
segment, which have been classified as a loss on sale of equipment and an impairment charge within our statement of operations, respectively. These pretax
charges were recognized in the fourth quarter 2008.

13. ACCRUED EXPENSES

     At December 31, accrued expenses consisted of the following:


                                                                                                                               2010                2009
                                Accrued compensation and benefits                                                       $          57,353    $          63,013
                                Accrued contractual sales allowances                                                              117,491               92,287
                                Accrued product sales returns allowances                                                           81,885               66,033
                                Accrued sales and marketing costs                                                                  37,468               30,971
                                Accrued license fees and royalties                                                                 44,280               32,817
                                Accrued income taxes                                                                               22,424               54,077
                                Accrued clinical trial fees                                                                        13,657                9,812
                                Accrued research and development                                                                    2,661                1,935
                                Other accrued expenses                                                                             82,922               79,264
                                                                                                                        $         460,141    $         430,209
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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

14. LONG-TERM DEBT
     At December 31, long-term debt consisted of the following:


                                                                                                                                          2010          2009
                                2.0% convertible senior subordinated notes due June 1, 2015                                          $   820,000 $ 820,000
                                Debt discount on 2.0% convertible senior subordinated notes due June 1, 2015                            (170,183)   (201,536)
                                2.5% convertible senior subordinated notes due May 1, 2014                                               500,000     500,000
                                Debt discount on 2.5% convertible senior subordinated notes due May 1, 2014                             (111,357)   (137,907)
                                Zero Coupon convertible subordinated notes first putable June 2010                                            —      199,968
                                Debt discount on Zero Coupon convertible subordinated notes first putable June 2010                           —       (5,771)
                                Other                                                                                                      4,953       7,867
                                Total debt                                                                                           $ 1,043,413 $ 1,182,621
                                Less current portion                                                                                    (651,997)   (818,925)
                                Total long-term debt                                                                                 $ 391,416 $ 363,696
     Aggregate maturities of long-term debt at December 31, 2010 are as follows:


                                2011                                                                                 $                                822,180
                                2012                                                                                                                    1,209
                                2013                                                                                                                      688
                                2014                                                                                                                  500,394
                                2015                                                                                                                      154
                                2016 and thereafter                                                                                                       328
                                                                                                                                                    1,324,953
                                Debt discount                                                                                                        (281,540)
                                                                                                                     $                              1,043,413
     On August 15, 2008, we established a $200 million, three-year revolving credit facility with JP Morgan Chase Bank, N.A. and certain other lenders. The
credit facility is available for letters of credit, working capital and general corporate purposes and is guaranteed by certain of our domestic subsidiaries. The
credit agreement contains customary covenants, including but not limited to covenants related to total debt to Consolidated EBITDA (as defined in the credit
agreement), senior debt to Consolidated EBITDA, interest expense coverage and limitations on capital expenditures, asset sales, mergers and acquisitions,
indebtedness, liens, and transactions with affiliates. As of the date of this filing, we have not drawn any amounts under the credit facility.

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

14. LONG-TERM DEBT (Continued)
      Convertible Notes
     We account for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) by recording the liability and
equity components of the convertible debt separately. The liability component is computed based on the fair value of a similar liability that does not include
the conversion option. The equity component is computed based on the total debt proceeds less the fair value of the liability component. The equity
component (debt discount) and debt issuance costs are amortized as interest expense over the expected term of the debt facility.

     The liability component of our convertible notes will be classified as current liabilities and presented in current portion of long-term debt and the equity
component of our convertible debt will be considered a redeemable security and presented as redeemable equity on our consolidated balance sheet if our debt
is considered current at the balance sheet date. At December 31, 2010 and 2009, our stock price was $61.72 and $62.42, respectively. Therefore, the 2.0%
Notes are considered to be current liabilities based on conversion price and are presented in current portion of long-term debt on our consolidated balance
sheet for both periods. At December 31, 2009, the 2010 Zero Coupon Notes are presented in current portion of long-term debt based on maturity date.

     In the event that a significant conversion of our convertible debt did occur, we believe that we have the ability to fund the payment of principal amounts
due through a combination of utilizing our existing cash on hand, accessing our credit facility, raising money in the capital markets or selling our note hedge
instruments for cash.

     For the years ended December 31, 2010, 2009 and 2008, changes in the value of redeemable equity, which were recognized in Cephalon stockholders'
equity under additional paid-in capital, were $37.1 million, $41.1 million and $44.1 million, respectively.

    During the second quarter of 2010, we delivered a notice of redemption to the holders of our Zero Coupon Notes first putable June 2010 (the "2010
Notes"). Details of this redemption are provided below.
      2.5% Convertible Senior Subordinated Notes
    In May 2009, we issued through a public offering $500.0 million aggregate principal amount of 2.5% convertible senior subordinated notes due May 1,
2014 (the "2.5% Notes"), all of which remain outstanding as of December 31, 2010. Interest on the 2.5% Notes is payable semi-annually in arrears on May 1
and November 1 of each year, commencing November 1, 2009.

      The 2.5% Notes are subordinate to existing and future senior indebtedness, equal to our existing and future senior subordinated indebtedness and senior
in right of payment to our existing and future subordinated indebtedness. We may not redeem the 2.5% Notes prior to maturity. The 2.5% Notes are
convertible prior to maturity, subject to certain conditions described below, into cash and, under certain circumstances, shares, of our common stock at an
initial conversion price of $69.00, subject to adjustment (equivalent to an initial conversion rate of approximately 14.4928 shares per $1,000 principal amount
of the 2.5% Notes).

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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                     (In thousands, except share and per share data)

14. LONG-TERM DEBT (Continued)
     The Holders of the 2.5% Notes may surrender their notes for conversion any time prior to the close of business on November 1, 2013 only if any of the
following conditions is satisfied:

     •      during any calendar quarter commencing after September 30, 2009, if the closing sale price of our common stock, for at least 20 trading days in
            the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in
            which the conversion occurs, is more than 130% of the conversion price per share of the notes in effect on that last trading day ($89.70 based on
            the initial conversion price);
     •      during the 10 consecutive trading-day period that follows any five consecutive trading-day period in which the trading price for the notes for
            each such trading day was less than 98% of the closing sale price of our common stock on such date multiplied by the then current conversion
            rate; or
     •      if we make certain significant distributions to holders of our common stock, we enter into specified corporate transactions or our common stock
            is not listed on a U.S. national securities exchange.

   Holders also may surrender their 2.5% Notes for conversion after November 1, 2013 and on or prior to the close of business on the business day
immediately prior to the stated maturity date regardless if any of the foregoing conditions have been satisfied.

     Each $1,000 principal amount of 2.5% Notes is convertible into cash and, under certain circumstances, shares of our common stock, based on an amount
(the "Daily Conversion Value"), calculated for each of the 25 trading days beginning on and including the third trading day after the conversion date (the
"Conversion Period"). The Daily Conversion Value for each trading day during the Conversion Period for each $1,000 aggregate principal amount of 2.5%
Notes is equal to one-twenty-fifth (1/25th) of the product of the then applicable conversion rate multiplied by the volume weighted average price of our
common stock on that day.

     For each $1,000 aggregate principal amount of 2.5% Notes surrendered for conversion, we will deliver to holders of the 2.5% Notes, on the third
business day following the end of the Conversion Period, the aggregate of the following for each trading day during the related conversion period:

     (1)    cash equal to the lesser of (a) $40.00 and (b) the Daily Conversion Value for such day; and
     (2)    to the extent the Daily Conversion Value for such day exceeds $40.00, a number of shares of our common stock equal to (a) the difference
            between the Daily Conversion Value and $40.00, divided by (b) the volume weighted average price of our common stock on that day.

     If the 2.5% Notes are converted in connection with certain fundamental changes that occur prior to maturity of the 2.5% Notes, we may also be obligated
to pay an additional (or "make whole") premium with respect to the 2.5% Notes so converted. In addition, if certain fundamental changes occur with respect
to Cephalon, holders of the 2.5% Notes will have the option to require us to purchase for cash all or a portion of the 2.5% Notes at a purchase price equal to
100% of the principal amount of the 2.5% Notes plus accrued and unpaid interest.

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

14. LONG-TERM DEBT (Continued)

     Transaction costs of $15.5 million related to the issuance of the 2.5% Notes are allocated to the liability and equity components in proportion to the
allocation of the proceeds and accounted for as debt issuance costs and equity issuance costs, respectively. Transaction costs of $10.7 million have been
capitalized as debt issuance costs and are being amortized through May 1, 2014.
      Convertible Note Hedge Agreement
     Concurrent with the offering of the 2.5% Notes in May 2009, we purchased a convertible note hedge from Deutsche Bank AG ("DB") at a cost of
$121.0 million. The convertible note hedge must be net share settled. Under the convertible note hedge, if the market price per share of our common stock is
between $69.00 and $100.00 per share, DB will deliver to us the number of shares of the Company's common stock that the Company is obligated to deliver
to the holders of the 2.5% Notes with respect to the conversion, with cash in lieu of any fractional shares. We recorded the convertible note hedge in
additional paid-in capital, and will not recognize subsequent changes in fair value. We also recognized a deferred tax asset of $46.2 million for the effect of
the future tax benefits related to the convertible note hedge.
      Warrant Agreement
      Concurrent with the offering of the 2.5% Notes in May 2009, we sold to DB warrants to purchase an aggregate of 7,246,377 shares of our common stock
and received net proceeds from the sale of these warrants of $37.6 million. The warrants have a strike price of $100.00 per share, subject to customary
adjustments. The warrants expire in approximately equal tranches over the forty trading days beginning July 30, 2014 and ending September 24, 2014. The
warrants are exercisable only on the applicable expiration date (European style). If the warrants are exercised, we will settle the warrants under net share
settlement. We recorded the warrants in additional paid-in capital, and will not recognize subsequent changes in fair value.

    Together, the convertible note hedge and warrant transactions are expected to have the impact of increasing the effective conversion price of the 2.5%
Notes from our perspective from $69.00 per share of our common stock to $100.00 per share of our common stock.
      2.0% Convertible Senior Subordinated Notes
    In June and July 2005, we issued through a public offering $920 million of 2.0% Notes, of which $820 million remains outstanding as of December 31,
2010. Interest on the 2.0% Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing December 1, 2005.

     The 2.0% Notes are subordinated to our existing and future senior indebtedness and senior to our existing and future subordinated indebtedness. The
2.0% Notes are convertible prior to maturity, subject to certain conditions described below, into cash and shares of our common stock at an initial conversion
price of $46.70 per share, subject to adjustment (equivalent to a conversion rate of approximately 21.4133 shares per $1,000 principal amount of 2.0% Notes).

     The 2.0% Notes also contain a restricted convertibility feature that does not affect the conversion price of the 2.0% Notes but, instead, places restrictions
on a holder's ability to convert their 2.0%

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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                     (In thousands, except share and per share data)

14. LONG-TERM DEBT (Continued)
Notes into shares of our common stock (the "conversion shares"). A holder may convert the 2.0% Notes prior to December 1, 2014 only if one or more of the
following conditions are satisfied:

     •      if, on the trading day prior to the date of surrender, the closing sale price of our common stock is more than 120% of the applicable conversion
            price per share (the "conversion price premium");
     •      if the average of the trading prices of the 2.0% Notes for any five consecutive trading day period is less than 100% of the average of the
            conversion values of the 2.0% Notes during that period; or
     •      if we make certain significant distributions to our holders of common stock; we enter into specified corporate transactions; or our common stock
            ceases to be approved for listing on the NASDAQ Stock Market and is not listed for trading on a U.S. national securities exchange or any similar
            U.S. system of automated securities price dissemination.

     Holders also may surrender their 2.0% Notes for conversion anytime after December 1, 2014 and on or prior to the close of business on the business day
immediately preceding the maturity date, regardless if any of the foregoing conditions have been satisfied. Upon the satisfaction of any of the foregoing
conditions as of the last day of the reporting period, or during the twelve months prior to December 1, 2014, we would classify the then-aggregate principal
balance of the 2.0% Notes as a current liability on our consolidated balance sheet.

     Each $1,000 principal amount of the 2.0% Notes is convertible into cash and shares of our common stock, if any, based on an amount (the "Daily
Conversion Value"), calculated for each of the twenty trading days immediately following the conversion date (the "Conversion Period"). The Daily
Conversion Value for each trading day during the Conversion Period for each $1,000 aggregate principal amount of the 2.0% Notes is equal to one-twentieth
of the product of the then applicable conversion rate multiplied by the volume weighted average price of our common stock on that day.

     For each $1,000 aggregate principal amount of the 2.0% Notes surrendered for conversion, we will deliver the aggregate of the following for each
trading day during the Conversion Period:

     (1)    if the Daily Conversion Value for each trading day for each $1,000 aggregate principal amount of the 2.0% Notes exceeds $50.00, (a) a cash
            payment of $50.00 and (b) the remaining Daily Conversion Value in shares of our common stock; or
     (2)    if the Daily Conversion Value for each trading day for each $1,000 aggregate principal amount of the 2.0% Notes is less than or equal to $50.00,
            a cash payment equal to the Daily Conversion Value.

     If the 2.0% Notes are converted in connection with certain fundamental changes that occur prior to June 2015, we may be obligated to pay an additional
(or "make whole") premium with respect to the 2.0% Notes so converted.
     Convertible Note Hedge Agreement
    Concurrent with the sale of the 2.0% Notes, we purchased convertible note hedges from Deutsche Bank AG ("DB") at a cost of $382.3 million. The
convertible note hedge must be settled using net

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

14. LONG-TERM DEBT (Continued)
shares. Under the convertible note hedge, DB will deliver to us the aggregate number of shares we are required to deliver to a holder of 2.0% Notes that
presents such notes for conversion. We recorded the convertible note hedges in additional paid-in capital, and will not recognize subsequent changes in fair
value. We also recognized a deferred tax asset of $133.8 million for the effect of the future tax benefits related to the convertible note hedge.
      Warrant Agreements
     Concurrent with the sale of the 2.0% Notes, we sold to DB warrants to purchase an aggregate of 19,700,214 shares of our common stock and received
net proceeds from the sale of these warrants of $217.1 million. The warrants have a strike price of $67.92. The warrants are exercisable only on the respective
expiration dates (European style). We issued and sold the warrants to DB in a transaction exempt from the registration requirements of the Securities Act of
1933, as amended, because the offer and sale did not involve a public offering. There were no underwriting commissions or discounts in connection with the
sale of the warrants. We recorded the warrants in additional paid-in capital, and will not recognize subsequent changes in fair value. There are 17,558,887
warrants outstanding as of December 31, 2010.

    At issuance, the convertible note hedge and warrant agreements, taken together, have the effect of increasing the effective conversion price of the 2.0%
Notes from our perspective to $67.92 per share if held to maturity. At our option, the warrants may be settled in either net cash or net shares.
      Zero Coupon Convertible Subordinated Notes
     During the second quarter of 2010, we delivered a notice of redemption to the holders of our Zero Coupon Notes first putable June 2010 (the "2010
Notes"). Prior to the redemption date, most of the 2010 Notes were converted. Holders who converted their 2010 Notes received from us an aggregate of
$170.2 million in cash and 137,543 shares of our common stock, under the terms of the 2010 Notes. Concurrent with the conversion, we received from Credit
Suisse (CSFB) 137,441 shares of our common stock in settlement of the convertible note hedge agreement associated with the 2010 Notes. The warrant held
by CSFB and associated with the 2010 Notes expired without exercise. The $29.3 million of 2010 Notes that were not converted were redeemed by us or
tendered by the holder to us for cash of $29.4 million.

      The conversion and redemption of the 2010 Notes reduced the liability component of our convertible debt, which was computed based on the fair value
of a similar liability that does not include the conversion option, by $199.5 million. The fair value of the liability component was equal to the carrying value
on the date of conversion. The debt discount and debt issuance costs associated with the 2010 Notes were fully amortized to interest expense by the date of
conversion. We recognized a $0.4 million gain related to the accreted premium on the 2010 Notes which were converted by the holders.

    The 2010 Notes were first putable for cash on June 15, 2010 at a price of 100.25% of the face amount of the 2010 Notes. The 2010 Notes were
convertible prior to maturity, subject to certain conditions, into cash and shares of our common stock at a conversion price of $56.50 per share (an equivalent
conversion rate of approximately 17.6991 shares per $1,000 principal amount of notes). We

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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

14. LONG-TERM DEBT (Continued)
redeemed any outstanding 2010 Notes for cash in June 2010 at a price equal to 100.25% of the principal amount of such notes.

     During the second quarter of 2008, we delivered a notice of redemption to the holders of our 2008 Notes. Prior to the redemption date, all but
$0.1 million of aggregate principal amount of the 2008 Notes were converted. Holders who converted their 2008 Notes received from us an aggregate of
$213.0 million in cash and 528,110 shares of our common stock, under the terms of the 2008 Notes. Concurrently with the conversion, we received from
Credit Suisse First Boston ("CSFB") 524,754 shares of our common stock in settlement of the convertible note hedge agreement associated with the 2008
Notes. The warrant held by CSFB and associated with the 2008 Notes expired without exercise. The $0.1 million of 2008 Notes that were not converted were
redeemed by us for cash of $0.1 million. In 2006, our Zero Coupon Notes became convertible and the related deferred debt issuance costs of $13.1 million
were written off.

      The 2008 Notes were first putable on June 15, 2008 at a price of 100.25% of the face amount of the 2008 Notes. The holders of the 2008 Notes were also
entitled to require us to repurchase all or a portion of the 2008 Notes for cash on June 15, 2013, June 15, 2018, June 15, 2023 and June 15, 2028, in each case
at a price equal to the face amount of the 2008 Notes. The 2008 Notes were convertible prior to maturity, subject to certain conditions, into cash and shares of
our common stock at a conversion price of $59.50 per share (an equivalent conversion rate of approximately 16.8067 shares per $1,000 principal amount of
notes). We redeemed any outstanding 2008 Notes for cash in June 2008 at a price equal to 100.25% of the principal amount of such notes.

15. PENSION AND OTHER POSTRETIREMENT BENEFITS

     We have defined benefit pension plans covering eligible employees in certain of our international subsidiaries. Net periodic pension benefit cost is based
on periodic actuarial valuations which use the projected unit credit method of calculation and is charged to expense on a systematic basis over the average
remaining service lives of the current participants. Prior to the acquisition of Mepha, our defined benefit pension obligations were not material to our
operations. Our defined benefit plans are all related to our international operations and attributable to our European segment.

     The net cost for pension benefit plans consisted of the following components:


                                                                                                                                    Year ended
                                                                                                                                   December 31,
                                                                                                                                         2010
                                Service cost                                                                                       $                    3,824
                                Interest cost                                                                                                           2,557
                                Expected return on plan assets                                                                                         (1,765)
                                Amortization of prior service credit                                                                                      (21)
                                Amortization of net (gain) loss                                                                                          (120)
                                              Net periodic benefit cost                                                            $                    4,475
     Through December 31, 2010, contributions of $3.6 million have been made to our pension plans.

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

15. PENSION AND OTHER POSTRETIREMENT BENEFITS (Continued)
     The following table represents the changes in benefit obligations, plan assets and the net amounts recognized on the consolidated balance sheet for all
plans as of December 31, 2010:


                                                                                                                                                      2010
                                Change in benefit obligations:
                                Benefit obligation at beginning of year                                                                          $       10,458
                                Net transfer in/(out) (effect of the Mepha acquisition)                                                                  81,933
                                Service cost                                                                                                              3,824
                                Interest cost                                                                                                             2,557
                                Actuarial loss (gain)                                                                                                    (1,603)
                                Benefits and administrative expenses paid                                                                                (3,368)
                                Employee contributions                                                                                                    1,822
                                Currency translation                                                                                                      8,733
                                        Benefit obligation at end of year                                                                        $      104,356
                                Change in plan assets:
                                Fair value of plan assets at beginning of year                                                                   $            —
                                Net transfer in/(out) (effect of the Mepha acquisition)                                                                   70,770
                                Actual return on plan assets                                                                                               2,378
                                Employer contributions                                                                                                     3,631
                                Employee contributions                                                                                                     1,822
                                Benefits and administrative expenses paid                                                                                 (3,368)
                                Currency translation                                                                                                       8,560
                                        Fair value of plan assets at end of year                                                                 $        83,793
                                Funded status at end of year                                                                                     $       (20,563)

                                Amounts recognized in other comprehensive income consist of:
                                Net loss (gain) arising during the year                                                                          $        (2,276)
                                Amortization of prior service credit (cost)                                                                                   21
                                Amortization of net gain (loss)                                                                                              120
                                       Net amount recognized in other comprehensive income                                                       $        (2,135)
     The net pension liability of $20.6 million is recognized as a non-current liability on our consolidated balance sheet. The estimated portion of the net gains
(losses) and prior service credit (cost) expected to be recognized as a component of net periodic benefit cost (credit) in 2011 is $0.1 million.

     In accordance with local laws and regulations, we acquired and became the sponsor of a defined benefit pension plan in Switzerland in conjunction with
the Mepha acquisition ("Mepha Plan"). At April 8, 2010, the date of acquisition, the projected benefit obligation and accumulated benefit obligation of the
plan were $81.9 million and $75.4 million, respectively. The fair value of plan assets on the date of acquisition was $70.8 million, resulting in a net obligation
of $11.1 million.

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

15. PENSION AND OTHER POSTRETIREMENT BENEFITS (Continued)

     The projected benefit obligation, the accumulated benefit obligation and the fair value of plan assets for all non-US plans with accumulated benefit
obligations in excess of plan assets at December 31, 2010 were $104.4 million, $93.7 million and $83.8 million, respectively.

      The actuarial assumptions used to calculate the benefit obligation April 8, 2010 and the net periodic benefit cost for the year ended December 31, 2010
for the acquired Mepha plan as well as the weighted average actuarial assumptions to calculate the benefit obligation at year end are as follows:


                                                                                                      Mepha Plan                       All plans
                                                                                                       April 8, 2010                 December 31, 2010
                                 Discount rate                                                                          3.3%                                3.0%
                                 Expected long term rate of return                                                      3.3                                 3.3
                                 Rate of compensation increase                                                          2.0                                 2.1
     The expected long-term rate of return on plan assets is a long term assumption at the measurement date based upon historical experience and expected
future performance, considering the company's target and projected investment mix. The discount rate was selected using a method that matches expected
benefit payments with high quality corporate bond yield curves at the plans' measurement date. Market conditions and other factors can vary over time that
could affect our estimates of the expected long term rate of return on plan assets and the discount rates used to calculate our pension benefit obligations and
our net periodic benefit costs for future years.

     As of April 8th, 2010 and December 31, 2010, our pension plan asset allocations by category for the Mepha Plan and all defined benefit Plans,
respectively were:


                                                                                               Mepha Plan                        All non-US plans
                                                                                                April 8, 2010                     December 31, 2010
                                  Equity Securities                                                               33.3%                                 33.2%
                                  Corporate Debt Securities                                                       51.3                                  46.5
                                  Real Estate                                                                       6.7                                  6.3
                                  Cash and Cash Equivalents                                                         8.7                                 14.0
     The fundamental goal underlying the pension plan's investment policy is to ensure that the assets of the plans are invested in a prudent manner to meet
the obligations of the plans as these obligations come due. Investment practices must comply with applicable laws and regulations. We establish strategic
asset allocation percentage targets and appropriate benchmarks for each significant asset class to obtain a prudent balance between return and risk. The
interaction between plan assets and benefit obligations is periodically studied to assist in the establishment of strategic asset allocation targets.

     The following is a description of the valuation methodologies used for assets measured at fair value:

     •       Equity securities are valued at the latest quoted prices taken from the primary exchange on which the security trades. Included within equity
             securities, mutual funds and private equity funds are valued at the net asset value (NAV) of shares held at the acquisition date.

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                         (In thousands, except share and per share data)

15. PENSION AND OTHER POSTRETIREMENT BENEFITS (Continued)

     •       Corporate debt securities are valued using market inputs such as reported trades, benchmark yields, broker/dealer quotes, issuer spreads, and
             other reference data including market research publications.
     •       Real estate investments are based on third party appraisals.

     The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair value.
Furthermore, while we believe its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or
assumptions to determine the fair value of certain financial instruments could result in different fair value measurements at the reporting date.

     Pension assets are classified into three levels. Level 1 asset values are derived from quoted prices which are available in active markets as of the report
date. Level 2 asset values are derived from other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as
of the report date. Level 3 asset values are derived from unobservable pricing inputs that are not corroborated by market data or other objective sources.

     The levels assigned to the Mepha plan assets as of April 8, 2010 are as follows:


                                                                                             Fair Value Measurements at Acquisition Date Using
                                                                      Quoted Prices in
                                                                     Active Markets for                  Significant Other                      Significant
                                                                      Identical Assets                   Observable Inputs                  Unobservable Inputs
                Description                               Total             (Level 1)                           (Level 2)                          (Level 3)
                Cash and cash equivalents            $  6,113               $              6,113                 $             —                  $                  —
                Equity securities                      23,557                             22,585                              972                                    —
                Corporate debt securities              36,343                             36,343                               —                                     —
                Real estate                             4,757                                 —                                —                                  4,757
                Total                                $ 70,770               $             65,041                 $            972                 $               4,757
     The levels assigned to all plan assets as of December 31, 2010 are as follows:


                                                                                              Fair Value Measurements at Reporting Date Using
                                                                       Quoted Prices in
                                                                      Active Markets for                 Significant Other                     Significant
                                                                       Identical Assets                  Observable Inputs                 Unobservable Inputs
                Description                               Total              (Level 1)                          (Level 2)                         (Level 3)
                Cash and cash equivalents             $ 11,730              $              11,730              $                —                 $                  —
                Equity securities                       27,791                             26,209                            1,582                                   —
                Corporate debt securities               39,007                             39,007                               —                                    —
                Real estate                              5,265                                 —                                —                                 5,265
                Total                                 $ 83,793              $              76,946              $             1,582                $               5,265
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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

15. PENSION AND OTHER POSTRETIREMENT BENEFITS (Continued)
     The tables below reconcile the beginning and ending balances for assets and liabilities measured on a recurring basis using unobservable inputs (Level 3)
during the period.


                                                                                                                                     Level 3 Pension
                                                                                                                                            Assets
                                Balance, January 1, 2010                                                                                $                   —
                                 Transfer in as a result of Mepha Acquisition                                                                            4,757
                                          Foreign currency translation                                                                                     548
                                          Actual returns on plan assets                                                                                    184
                                          Purchases, sales and settlements, net                                                                           (224)
                                Ending Balance, December 31, 2010                                                                       $                5,265
     Expected 2011 contributions for our plans are $4.1 million.

     Estimated Future Benefit Payments as of December 31, 2010 are:


                     2011                                                                                                  $                            3,499
                     2012                                                                                                                               3,205
                     2013                                                                                                                               3,508
                     2014                                                                                                                               3,999
                     2015                                                                                                                               5,743
                     2016 and beyond                                                                                                                   21,198
16. STOCKHOLDERS' EQUITY
     Equity Compensation Plans
      We have established equity compensation plans for our employees, directors and certain other individuals. The Stock Option and Compensation
Committee of our Board of Directors approves all grants and the terms of such grants, subject to ratification by the Board of Directors. We may grant non-
qualified stock options under the Cephalon, Inc. 2004 Equity Compensation Plan (the "2004 Plan") and through December 2010, the Cephalon, Inc. 2000
Equity Compensation Plan (the "2000 Plan"), and also may grant incentive stock options and restricted stock units under the 2004 Plan. Stock options and
restricted stock units generally become exercisable or vest ratably over four years from the grant date, and stock options must be exercised within ten years of
the grant date. There are currently 16.5 million shares authorized for issuance under the 2004 Plan. At December 31, 2010, the shares available for future
grants of stock options or restricted stock units were 1,193,407 of which up to 247,850 may be issued as restricted stock units.

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

16. STOCKHOLDERS' EQUITY (Continued)
     Total stock-based compensation expense recognized in the consolidated statement of operations for the years ended December 31:


                                                                                                                          2010           2009          2008
                                Stock option expense                                                                  $     26,134 $      28,480 $       26,018
                                Restricted stock unit expense                                                         $     23,800 $      21,930 $       17,956
                                 Total stock-based compensation expense*                                              $     49,934 $      50,410 $       43,974
                                 Total stock-based compensation expense after-tax                                     $     32,717 $      32,630 $       28,583


                                *      In the first half of 2008, total stock-based compensation expense was recognized equally between research and
                                       development and selling, general and administrative expenses based on the employees' compensation allocation
                                       between these line items. Beginning with the second half of 2008, total stock-based compensation is allocated 4% to
                                       cost of sales, 38% to research and development and 58% to selling, general and administrative expenses based on the
                                       employees' compensation allocation between these line items.

      Stock based compensation expense for the year ended December 31, 2010 was favorably impacted by a higher level of forfeitures compared to prior
years, offset by the stock based compensation impact of the death of our former Chief Executive Officer. Upon death, all outstanding options and restricted
stock held in the name of our former Chief Executive Officer vested in accordance with the terms of the 2000 Plan and the 2004 Plan, resulting in an increase
to stock option expense of $3.4 million and restricted stock unit expense of $3.6 million.

     The cumulative pool of windfall tax benefits was $51.2 million and $50.0 million as of December 31, 2010 and 2009, respectively.

      Based on our historical experience of stock option and restricted stock unit pre-vesting forfeitures, we have assumed the following weighted average
expected forfeiture rates over the four year life of the stock option and restricted stock unit for all new stock options and restricted stock units granted,
excluding stock options and restricted stock units granted to the Chief Executive Officer and members of the Board of Directors for which a zero forfeiture
rate is assumed, for the years ended December 31:


                                                                                                                          2010          2009          2008
                                 Stock option expected forfeiture rate                                                        14.6%        13.6%         13.9%
                                 Restricted stock unit expected forfeiture rate                                               16.6%        15.2%         16.5%
     We will record additional expense if the actual pre-vesting forfeiture rate is lower than we estimated and will record a recovery of prior expense if the
actual forfeitures are higher than our estimate.

     Beginning with our December 2007 stock option grant, our expected term of stock options granted was derived from our historical data as we have
assumed that our historical stock option exercise experience is a relevant indicator of future exercise patterns. Prior to the December 2007 stock option grant,
our expected term of stock options granted was derived from the average midpoint between

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                        (In thousands, except share and per share data)

16. STOCKHOLDERS' EQUITY (Continued)
vesting and the contractual term. Expected volatilities are based on a combination of implied volatilities from traded options on our stock and the historical
volatility of our stock for the related vesting period. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues
with an equivalent term. We have not paid dividends in the past and do not plan to pay any dividends in the foreseeable future.

     The fair value of each stock option grant at the grant date is calculated using the Black-Scholes option-pricing model with the following weighted
average assumptions for the years ended December 31:


                                                                                                                      2010              2009          2008
                                 Risk free interest rate                                                             2.16%          2.21%           2.16%
                                 Expected term (years)                                                               5.34           5.61            5.62
                                 Expected volatility                                                                 29.2%          31.6%           35.6%
                                 Expected dividend yield                                                               —%             —%              —%
                                 Estimated fair value per stock option granted                                $    19.26      $    19.18     $    26.75
     The 2004 Plan has been amended, following approval by Cephalon stockholders, since inception. Most recently, on May 19, 2010, we received approval
to increase the total number of shares of common stock authorized for issuance by 1,500,000 shares from 14,950,000 shares to 16,450,000 shares. This
amendment provides that no more than 600,000 shares of common stock may be issued pursuant to restricted stock unit awards granted after May 19, 2010.
This amendment also provides for 350,000 shares which may be offered and sold under the Cephalon, Inc. 2010 Employee Stock Purchase Plan.
      Stock Options
     The following tables summarize the aggregate stock option activity for the years ended December 31:


                                                                                                                    2010
                                                                                                                        Weighted
                                                                                                Weighted                Average
                                                                                                Average                Remaining
                                                                                                Exercise             Contractual Live            Aggregate
                                                                                Shares             Price                   (years)                  value
                Outstanding, January 1,                                          7,539,145       $         62.96
                                    Granted                                      1,170,750                 62.66
                                    Exercised                                     (533,513)                67.39
                                    Forfeited                                     (301,100)                66.69
                                    Expired                                       (258,900)                72.37
                Outstanding, December 31,                                        7,616,382                 63.26                           6.2    $       28,055
                Vested stock options at end of period                            5,305,107       $         63.04                           5.0    $       24,346
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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

16. STOCKHOLDERS' EQUITY (Continued)




                                                                                                                2009
                                                                                                                    Weighted
                                                                                            Weighted                Average
                                                                                            Average                Remaining
                                                                                            Exercise             Contractual Live           Aggregate
                                                                             Shares            Price                   (years)                 value
               Outstanding, January 1,                                        6,643,115       $        63.54
                                   Granted                                    1,256,500                57.08
                                   Exercised                                   (235,345)               43.39
                                   Forfeited                                    (90,350)               72.36
                                   Expired                                      (34,775)               68.71
               Outstanding, December 31,                                      7,539,145                62.96                         6.6     $       36,605
               Vested stock options at end of period                          4,853,320       $        61.27                         5.8     $       29,319




                                                                                                                2008
                                                                                                                    Weighted
                                                                                            Weighted                Average
                                                                                            Average                Remaining
                                                                                            Exercise             Contractual Live           Aggregate
                                                                             Shares            Price                   (years)                 value
               Outstanding, January 1,                                        6,805,897       $        59.70
                                   Granted                                    1,215,900                72.63
                                   Exercised                                   (957,865)               45.90
                                   Forfeited                                   (293,263)               67.67
                                   Expired                                     (127,554)               68.16
               Outstanding, December 31,                                      6,643,115                63.54                         7.0     $       89,959
               Vested stock options at end of period                          4,167,815       $        58.61                         5.0     $       77,049
     The intrinsic values are based on our closing stock prices of $61.72, $62.42 and $77.04 as of December 31, 2010, 2009 and 2008, respectively, which
would have been received by the option holders had all in-the-money options been exercised as of that date. As of December 31, 2010, there was
$31.8 million of total unrecognized compensation cost related to outstanding stock options that is expected to be recognized over a weighted-average period
of 1.6 years. For the years ended December 31, 2010, 2009 and 2008, we received net proceeds of $27.4 million, $10.2 million and $44.0 million,
respectively, from the exercise of stock options.

     The intrinsic value of stock options exercised for the years ended December 31, 2010, 2009 and 2008 was $5.5 million, $5.2 million and $26.2 million,
respectively. The estimated fair value of shares that vested for the years ended December 31, 2010, 2009 and 2008 was $33.9 million, $27.9 million and
$24.8 million, respectively.

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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

16. STOCKHOLDERS' EQUITY (Continued)
     Restricted Stock Units
    The following tables summarize the restricted stock unit's activity for the years ended December 31:


                                                                                                                             2010
                                                                                                                                Weighted Average
                                                                                                           Shares                    Fair Value
                               Nonvested, January 1,                                                           895,250              $                  65.65
                                                     Granted                                                   352,150                                 63.11
                                                     Vested                                                   (417,712)                                67.23
                                                     Forfeited                                                 (90,200)                                65.94
                               Nonvested, December 31,                                                         739,488              $                  63.52
                               Intrinsic value as of December 31,                                  $            45,641




                                                                                                                             2009
                                                                                                                                Weighted Average
                                                                                                           Shares                    Fair Value
                               Nonvested, January 1,                                                           791,888              $                  72.08
                                                     Granted                                                   411,000                                 56.08
                                                     Vested                                                   (283,963)                                69.14
                                                     Forfeited                                                 (23,675)                                72.55
                               Nonvested, December 31,                                                         895,250              $                  65.65
                               Intrinsic value as of December 31,                                  $            55,882




                                                                                                                             2008
                                                                                                                                Weighted Average
                                                                                                           Shares                    Fair Value
                               Nonvested, January 1,                                                           747,050              $                  67.82
                                                     Granted                                                   383,700                                 73.25
                                                     Vested                                                   (253,837)                                62.84
                                                     Forfeited                                                 (85,025)                                67.49
                               Nonvested, December 31,                                                         791,888              $                  72.08
                               Intrinsic value as of December 31,                                  $            61,007
    The intrinsic values are based on our closing stock prices of $61.72, $62.42 and $77.04 as of December 31, 2010, 2009 and 2008, respectively.

     As of December 31, 2010, there was $29.5 million of total unrecognized compensation cost related to nonvested restricted stock units that is expected to
be recognized over a weighted-average period of 1.6 years.

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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

16. STOCKHOLDERS' EQUITY (Continued)
     Employee Stock Purchase Plan
      The Board of Directors approved the Cephalon, Inc. 2010 Employee Stock Purchase Plan ("ESPP") in May 2010. The first offering period began
September 1, 2010 and ended December 31, 2010. Subsequent offering periods will commence at six-month intervals each January 1 and July 1 and will last
for six months. The estimated impact is considered for diluted EPS using the treasury stock method. Our ESPP is considered non-compensatory and,
accordingly, no compensation expense will be recorded for issuances under the ESPP. Eligible participants contribute 95% of the quarter-ending market price
towards the purchase of each common share.
     Qualified Savings and Investment Plan
    We have a profit sharing plan pursuant to section 401(k) of the Internal Revenue Code. As of January 1, 2007, participants are permitted to contribute
any whole percentage of their eligible annual pre-tax compensation up to established federal limits on aggregate participant contributions. Our discretionary
matching contribution is made solely in cash on 100 percent of the employee elected salary deferral up to six percent of eligible compensation. For the years
ended December 31, 2010, 2009 and 2008, we contributed $13.2 million, $13.0 million and $12.3 million to the plan, respectively.
     Pro forma Aggregate Conversions or Exercises
     At December 31, 2010, the conversion or exercise of all outstanding stock options and restricted stock units would increase the outstanding number of
shares of common stock by 8.4 million shares, or 11%. The conversion of our convertible subordinated notes and warrants into shares of Cephalon common
stock in accordance with their terms is dependent upon actual stock price at the time of conversion.
     Preferred Share Purchase Rights
     In November 1993, our Board of Directors declared a dividend distribution of one right for each outstanding share of common stock. In addition, a right
attaches to and trades with each new issue of our common stock. Each right entitles each registered holder, upon the occurrence of certain events, to purchase
from us a unit consisting of one one-hundredth of a share of our Series A Junior Participating Preferred Stock, or a combination of securities and assets of
equivalent value, at a purchase price of $200.00 per unit, subject to adjustment.

17. EARNINGS PER SHARE ("EPS")

      Basic income per common share is computed based on the weighted average number of common shares outstanding during the period. Diluted income
per common share is computed based on the weighted average number of common shares outstanding and, if there is net income during the period, the
dilutive impact of common stock equivalents outstanding during the period. Common stock equivalents are measured under the treasury stock method.

      The 2.5% Notes, 2.0% Notes and New Zero Coupon Notes each are considered to be Instrument C securities; therefore, these notes are included in the
dilutive earnings per share calculation using the treasury stock method. Under the treasury stock method, we must calculate the

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

17. EARNINGS PER SHARE ("EPS") (Continued)
number of shares issuable under the terms of these notes based on the average market price of the stock during the period (assuming the average market price
is above the applicable conversion prices of the 2.5%, 2.0% and New Zero Coupon Notes), and include that number in the total diluted shares figure for the
period.

     We have entered into convertible note hedge and warrant agreements that, in combination, have the economic effect of reducing the dilutive impact of
the 2.0% Notes, 2.5% Notes and the 2010 Zero Coupon Notes. However, we are required to analyze separately the impact of the convertible note hedge and
warrant agreements on diluted EPS. As a result, the purchases of the convertible note hedges are excluded because their impact will always be anti-dilutive.
The impact of the warrants is computed using the treasury stock method. For example, using the treasury stock method, if the average price of our stock
during the period ended December 31, 2010 had been $75.00, $85.00 or $95.00, the shares from the warrants to be included in diluted EPS would have been
1.7 million, 3.5 million and 5.0 million shares, respectively. The total number of shares that could potentially be included under the warrants is 24.8 million.

    On May 20, 2010, the Board of Directors approved the Cephalon, Inc. 2010 Employee Stock Purchase Plan ("ESPP"). The first offering period began
September 1, 2010 and will end December 31, 2010. The estimated impact is considered for diluted EPS using the treasury stock method.

     The number of shares included in the diluted EPS calculation for the convertible subordinated notes and warrants for the years ended December 31:


                                                                                                                                2010        2009         2008
                Average market price per share of Cephalon stock                                                            $     63.26 $     62.01 $      69.42

                Shares included in diluted EPS calculation (in thousands):
                                             2.0% Notes                                                                           4,597       4,335        5,747
                                             2.5% Notes                                                                              —           —            —
                                             2010 Notes                                                                             217         314          813
                                             Warrants related to 2.0% Notes                                                          —           —           425
                                             Warrants related to 2.5% Notes                                                          —           —            —
                                             Warrants related to New Zero Coupon Notes                                               —           —            —
                                             Other                                                                                   —            1            4
                                                                            Total                                                 4,814       4,650        6,989
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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                     (In thousands, except share and per share data)

17. EARNINGS PER SHARE ("EPS") (Continued)
    The following is a reconciliation of net income (loss) and weighted average common shares outstanding for purposes of calculating basic and diluted
income (loss) per common share for the years ended December 31:


                                                                                                            2010                  2009                  2008
               Basic income per common share computation:
                                   Numerator:
               Net income used for basic income per common share                                           $     425,745          $     342,627         $     192,962


                                  Denominator (in thousands):
               Weighted average shares used for basic income per common share                                      75,185                72,342                68,018


                                    Basic income per common share                                          $          5.66        $           4.74      $           2.84




                                                                                                               2010                   2009                  2008
               Diluted income per common share computation:
                                  Numerator:
               Net income used for basic income per common share                                           $     425,745          $     342,627         $     192,962


                                     Denominator (in thousands):
               Weighted average shares used for diluted income per common share                                    75,185                72,342                68,018
               Effect of dilutive securities:
               Convertible subordinated notes and warrants                                                          4,814                 4,650                 6,989
               Employee stock options and restricted stock units                                                      712                   741                 1,090
               Employee stock purchase plan                                                                             1                    —                     —
               Weighted average shares used for diluted income per common share                                    80,712                77,733                76,097


                                    Diluted income per common share                                        $          5.27        $            4.41     $           2.54
     The following reconciliation shows the shares excluded from the calculation of diluted income (loss) per common share attributable to Cephalon, Inc. as
the inclusion of such shares would be anti-dilutive for the years ended December 31:


                                                                                                                       2010                  2009            2008
               Weighted average shares excluded (in thousands):
                   Convertible subordinated notes and warrants                                                           26,527                26,385          25,006
                   Employee stock options                                                                                 4,881                 4,098           2,963
                                                                                                                         31,408                30,483          27,969
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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

18. COMMITMENTS AND CONTINGENCIES
     Leases
    We lease certain of our offices and automobiles under operating leases in the United States and Europe that expire at various times through 2022. Lease
expense under all operating leases totaled $23.5 million, $22.8 million and $22.6 million in 2010, 2009, and 2008, respectively.

     Estimated lease expense for each of the next five years as of December 31, 2010 is as follows:


                                2011                                                                                          $                        23,139
                                2012                                                                                                                   19,916
                                2013                                                                                                                   15,141
                                2014                                                                                                                   12,532
                                2015                                                                                                                    6,742
                                2016 and thereafter                                                                                                    18,175
                                                                                                                              $                        95,645
     Legal Proceedings
     PROVIGIL Patent Litigation and Settlements

     In March 2003, we filed a patent infringement lawsuit against four companies—Teva Pharmaceuticals USA, Inc., Mylan Pharmaceuticals, Inc., Ranbaxy
Laboratories Limited and Barr Laboratories, Inc.—based upon the abbreviated new drug applications ("ANDA") filed by each of these firms with the FDA
seeking approval to market a generic form of modafinil. The lawsuit claimed infringement of our U.S. Patent No. RE37,516 (the "'516 Patent") which covers
the pharmaceutical compositions and methods of treatment with the form of modafinil contained in PROVIGIL and which expires on April 6, 2015. We
believe that these four companies were the first to file ANDAs with Paragraph IV certifications and thus are eligible for the 180-day period of marketing
exclusivity provided by the provisions of the Federal Food, Drug and Cosmetic Act. In early 2005, we also filed a patent infringement lawsuit against
Carlsbad Technology, Inc. ("Carlsbad") based upon the Paragraph IV ANDA related to modafinil that Carlsbad filed with the FDA.

      In late 2005 and early 2006, we entered into settlement agreements with each of Teva, Mylan, Ranbaxy and Barr; in August 2006, we entered into a
settlement agreement with Carlsbad and its development partner, Watson Pharmaceuticals, Inc., which we understand has the right to commercialize the
Carlsbad product if approved by the FDA. As part of these separate settlements, we agreed to grant to each of these parties a non-exclusive royalty-bearing
license to market and sell a generic version of PROVIGIL in the United States, effective in April 2012, subject to applicable regulatory considerations. Under
the agreements, the licenses could become effective prior to April 2012 only if a generic version of PROVIGIL is sold in the United States prior to this date.
Various factors could lead to the sale of a generic version of PROVIGIL in the United States at any time prior to April 2012, including if (i) we lose patent
protection for PROVIGIL due to an adverse judicial decision in a patent infringement lawsuit; (ii) all parties with first-to-file ANDAs relinquish their right to
the 180-day period of marketing exclusivity, which could allow a subsequent ANDA filer, if approved by the FDA, to launch a generic version of PROVIGIL
in the United States at-risk; (iii) we breach or

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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

18. COMMITMENTS AND CONTINGENCIES (Continued)
the applicable counterparty breaches a PROVIGIL settlement agreement; or (iv) the FTC prevails in its lawsuit against us in the U.S. District Court for the
Eastern District of Pennsylvania ("EDPA") described below.

     We filed each of the settlements with both the U.S. Federal Trade Commission (the "FTC") and the Antitrust Division of the U.S. Department of Justice
(the "DOJ") as required by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Medicare Modernization Act"). The FTC
conducted an investigation of each of the PROVIGIL settlements and, in February 2008, filed suit against us in the U.S. District Court for the District of
Columbia challenging the validity of the settlements and related agreements entered into by us with each of Teva, Mylan, Ranbaxy and Barr. We filed a
motion to transfer the case to the EDPA, which was granted in April 2008. The complaint alleges a violation of Section 5(a) of the Federal Trade Commission
Act and seeks to permanently enjoin us from maintaining or enforcing these agreements and from engaging in similar conduct in the future. We believe the
FTC complaint is without merit. While we intend to vigorously defend ourselves and the propriety of the settlement agreements, these efforts will be both
expensive and time consuming and, ultimately, due to the nature of litigation, there can be no assurance that these efforts will be successful.

     Numerous private antitrust complaints have been filed in the EDPA, each naming Cephalon, Barr, Mylan, Teva and Ranbaxy as co-defendants and
claiming, among other things, that the PROVIGIL settlements violate the antitrust laws of the United States and, in some cases, certain state laws. These
actions have been consolidated into a complaint on behalf of a class of direct purchasers of PROVIGIL and a separate complaint on behalf of a class of
consumers and other indirect purchasers of PROVIGIL. The plaintiffs in all of these actions are seeking monetary damages and/or equitable relief. In addition,
in December 2009, we entered a tolling agreement with the Attorneys General of Arkansas, California, Florida, New York and Pennsylvania to suspend the
running of the statute of limitations to any claims or causes of action relating to our PROVIGIL settlements pending the resolution of the FTC litigation
described above.

     Separately, in June 2006, Apotex, Inc., a subsequent ANDA filer seeking FDA approval of a generic form of modafinil, filed suit against us, also in the
EDPA, alleging similar violations of antitrust laws and state law. Apotex asserts that the PROVIGIL settlement agreements improperly prevent it from
obtaining FDA approval of its ANDA, and seeks monetary and equitable remedies. Apotex also seeks a declaratory judgment that the '516 Patent is invalid,
unenforceable and/or not infringed by its proposed generic. In May 2009, Apotex also filed a declaratory judgment complaint in the EDPA that our U.S.
Patent No. 7,297,346 (the "'346 Patent") is invalid and/or not infringed by its proposed generic. The '346 Patent covers pharmaceutical compositions of
modafinil and expires in May 2024. We believe that the private antitrust complaints described in the preceding paragraph and the Apotex antitrust and
declaratory judgment complaints are without merit. While we intend to vigorously defend ourselves and the propriety of the settlement agreements, these
efforts will be both expensive and time consuming and, ultimately, due to the nature of litigation, there can be no assurance that these efforts will be
successful.

    In November 2005 and March 2006, we received notice that Caraco Pharmaceutical Laboratories, Ltd. ("Caraco") and Apotex, respectively, also filed
Paragraph IV ANDAs with the FDA in which each firm is seeking to market a generic form of PROVIGIL. We have not filed a patent

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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

18. COMMITMENTS AND CONTINGENCIES (Continued)
infringement lawsuit in the United States against either Caraco or Apotex, although Apotex has filed suit against us, as described above. In early August 2008,
we received notice that Hikma Pharmaceuticals plc ("Hikma Pharmaceuticals") filed a Paragraph IV ANDA with the FDA in which it is seeking to market a
generic form of PROVIGIL. We have not filed a patent infringement lawsuit against Hikma Pharmaceuticals.

     In 2010, generic versions of modafinil were launched in Portugal, Sweden and Denmark. We have filed lawsuits in each of these countries and intend to
vigorously enforce our intellectual property rights.

     The EU Commission is conducting a pharmaceutical sector inquiry of over 100 companies regarding, among other matters, settlements by branded
pharmaceutical companies (such as Cephalon) with generic pharmaceutical companies. We are cooperating with the EU Commission's inquiry and have
provided questionnaire responses regarding our business and documents related to our 2005 PROVIGIL settlement with Teva's UK affiliate.

      In July 2010, two purported stockholders of the company filed derivative suits on behalf of Cephalon in the EDPA naming each member of our Board of
Directors as defendants. The two suits allege, among other things, that the defendants failed to exercise reasonable and prudent supervision over the
management practices and controls of Cephalon, including with respect to the marketing and sale of PROVIGIL, ACTIQ and GABITRIL and the execution of
the PROVIGIL settlement agreements, and in failing to do so, violated their fiduciary duties to the stockholders. The complaints seek an unspecified amount
of money damages, disgorgement of all compensation and other equitable relief. We believe the allegations in these matters are without merit, and we intend
to vigorously defend them. These efforts will be both expensive and time consuming and, ultimately, due to the nature of litigation, there can be no assurance
that these efforts will be successful.
     NUVIGIL Patent Litigation
     In December 2009, January 2010, February 2010 and August 2010, we filed patent infringement lawsuits against seven companies—Teva, Actavis,
Mylan, Watson, Sandoz, Lupin, and Apotex—based upon the ANDA filed by each of these firms with the FDA seeking approval to market a generic form of
NUVIGIL. The lawsuits claimed infringement of our '570 Patent, '346 Patent and '516 Patent. Including the six-month pediatric extension, the '516 Patent, the
'346 Patent, and the '570 Patent expire on April 6, 2015, May 29, 2024, and June 18, 2024, respectively.

     Under the provisions of the Hatch-Waxman Act, the filing of the Teva, Actavis, Mylan, Watson, Sandoz, Lupin and Apotex lawsuits stays any FDA
approval of the applicable ANDA until the earlier of entry of a district court judgment in favor of the ANDA holder or 30 months from the date of our receipt
of the respective Paragraph IV certification letter. Assuming no earlier district court judgment, the earliest the 30-month stay will expire is in May 2012.

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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                     (In thousands, except share and per share data)

18. COMMITMENTS AND CONTINGENCIES (Continued)
     AMRIX Patent Litigation
      In October 2008, Cephalon and Eurand, Inc. ("Eurand"), received Paragraph IV certification letters relating to ANDAs submitted to the FDA by Mylan
and Barr, each requesting approval to market and sell a generic version of the 15 mg and 30 mg strengths of AMRIX. In November 2008, we received a
similar certification letter from Impax Laboratories, Inc. Mylan and Impax each allege that the U.S. Patent Number 7,387,793 (the "Eurand Patent"), entitled
"Modified Release Dosage Forms of Skeletal Muscle Relaxants," issued to Eurand will not be infringed by the manufacture, use or sale of the product
described in the applicable ANDA and reserves the right to challenge the validity and/or enforceability of the Eurand Patent. Barr alleges that the Eurand
Patent is invalid, unenforceable and/or will not be infringed by its manufacture, use or sale of the product described in its ANDA. The Eurand Patent does not
expire until February 26, 2025. In late November 2008, Cephalon and Eurand filed a lawsuit in U.S. District Court in Delaware against Mylan and Barr for
infringement of the Eurand Patent. In January 2009, Cephalon and Eurand filed a lawsuit in U.S. District Court in Delaware against Impax for infringement of
the Eurand Patent.

     In late May 2009, Cephalon and Eurand received a Paragraph IV certification letter relating to an ANDA submitted to the FDA by Anchen
Pharmaceuticals, Inc. ("Anchen") requesting approval to market and sell a generic version of the 15 mg and 30 mg strengths of AMRIX. Anchen alleges that
the Eurand Patent is invalid, unenforceable and/or will not be infringed by its manufacture, use or sale of the product described in its ANDA. In July 2009,
Cephalon and Eurand filed a lawsuit in U.S. District Court in Delaware against Anchen for infringement of the Eurand Patent.

     In October 2010, through our subsidiary Anesta AG, we entered into a settlement agreement with Eurand and Impax to settle the parties' patent litigation
concerning AMRIX. Under the agreement, Anesta and Eurand will grant Impax a non-exclusive, royalty-bearing license to Eurand's patent and other current
and future Orange Book-listable patents to market and sell a generic version of AMRIX in the United States. Impax's license becomes effective one year prior
to expiration of the Eurand Patent, which is currently expected to expire in February 2025, or earlier under certain circumstances. The settlement agreement
does not affect the status of the separate patent litigations with Mylan, Barr and Anchen.

     Also in October 2010, we completed the trial against Anchen, Barr and Mylan with respect to the Eurand Patent, and await a decision by the Court. We
anticipate a separate trial against Anchen with respect to later-issued patents that also cover AMRIX.

    Under the provisions of the Hatch-Waxman Act, the filing of the Mylan, Barr, Impax and Anchen lawsuits stays any FDA approval of the applicable
ANDA until the earlier of entry of a district court judgment in favor of the ANDA holder or 30 months from the date of our receipt of the respective
Paragraph IV certification letter. Assuming no earlier district court judgment, the earliest the 30-month stay will expire is in April 2011.
     FENTORA Patent Litigation
    In April 2008, June 2008 and January 2010, we received Paragraph IV certification letters relating to ANDAs submitted to the FDA by Watson
Laboratories, Inc., Barr and Sandoz, respectively, requesting approval to market and sell a generic equivalent of FENTORA. Both Watson and Barr

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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                     (In thousands, except share and per share data)

18. COMMITMENTS AND CONTINGENCIES (Continued)
allege that our U.S. Patent Numbers 6,200,604 and 6,974,590 ("FENTORA Orange Book Patents") covering FENTORA are invalid, unenforceable and/or
will not be infringed by the manufacture, use or sale of the product described in their respective ANDAs. The FENTORA Orange Book Patents cover
methods of use for FENTORA and do not expire until 2019. In June 2008, July 2008 and January 2010, we and our wholly-owned subsidiary, CIMA, filed
lawsuits in U.S. District Court in Delaware against Watson, Barr and Sandoz for infringement of these patents. In May 2010, the trial for the Watson
FENTORA matter was completed. In addition to the FENTORA Orange Book Patents, we asserted at trial that Watson has and will infringe another of our
patents, U.S. Patent Number 6,264,981. We anticipate a decision by the U.S. District Court in Delaware at any time. In November 2010, the court issued an
injunction that prevents Watson from launching a generic version of FENTORA prior to issuance of the court's decision. In January 2011, the FDA approved
Watson's ANDA and Watson filed a motion with the court to lift the injunction. We have replied to Watson's motion, and the court's decision on the motion is
currently pending.

      In November 2009, we entered into a binding agreement-in-principle (the "Barr Agreement") with Barr to settle its pending patent infringement lawsuit
related to FENTORA. The Barr Agreement does not affect the status of our separate FENTORA patent litigation with Watson and Sandoz. In connection with
the Barr Agreement, we will grant Barr a non-exclusive, royalty-free right to market and sell a generic version of FENTORA in the United States. Barr's
license will become effective in October 2018 or earlier under certain circumstances.

      In January 2011, we received a Paragraph IV certification letter relating to an ANDA submitted to the FDA by Mylan requesting approval to market and
sell a generic equivalent of FENTORA. Mylan alleges that our FENTORA Orange Book Patents are invalid, unenforceable and/or will not be infringed by the
manufacture, use or sale of the product described in its ANDA.

    While we intend to vigorously defend the NUVIGIL, AMRIX and FENTORA intellectual property rights, these efforts will be both expensive and time
consuming and, ultimately, due to the nature of litigation, there can be no assurance that these efforts will be successful.
     U.S. Attorney's Office and Related Matters
      In September 2008, we entered into a settlement agreement (the "Settlement Agreement") with the DOJ, the USAO, the OIG, TRICARE Management
Activity, the U.S. Office of Personnel Management (collectively, the "United States Government") and the relators identified in the Settlement Agreement to
settle the outstanding False Claims Act claims alleging off-label promotion of ACTIQ and PROVIGIL from January 1, 2001 through December 31, 2006 and
GABITRIL from January 2, 2001 through February 18, 2005 (the "Claims"). As part of the Settlement Agreement we paid a total of $375 million (the
"Payment") plus interest of $11.3 million. Pursuant to the Settlement Agreement, the United States Government and the relators released us from all Claims
and the United States Government agreed to refrain from seeking our exclusion from Medicare/Medicaid, the TRICARE Program or other federal health care
programs. In connection with the Settlement Agreement, we pled guilty to one misdemeanor violation of the U.S. Food, Drug and Cosmetic Act and agreed to
pay $50 million (in addition to the Payment). All of the payments described above were made in the fourth quarter of 2008.

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

18. COMMITMENTS AND CONTINGENCIES (Continued)
     As part of the Settlement Agreement, we entered into a five-year Corporate Integrity Agreement (the "CIA") with the OIG. The CIA provides criteria for
establishing and maintaining compliance. We are also subject to periodic reporting and certification requirements attesting that the provisions of the CIA are
being implemented and followed. We also agreed to enter into a State Settlement and Release Agreement (the "State Settlement Agreement") with each of the
50 states and the District of Columbia. Upon entering into the State Settlement Agreement, a state received its portion of the Payment allocated for the
compensatory state Medicaid payments and related interest amounts. Each state also agrees to refrain from seeking our exclusion from its Medicaid program.

      In September 2008, we entered into an Assurance of Voluntary Compliance (the "Connecticut Assurance") with the Attorney General of the State of
Connecticut and the Commissioner of Consumer Protection of the State of Connecticut (collectively, "Connecticut") to settle Connecticut's investigation of
our promotion of ACTIQ, GABITRIL and PROVIGIL. Pursuant to the Connecticut Assurance, (i) we paid a total of $6.15 million to Connecticut and
(ii) Connecticut released us from any claim relating to the promotional practices that were the subject of Connecticut's investigation. We also entered into an
Assurance of Discontinuance (the "Massachusetts Settlement Agreement") with the Attorney General of the Commonwealth of Massachusetts
("Massachusetts") to settle Massachusetts' investigation of our promotional practices with respect to fentanyl-based products. Pursuant to the Massachusetts
Settlement Agreement, (i) we paid a total of $0.7 million to Massachusetts and (ii) Massachusetts released us from any claim relating to the promotional
practices that were the subject of Massachusetts' investigation.

     In late 2007, we were served with a series of putative class action complaints filed in the EDPA on behalf of entities that claim to have reimbursed for
prescriptions of ACTIQ for uses outside of the product's approved label in non-cancer patients. The complaints allege violations of various state consumer
protection laws, as well as the violation of the common law of unjust enrichment, and seek an unspecified amount of money in actual, punitive and/or treble
damages, with interest, and/or disgorgement of profits. In May 2008, the plaintiffs filed a consolidated and amended complaint that also alleges violations of
RICO and conspiracy to violate RICO. The RICO allegations were dismissed with prejudice in May 2009. In February 2009, we were served with an
additional putative class action complaint filed on behalf of two health and welfare trust funds that claim to have reimbursed for prescriptions of GABITRIL
and PROVIGIL for uses outside the approved labels for each product. The complaint alleges violations of RICO and the common law of unjust enrichment
and seeks an unspecified amount of money in actual, punitive and/or treble damages, with interest. We believe the allegations in the complaints are without
merit, and we intend to vigorously defend ourselves in these matters and in any similar actions that may be filed in the future. These efforts will be both
expensive and time consuming and, ultimately, due to the nature of litigation, there can be no assurance that these efforts will be successful.

     In January 2011, we received a subpoena duces tecum (for documents) from the U.S. Postal Service Office of Inspector General ("Postal Service") in
connection with an investigation relating to Postal Service employees' workers' compensation claims. The subpoena requests that we provide to the Postal
Service documents pertaining to FENTORA. We understand that this investigation is being conducted by the Postal Service in conjunction with the Civil
Division of the United States Attorney's Office in Philadelphia. We are in the process of responding to the subpoena and intend to cooperate fully.

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                      (In thousands, except share and per share data)

18. COMMITMENTS AND CONTINGENCIES (Continued)
     DURASOLV
     In the third quarter of 2007, the U.S. Patent and Trademark Office ("PTO") notified us that, in response to re-examination petitions filed by a third party,
the Examiner rejected the claims in the two U.S. patents for our DURASOLV ODT technology. We disagree with the Examiner's position, and we filed
notices of appeal to the Board of Patent Appeals of the PTO's decisions in the fourth quarter of 2007 regarding one patent and in the second quarter of 2008
regarding the second patent. In September 2009, the Board affirmed the Examiner's position with respect to the first of the DURASOLV patents. We have
requested reconsideration from the Board and are awaiting the Board's response. We have the right to appeal to the court from the Board's decision if it is not
favorable. A hearing before the Board with respect to our appeal regarding the second patent occured in November 2010. We are presently awaiting a ruling
from the Board. These efforts will be both expensive and time consuming and, ultimately, due to the nature of patent appeals, there can be no assurance that
these efforts will be successful. The invalidity of the DURASOLV patents could reduce our ability to enter into new contracts with regard to our drug delivery
business.
     Other Matters
      We are a party to certain other litigation in the ordinary course of our business, including, among others, European patent oppositions, patent
infringement litigation and matters alleging employment discrimination, product liability and breach of commercial contract. We do not believe these matters,
even if adversely adjudicated or settled, would have a material adverse effect on our financial condition, results of operations or cash flows.
     Other Commitments
     We have committed to make potential future "milestone" payments to third parties as part of our in-licensing and development programs primarily in the
area of research and development agreements. Payments generally become due and payable only upon the achievement of certain developmental, regulatory
and/or commercial milestones. Because the achievement of these milestones is neither probable nor reasonably estimable, we have not recorded a liability on
our consolidated balance sheet for any such contingencies, with the exception of the contingent consideration recorded upon acquisition of the Ception and
BDC noncontrolling interest. See Note 2 for details. As of December 31, 2010, the potential milestone, option exercise payments and other contingency
payments due under current contractual agreements are $3.2 billion, including Ception and BDC. This value includes $1.7 billion associated with our
Mesoblast transaction. For additional details, please see Note 2.

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                                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                    (In thousands, except share and per share data)

19. INCOME TAXES
    The components of income (loss) before income taxes for the years ended December 31:


                                                                                2010                        2009                         2008
                             United States                            $                623,403       $             317,272       $              157,722
                             Foreign                                                    (4,604)                    (27,865)                     (23,652)
                             Total                                    $                618,799       $             289,407       $              134,070
    The components of the provision (benefit) for income taxes for the years ended December 31:


                                                                                         2010                  2009                         2008
                             Current taxes:
                                              United States                       $             218,444 $             145,093        $             21,587
                                              Foreign                                             9,083                10,988                       5,519
                                              State                                              10,478                 6,754                       3,118
                                                                                                238,005               162,835                      30,224
                             Deferred taxes:
                                            United States                                       (40,738)              (63,203)                     (47,878)
                                            Foreign                                             (10,607)              (15,656)                     (29,234)
                                            State                                                 2,746                 5,041                       (4,901)
                                                                                                (48,599)              (73,818)                     (82,013)

                             Change in valuation allowance                                       11,710               (10,337    )                  13,970
                                                                                                (36,889)              (84,155)                     (68,043)
                             Total                                                $             201,116 $              78,680        $             (37,819)
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                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                     (In thousands, except share and per share data)

19. INCOME TAXES (Continued)
    A reconciliation of the United States Federal statutory rate to our effective tax rate for the years ended December 31:


                                                                                                                              2010          2009     2008
                               U.S. Federal statutory rate—expense (benefit)                                                   35.0%         35.0%     35.0%
                               Manufacturers' deduction                                                                        (2.1)         (2.6)       —
                               Meals and entertainment                                                                          0.5           1.1       2.5
                               Executive compensation                                                                           0.2           1.2       2.8
                               Other permanent book/tax differences                                                            (1.3)         (2.2)      1.3
                               Revision of prior years' estimates                                                              (0.2)          1.1       6.3
                               State income taxes, net of U.S. federal tax benefit                                             (0.5)         (3.7)     (2.9)
                               Tax rate differential & permanent items on foreign income                                         —            3.6      (3.9)
                               Change in valuation allowance                                                                    1.9           2.1       9.8
                               Research and development credit                                                                 (1.1)         (4.3)    (15.3)
                               Settlement reserve                                                                                —           (4.8)    (61.4)
                               Non-deductible loss of variable interest entity                                                   —             —        8.5
                               Taxable benefit on acquisition of IPR&D                                                           —           (0.8)       —
                               Change in reserve for uncertain tax positions                                                   (0.2)          0.7     (10.7)
                               Rate change                                                                                     (0.2)          1.1        —
                               Other                                                                                            0.5          (0.3)     (0.2)
                               Consolidated effective tax rate                                                                 32.5%         27.2%    (28.2)%
     For the year ended December 31, 2007, we recorded settlement reserves totaling $425.0 million related to the resolution of the U.S. Attorney's
investigation. See Note 18 herein. However, the tax benefit was not recorded until 2008 when the agreement was reached and the nature of the settlement
payments was defined. In August 2009 we recognized an additional tax benefit of $13.8 million over the benefits recorded at December 31, 2008, due to our
closing agreement with the IRS in which both parties agreed that the nondeductible punitive portion of the Settlement Agreement is $152.3 million.

    Unrecognized tax benefits for the year ended December 31:


                                                                                                                    2010             2009            2008
                               Unrecognized tax benefits beginning of year                                     $       71,210 $        62,602 $         79,593
                               Gross change for current year positions                                                  1,859           7,739            7,591
                               Increase for prior period positions                                                      1,608           1,101            2,986
                               Decrease for prior period positions                                                     (4,589)           (232)         (21,347)
                               Decrease due to settlements and payments                                               (49,222)             —            (6,221)
                               Decrease due to statute expirations                                                         —               —                —
                               Unrecognized tax benefits end of year                                           $       20,866 $        71,210 $         62,602
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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

19. INCOME TAXES (Continued)
     The amount of unrecognized tax benefits at December 31, 2010, 2009and 2008 is $20.9 million, $71.2 million and $62.6 million respectively, of which
$6.7 million, $30.2,million and $27.5 million would impact our effective tax rate, respectively, if recognized. We do not believe that the total amount of
unrecognized tax benefits will increase or decrease significantly over the next twelve months.

     Interest expense related to income taxes is included in interest expense. Net interest expense related to unrecognized tax benefits for the year ended
December 31, 2010 was zero, principally due to the settlement of the 2006-2007 Internal Revenue Service ("IRS") audit, compared to an expense of
$1.7 million in 2009 and a benefit of $.9 million in 2008, principally due to the settlement of the 2003-2005 IRS audit. Accrued interest expense as of
December 31, 2010, December 31, 2009 and December 31, 2008 was $0.5 million, $4.7 million, and $3.0 million respectively. Income tax penalties are
included in other income (expense). Accrued tax penalties are not significant.

     During 2010 the IRS completed its examination of Cephalon, Inc.'s 2006 and 2007 federal income tax returns. Cephalon, Inc. remains open for
examination by the IRS for the tax years ended 2008, 2009 and 2010.Also during 2010, the French Tax Authorities completed their examination of the 2007
and 2008 Cephalon France tax returns. Cephalon Pharma France remains open for examination by the French Tax Authorities for the tax years ended 2003,
2005 and 2006. During the third quarter of 2010 Cephalon Germany GmbH, in Germany, completed its examination for 2004-2006 with no material findings.
Cephalon GmbH (formerly Cephalon Pharma GmbH) is under examination for years 2005-2009. In other significant foreign jurisdictions, the tax years that
remains open for potential examination range from 2006 to 2010. We do not believe at this time that the results of these examinations will have a material
impact on our financial statements.

     In the regular course of business, various state and local tax authorities also conduct examinations of our state and local income tax returns. Depending
on the state, state income tax returns are generally subject to examination for a period of three to five years after filing. The state impact of any federal
changes that may result from the 2006-2007 IRS examination remain subject to examination by various states for a period of up to one year after formal
notification to the states. We currently have several state income tax returns in the process of examination.

     During 2010, we recognized a net tax benefit of $1.9 million related to the release of reserves related to the settlement of Cephalon, Inc's 2006-2007 IRS
audit and Cephalon France's 2007-2008 French tax audit.

     In 2010, we received $16.0 million in federal tax refunds of previously paid federal taxes. This refund was due to the carryback of unused federal tax
credits from the tax year ending December 31, 2008. In 2009, we received $67.3 million in federal tax refunds of previously paid federal taxes. This refund
was principally due to the tax benefit relating to the termination of our collaboration with Alkermes and the settlement with the USAO.

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                        (In thousands, except share and per share data)

19. INCOME TAXES (Continued)

    Deferred income taxes reflect the tax effects of temporary differences between the bases of assets and liabilities recognized for financial reporting
purposes and tax purposes, and net operating loss and tax credit carryforwards. Significant components of net deferred tax assets and deferred tax liabilities at
December 31:


                                                                                                                                         2010           2009
                                Deferred tax assets:
                                Net operating loss carryforwards                                                                    $     200,761 $     182,948
                                Original issue discount                                                                                   103,042       124,287
                                Capitalized research and development expenditures                                                              —          2,229
                                Unrealized profit in inventory                                                                             61,683        72,803
                                Research and development tax credits                                                                        3,946         6,102
                                Acquired product rights and intangible assets                                                             104,523        62,190
                                Reserves and accrued expenses                                                                              54,639        65,498
                                Alternative minimum tax credit carryforwards                                                                2,326           662
                                Deferred revenue                                                                                            2,824         3,289
                                Deferred compensation                                                                                       4,509         9,544
                                Stock-based compensation expense                                                                           42,069        32,969
                                Deferred charges on convertible debentures                                                                  6,958         9,922
                                Accounts receivable discounts and allowance                                                                49,329        40,408
                                Commitment prepayment                                                                                       2,195         4,390
                                Transaction costs                                                                                           3,797         1,303
                                Other, net                                                                                                 10,315         8,397
                                Total deferred tax assets                                                                                 652,916       626,941
                                Valuation allowance                                                                                      (142,642)     (132,741)
                                Net deferred tax assets                                                                             $     510,274 $     494,200
                                Deferred tax liabilities:
                                Acquired intangibles                                                                                $     301,858 $     243,220

                                 Implementation of the transition provisions of accounting for convertible debt instruments that
                                    may be settled in cash upon conversion (including partial cash settlement)                            107,410       131,443
                                 Fixed assets                                                                                              52,717        34,466
                                 Other comprehensive income                                                                                 3,822           752
                                 Other                                                                                                      2,836           164
                                 Total deferred tax liabilities                                                                           468,643       410,045
                                Net deferred tax assets                                                                             $      41,631 $       84,155
     The above overall net deferred tax assets for the year ended December 31, 2010 and 2009 are presented in the consolidated balance sheet as: current
deferred tax assets, net; non-current deferred tax assets, net; and long-term deferred tax liabilities, net.

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                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                       (In thousands, except share and per share data)

19. INCOME TAXES (Continued)
      At December 31, 2010, we had gross operating loss carryforwards for U.S. federal income tax purposes of $55.8 million and apportioned state gross
operating losses of $541.8 million that expire in varying years starting in 2011. We also have foreign gross operating losses of $539.8 million, of which
$101.6 million will begin to expire in 2011 and $438.3 million may be carried forward with indefinite expiration dates. Federal and state research tax credits
of $3.9 million are available to offset future tax liabilities and expire starting in 2011. The amount of U.S. federal net operating loss carryforwards that can be
utilized in any one period will be limited by federal income tax regulations since a change in ownership as defined in Section 382 of the Internal Revenue
Code occurred in the prior years. We do not believe that such limitation will have a material adverse impact on the utilization of the net operating loss
carryforwards, but we do believe it will affect utilization of tax credit carryforwards.

      We believe that all of our domestic federal net operating loss carryforwards, portions of foreign operating loss carryforwards, domestic tax credits and
certain other deferred tax assets are more likely than not to be recovered. The remaining deferred tax assets are offset by a valuation allowance of
$142.6 million and $132.7 million at December 31, 2010 and 2009, respectively. This consists of certain state tax credits, existing and acquired foreign and
state operating loss carryforwards that we believe are not more likely than not to be recovered. For the year ended December 31, 2010, the increase in
valuation allowance of $9.9 million was principally due to an increase of $29.6 million in the company's U.S. state and foreign net operating losses that are
not more likely than not to be recovered, offset by decreases of $17.9 million in foreign net operating losses that are not more likely than not to be recovered,
and increases in currency translation adjustments of $1.8 million.

     The tax benefits associated with employee exercises of non-qualified stock options and disqualifying dispositions of stock acquired with incentive stock
options reduce taxes payable. Tax benefits of $.7 million and $2.0 million associated with the exercise of employee stock options and other equity
compensation were recorded to additional paid-in capital for the years ended December 31, 2010 and 2009, respectively.

     Our foreign subsidiaries had no net unremitted earnings on a consolidated basis at December 31, 2010 and 2009. To the extent a subsidiary has
unremitted earnings, such amounts have been included in the consolidated financial statements without giving effect to deferred taxes since it is management's
intent to reinvest such earnings in foreign operations.

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                                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                   (In thousands, except share and per share data)

20. SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)


                                                                                                                     2010 Quarter Ended
                                                                                                     December 31,   September 30,     June 30,   March 31,
              Statement of Operations Data:
               Net sales                                                                             $   764,759     $   707,077 $ 712,435 $        576,681
               Gross profit                                                                              614,617         555,138 541,696            471,638
               Net income (loss)                                                                          93,405         131,548    92,393          100,337
               Net income attributable to Cephalon, Inc.                                             $    93,616     $   132,500 $ 89,064 $         110,565
              Basic income per common share attributable to Cephalon, Inc.                           $       1.24    $       1.76 $        1.18 $      1.47
              Weighted average number of common shares outstanding                                         75,355         75,201        75,192       74,990
              Diluted income per common share attributable to Cephalon, Inc                          $       1.16    $       1.66 $        1.11 $      1.35
              Weighted average number of common shares outstanding—assuming dilution                       80,964         79,773        80,507       81,811




                                                                                                                     2009 Quarter Ended
                                                                                                     December 31,   September 30,     June 30,   March 31,
              Statement of Operations Data:
               Net sales                                                                             $   562,938 $       535,223 $ 539,021 $        514,366
               Gross profit                                                                              457,734         444,767 433,614            416,596
               Net income (loss)                                                                            (192)         95,097    72,040           43,782
               Net income attributable to Cephalon, Inc.                                             $    96,558 $       102,722 $ 84,764 $          58,583
              Basic income per common share attributable to Cephalon, Inc.                           $       1.29    $       1.38 $        1.19 $      0.85
              Weighted average number of common shares outstanding                                        74,720          74,647        71,119       68,792
              Diluted income per common share attributable to Cephalon, Inc                          $       1.23    $       1.31 $        1.11 $      0.75
              Weighted average number of common shares outstanding—assuming dilution                      78,508          78,431        76,629       77,993
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                                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                                (In thousands, except share and per share data)

21. SEGMENT INFORMATION
    Revenues by segment for the years ended December 31:


                                                                                   2010                                    2009^                                   2008^
                                                                    United                                  United                                  United
                                                                      States       Europe      Total          States       Europe      Total          States       Europe       Total
              Sales:
              CNS
                       Proprietary CNS
                               PROVIGIL*                           $ 1,059,698 $     64,796 $ 1,124,494 $      961,070 $     63,618 $ 1,024,688 $      924,986 $     63,432 $    988,418
                               NUVIGIL**                               186,190           —      186,190         73,391           —       73,391             —            —            —
                               GABITRIL                                 39,728        4,760      44,488         51,100        5,386      56,486         52,441        8,256       60,697
                               Other Proprietary CNS                        —        10,936      10,936             —        13,292      13,292             —        13,624       13,624
                       Generic CNS                                          —        28,257      28,257             —        10,785      10,785             —        16,315       16,315
                                                   CNS                1,285,616     108,749    1,394,365      1,085,561      93,081    1,178,642       977,427      101,627     1,079,054

              Pain
                       Proprietary Pain
                               FENTORA***                              159,585       22,037      181,622       136,563        4,114     140,677        155,246          —        155,246
                               AMRIX                                   109,235           —       109,235       114,435           —      114,435         73,641          —         73,641
                               Other Proprietary Pain                       —           271          271            —           267         267             —          331           331
                       Generic Pain
                               ACTIQ                                     63,930      66,951      130,881         75,418      71,527     146,945        105,351       71,170      176,521
                               Generic OTFC                              41,138          —        41,138         83,032          —       83,032         95,760           —        95,760
                               Other Generic Pain                            —       63,144       63,144             —        8,954       8,954             —         7,765        7,765
                                                   Pain                373,888      152,403      526,291       409,448       84,862     494,310        429,998       79,266      509,264

              Oncology
                     Proprietary Oncology
                             TREANDA                                   393,473           —       393,473       222,112           —      222,112          75,132          —        75,132
                             Other Proprietary Oncology                 20,866       76,256       97,122        18,281       75,360      93,641          18,566      70,295       88,861
                     Generic Oncology                                       —        22,998       22,998            —        20,940      20,940              —       22,461       22,461
                                           Oncology                    414,339       99,254      513,593       240,393       96,300     336,693          93,698      92,756      186,454

              Other
                       Other Proprietary                                 15,112       5,809       20,921         17,545          —       17,545          34,397          —        34,397
                       Other Generic                                     13,220     292,562      305,782         15,436     108,922     124,358          15,270     119,025      134,295
                                           Other                         28,332     298,371      326,703         32,981     108,922     141,903          49,667     119,025      168,692
              Total Net Sales                                         2,102,175     658,777    2,760,952      1,768,383     383,165    2,151,548      1,550,790     392,674     1,943,464
              Other Revenue                                              42,657       7,448       50,105         39,846         914       40,760         29,546       1,544        31,090
              Total External Revenues                                 2,144,832     666,225    2,811,057      1,808,229     384,079    2,192,308      1,580,336     394,218     1,974,554
              Inter-Segment Revenues                                     37,857       1,101       38,958         24,400       1,863       26,263         22,397      99,686      122,083
              Elimination of Inter-Segment Revenues                     (37,857)     (1,101)     (38,958)       (24,400)     (1,863)     (26,263)       (22,397)    (99,686)    (122,083)
              Total Revenues                                       $ 2,144,832 $ 666,225 $ 2,811,057 $ 1,808,229 $ 384,079 $ 2,192,308 $ 1,580,336 $ 394,218 $ 1,974,554



              ^        Certain reclassifications of prior year amounts have been made to conform to current year presentation.


              Europe—Primarily Europe, Middle East and Africa.

              Proprietary products are products which are sold under patent coverage.

              Generic products are products sold without patent coverage in the primary sales territory.

              Patent coverage may exist in other territories.

              *        Marketed under the name MODIODAL® (modafinil) in France and under the name VIGIL® (modafinil) in Germany.

              **       Launched in June 2009.
***   Marketed under the name EFFENTORA® (fentanyl buccal tablet) in Europe.


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                                                                 CEPHALON, INC. AND SUBSIDIARIES

                                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                                          (In thousands, except share and per share data)

21. SEGMENT INFORMATION (Continued)

                       Income (loss) before income taxes by segment for the years ended December 31:



                                                                                                  2010                           2009                        2008
                                          United States                                 $                 619,051     $                 326,461    $                141,899
                                          Europe                                                             (252)                      (37,054)                     (7,829)
                                          Total                                         $                 618,799     $                 289,407    $                134,070


                       Long-lived assets by segment at December 31:



                                                                                                December 31,                                  December 31,
                                                                                                     2010                                          2009
                                          United States                                     $                        1,639,225            $                         1,612,753
                                          Europe                                                                     1,101,033                                        479,387
                                          Total                                             $                        2,740,258            $                         2,092,140


                       Total assets by segment at December 31:



                                                                                                December 31,                                  December 31,
                                                                                                     2010                                          2009
                                          United States                                     $                        3,297,595            $                         3,896,131
                                          Europe                                                                     1,594,238                                        761,964
                                          Total                                             $                        4,891,833            $                         4,658,095

     Revenues and income (loss) before income taxes are attributed to geographic areas based on customer location. Income (loss) before income taxes
exclude inter-segment transactions.

22. SUBSEQUENT EVENTS

      In February 2011, we entered into agreements with Alba Therapeutics Corporation ("Alba"), a privately held biopharmaceutical company, providing us
an option to purchase all of Alba's assets relating to larazotide acetate, a tight junction modulator, progressing toward a Phase IIb clinical trial for the
treatment of celiac disease. Under the terms of the option agreement, we paid Alba a $7 million upfront option payment and provided a credit facility of up to
$22 million to fund Alba's Phase IIb clinical trial expenses. We may exercise the option at any time prior to expiration of a specified period after receipt of the
final study report for the Phase IIb clinical trial. If we exercise the option, we will purchase all of Alba's assets relating to larazotide acetate for $15 million.
Alba could receive additional payments related to clinical and regulatory milestones.

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ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

     None.

ITEM 9A. CONTROLS AND
PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures

      Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls
and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K have been
designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. We believe
that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

(b) Management's Annual Report on Internal Control over Financial Reporting

      Management's Report on Internal Control over Financial Reporting is included in Part II, Item 8 of this Annual Report on Form 10-K and incorporated
into this Item 9A by reference.

(c) Attestation Report of the Registered Public Accounting Firm

      The effectiveness of our internal control over financial reporting as of December 31, 2010 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report included in Part II, Item 8 of this Annual Report on Form 10-K and incorporated into
this Item 9A by reference.

(d) Changes in Internal Control over Financial Reporting

     There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.

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                                                                          PART III

ITEM 10. DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE

Directors

     The information required by Item 10 is incorporated herein by reference to the information contained under the caption "Proposal 1—Election of
Directors" in our definitive proxy statement related to the 2011 annual meeting of stockholders.
Executive Officers

     The information concerning our executive officers required by this Item 10 is provided under the caption "Executive Officers of the Registrant" in Part I
hereof.

Section 16(a) Beneficial Ownership Reporting Compliance

      The information concerning Section 16(a) Beneficial Ownership Reporting Compliance by our directors and executive officers is incorporated by
reference to the information contained under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in our definitive proxy statement
related to the 2011 annual meeting of stockholders.

Code of Ethics

   The information concerning our Code of Ethics is incorporated by reference to the information contained under the caption "Governance of the Company
—Does the Company have a "Code of Ethics'?" in our definitive proxy statement related to the 2011 annual meeting of stockholders.

ITEM 11. EXECUTIVE
COMPENSATION

    The information required by this Item 11 is incorporated by reference to the information contained in our definitive proxy statement related to the 2011
annual meeting of stockholders.

ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS

    The information required by Item 12 is incorporated by reference to the information contained in our definitive proxy statement related to the 2011
annual meeting of stockholders.

ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

    The information required by Item 13 is incorporated by reference to the information contained in our definitive proxy statement related to the 2011
annual meeting of stockholders.

ITEM 14. PRINCIPAL ACCOUNTANT
FEES AND SERVICES

    The information required by Item 14 is incorporated by reference to the information contained in our definitive proxy statement related to the 2011
annual meeting of stockholders.

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                                                                           PART IV

ITEM 15. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES

(a) DOCUMENTS FILED AS PART OF THIS REPORT

    The following is a list of our consolidated financial statements and our subsidiaries and supplementary data included in this Annual Report on Form 10-K
under Item 8 of Part II hereof:




                1. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
                  Report of Management.                                                                                                                      75
                  Report of Independent Registered Public Accounting Firm.                                                                                   76
                  Consolidated Balance Sheets as of December 31, 2010 and 2009.                                                                              78
                  Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008.                                                77
                  Consolidated Statements of Changes in Equity for the years ended December 31, 2010, 2009 and 2008.                                         79
                  Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008.                                                80
                  Notes to Consolidated Financial Statements.                                                                                                81

                2. FINANCIAL STATEMENT SCHEDULE
                  Schedule II—Valuation and Qualifying Accounts.                                                                                             160
     Schedules, other than those listed above, are omitted because they are not applicable or are not required, or because the required information is included
in the consolidated financial statements or notes thereto.

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(b) EXHIBITS

     The following is a list of exhibits filed as part of this annual report on Form 10-K. Where so indicated by footnote, exhibits that were previously filed are
incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated.


                    Exhibit No.                                                                Description
                                  2.1   Agreement and Plan of Merger by and among Cephalon, Inc., Cepsal Acquisition Corp., Salmedix, Inc., David S.
                                        Kabakoff, Arnold L. Oronsky, and Paul Klingenstein dated May 12, 2005, filed as Exhibit 2.1 to the Company's
                                        Quarterly Report on Form 10-Q for the period ended June 30, 2005

                                  2.2   Share Purchase Agreement dated as of December 5, 2005 between Cephalon, Inc., Cephalon International Holdings, Inc.
                                        and certain shareholders of Zeneus Holdings Limited, filed as Exhibit 2.1 to the Company's Current Report on Form 8-K
                                        filed on December 22, 2005.

                             2.3(a)     Share Purchase Agreement dated January 31, 2010 between Cephalon, Inc. and Mepha Holdings AG, filed as
                                        Exhibit 2.1 to the Company's Current Report on Form 8-K filed on April 14, 2010.(1)

                            2.3(b)      Accession Agreement dated April 8, 2010 among the Company, Cephalon Luxembourg and Mepha Holding AG, filed
                                        as Exhibit 2.2 to the Company's Current Report on Form 8-K filed on April 14, 2010.

                                  2.4   Agreement and Plan of Merger dated as of March 10, 2010 among Cephalon, Inc., Capture Acquisition Corp. Ception
                                        Therapeutics, Inc. and the Stockholders' Representatives named therein, filed as Exhibit 2.3 to the Company's Quarterly
                                        Report on Form 10-Q for the period ended March 31, 2010.(1)

                             3.1(a)     Restated Certificate of Incorporation, as amended, filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K
                                        for the year ended December 31, 1996.

                            3.1(b)      Certificate of Amendment of Restated Certificate of Incorporation, filed as Exhibit 3.1 to the Company's Quarterly
                                        Report on Form 10-Q for the period ended June 30, 2002.

                             3.1(c)     Certificate of Amendment of Restated Certificate of Incorporation, filed as Exhibit 3.1 to the Company's Current Report
                                        on Form 8-K filed on May 17, 2007.

                                  3.2   Third Amended and Restated Bylaws of the Registrant, filed as Exhibit 3.2 to the Company's Annual Report on
                                        Form 10-K filed on February 12, 2010.

                                  4.1   Specimen copy of stock certificate for shares of Common Stock of the Registrant, filed as Exhibit 4.1 to the Company's
                                        Annual Report on Form 10-K for the year ended December 31, 1993.

                             4.2(a)     Second Amended and Restated Rights Agreement, dated October 27, 2003 between Cephalon, Inc. and StockTrans, Inc.
                                        as Rights Agent, filed as Exhibit 1 to the Company's Form 8-A/12G on October 27, 2003.

                            4.2(b)      Agreement of Appointment and Joinder and Amendment No. 1 to the Second Amended and Restated Rights Agreement,
                                        dated as of February 9, 2007, by and between Cephalon, Inc. and American Stock Transfer & Trust Company, as Rights
                                        Agent, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 13, 2007.

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                    Exhibit No.                                                              Description
                             4.3(a)   Indenture dated as of June 11, 2003 between the Registrant and U.S. Bank National Association, filed as Exhibit 4.1 to
                                      the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2003.

                            4.3(b)    Registration Rights Agreement, dated as of June 11, 2003, between Cephalon, Inc. and Credit Suisse First Boston LLC,
                                      CIBC World Markets Corp., J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated, SG Cowen Securities
                                      Corporation, ABN AMRO Rothschild LLC, Citigroup Global Markets Inc. and Lehman Brothers Inc., as Initial
                                      Purchasers, filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2003.

                             4.4(a)   Indenture dated as of December 20, 2004 between the Registrant and U.S. Bank National Association, filed as
                                      Exhibit 4.l to the Company's Current Report on Form 8-K filed on December 21, 2004.

                            4.4(b)    Registration Rights Agreement, dated as of December 20, 2004, between Cephalon, Inc. and U.S. Bank, National
                                      Association, filed as Exhibit 4.2 to the Company's Current Report on Form 8-K filed on December 21, 2004.

                             4.5(a)   Indenture, dated June 7, 2005, between Cephalon, Inc. and U.S. Bank, National Association, as trustee, filed as
                                      Exhibit 4.1 to the Company's Current Report on Form 8-K filed on June 8, 2005.

                            4.5(b)    Form of 2.00% convertible senior subordinated notes due 2015, filed as Exhibit 4.2 to the Company's Current Report on
                                      Form 8-K filed on June 8, 2005.

                             4.6(a)   Indenture, dated May 27, 2009, between Cephalon, Inc. and U.S. Bank National Association, as trustee, filed as
                                      Exhibit 4.1 to the Company's Current Report on Form 8-K filed on May 28, 2009.

                            4.6(b)    Form of 2.50% Convertible Senior Subordinated Notes due May 1, 2014, filed as Exhibit 4.2 to the Company's Current
                                      Report on Form 8-K filed on May 28, 2009.

                           10.1(a)    [Intentionally Omitted]

                          †10.1(b)    Form of Restated Executive Severance Agreement between Certain Executives and Cephalon, Inc. dated June 24, 2008,
                                      filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed June 24, 2008.

                          †10.1(c)    List of Executive Officers subject to the Form of Severance Agreement between Certain Executive Officers and the
                                      Company (see Exhibit 10.1(b) above).

                          †10.1(d)    Employee Contract effective November 1, 2008, as amended by Amendment to Employee Contract dated July 20, 2010
                                      between Alain Aragues and Cephalon France SAS., filed as Exhibit 10.4 to the Company's Quarterly Report on
                                      Form 10-Q for the period ended June 30, 2010.

                          †10.1(e)    Form of Amendment 2008-1 to the Restated Executive Severance Agreement between certain executive officers and
                                      Cephalon, Inc. dated as of December 31, 2008, filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed
                                      on January 7, 2009

                          †10.1(f)    Severance Agreement dated July 20, 2010 between Wilco Groenhuysen and the Company, filed as Exhibit 10.1 to the
                                      Company's Current Report on Form 8-K filed on July 22, 2010.

                          †10.2(a)    Advisory Services Agreement and Release, dated as of February 8, 2008, by and between Cephalon, Inc. and John E.
                                      Osborn, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 8, 2008.
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                    Exhibit No.                                                            Description
                          †10.2(b)   Cephalon, Inc. 2006 Management Incentive Compensation Plan, filed as Exhibit 10.1 to the Company's Current Report
                                     on Form 8-K filed on February 2, 2006.

                          †10.2(c)   Cephalon, Inc. 2007 Management Incentive Compensation Plan, filed as Exhibit 10.2 to the Company's Current Report
                                     on Form 8-K filed on February 13, 2007.

                          †10.2(d)   Cephalon, Inc. 2008 Management Incentive Compensation Plan, filed as Exhibit 10.1 to the Company's Current Report
                                     on Form 8-K filed on February 1, 2008.

                          †10.2(e)   Cephalon, Inc. 2009 Management Incentive Compensation Plan, filed as Exhibit 10.1 to the Company's Current Report
                                     on Form 8-K filed on January 30, 2009.

                          †10.2(f)   Cephalon, Inc. 2010 Management Incentive Compensation Plan, filed as Exhibit 10.1 to the Company's Current Report
                                     on Form 8-K filed on February 2, 2010.

                          †10.2(g)   Cephalon, Inc. 2011 Management Incentive Compensation Plan, filed as Exhibit 10.1 to the Company's Current Report
                                     on Form 8-K filed on February 4, 2011.

                          †10.3(a)   Cephalon, Inc. Amended and Restated 1987 Stock Option Plan, filed as Exhibit 10.7 to the Transition Report on
                                     Form 10-K for transition period January 1, 1991 to December 31, 1991, as amended by Amendment No. 1 filed on
                                     September 4, 1992.

                          †10.3(b)   Cephalon, Inc. 2000 Equity Compensation Plan for Employees and Key Advisors, as amended and restated, effective as
                                     of May 15, 2002, filed as Exhibit 99.1 to the Company's Registration Statement on Form S-8 (Registration
                                     No. 333-106115) filed on June 13, 2003.

                          †10.3(c)   Cephalon, Inc. 2000 Equity Compensation Plan—Form of Employee Non-Qualified Stock Option, filed as
                                     Exhibit 10.3(a) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2004.

                          †10.3(d)   Cephalon, Inc. 2000 Equity Compensation Plan—Form of Nonqualified Stock Option Agreement for Employees (For
                                     Grants Made On or After October 17, 2005), filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed
                                     on October 21, 2005.

                          †10.3(e)   Amendment 2007-1 to the Cephalon, Inc. 2000 Equity Compensation Plan for Employees and Key Advisors, effective
                                     as of February 8, 2007, filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended
                                     March 31, 2007.

                          †10.3(f)   Cephalon, Inc. 2004 Equity Compensation Plan, as amended and restated, effective as of May 23, 2008, filed as
                                     Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 23, 2008.

                          †10.3(g)   Amendment 2009-1 to the Cephalon, Inc. 2004 Equity Compensation Plan, as amended and restated, effective as of
                                     May 13, 2009, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 15, 2009.

                          †10.3(h)   Cephalon, Inc. 2004 Equity Compensation Plan—Form of Notice of Grant of Non-Qualified Stock Option and Form of
                                     Grant Agreement for electronic acceptance under the Company's 2004 Equity Compensation Plan, filed as Exhibit 10.2
                                     to the Company's Current Report on Form 8-K filed on May 15, 2009.

                          †10.3(i)   Cephalon, Inc. 2004 Equity Compensation Plan—Form of Notice of Grant of Restricted Stock Award and Form of Grant
                                     Agreement for electronic acceptance under the Company's 2004 Equity Compensation Plan, filed as Exhibit 10.3 to the
                                     Company's Current Report on Form 8-K filed on May 15, 2009.

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                    Exhibit No.                                                            Description
                          †10.3(j)   Amendment 2010—1 to the Company's 2004 Equity Compensation Plan, as amended and restated, effective as of
                                     May 20, 2010, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 26, 2010.

                          †10.3(k)   Cephalon, Inc. 2004 Equity Compensation Plan—Employee Restricted Stock Grant Term Sheet, filed as Exhibit 99.1 to
                                     the Company's Current Report on Form 8-K filed on December 17, 2004.

                          †10.3(l)   Cephalon, Inc. 2004 Equity Compensation Plan—Form of Non-Employee Director Non-Qualified Stock Option, filed as
                                     Exhibit 10.3(c) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2004.

                         †10.3(m)    Cephalon, Inc. 2004 Equity Compensation Plan—Form of Employee Non-Qualified Stock Option, filed as
                                     Exhibit 10.3(d) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2004.

                          †10.3(n)   Cephalon, Inc. 2004 Equity Compensation Plan—Form of Employee Incentive Stock Option, filed as Exhibit 10.3(e) to
                                     the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2004.

                          †10.3(o)   Cephalon, Inc. 2004 Equity Compensation Plan—Form of Incentive Stock Option Agreement for Employees (For
                                     Grants Made On or After October 17, 2005), filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed
                                     on October 21, 2005.

                          †10.3(p)   Cephalon, Inc. 2004 Equity Compensation Plan—Form of Nonqualified Stock Option Agreement for Employees (For
                                     Grants Made On or After October 17, 2005), filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed
                                     on October 21, 2005.

                          †10.3(q)   Cephalon, Inc. 2004 Equity Compensation Plan—Form of Nonqualified Stock Option Agreement for Non-Employee
                                     Directors (For Grants Made On or After October 17, 2005) (Initial Grants Upon Joining Board), filed as Exhibit 10.4 to
                                     the Company's Current Report on Form 8-K filed on October 21, 2005.

                          †10.3(r)   Cephalon, Inc. 2004 Equity Compensation Plan—Form of Nonqualified Stock Option Agreement for Non-Employee
                                     Directors (For Grants Made On or After October 17, 2005) (Annual Grants to Non-Employee Directors) filed as
                                     Exhibit 10.5 to the Company's Current Report on Form 8-K filed on October 21, 2005.

                          †10.3(s)   Cephalon, Inc. Amended and Restated Non-Qualified Deferred Compensation Plan, filed as Exhibit 10.1 to the
                                     Company's Current Report on Form 8-K filed on December 12, 2008.

                          †10.3(t)   Cephalon, Inc. 2010 Employee Stock Purchase Plan, filed as Exhibit 10.2 to the Company's Current Report on Form 8-K
                                     filed on May 26, 2010.

                             †10.4   Summary of Oral Agreement for Payment of Services between Cephalon, Inc. and its Board of Directors dated May 20,
                                     2010, filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed on May 26, 2010.

                              10.5   Development and Commercialization Option Agreement dated November 21, 2008 between Cephalon, Inc., Anesta AG,
                                     ImmuPharma (France) S.A. and ImmuPharmaAG (Switzerland), filed as Exhibit 10.1 to the Company's Quarterly
                                     Report on Form 10-Q for the period ended September 30, 2009.(1)

                           10.5(b)   Development and Commercialization Agreement dated as of February 25, 2009 between ImmuPharma (France) S.A.
                                     and Anesta AG, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended
                                     September 30, 2009.(1)

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                    Exhibit No.                                                            Description
                           10.5(c)   Trademark License Agreement dated as of February 25, 2009 between ImmuPharma AG. and Anesta AG, filed as
                                     Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2009.(1)

                           10.6(a)   Option Agreement dated as of January 13, 2009 between Cephalon, Inc. and Ception Therapeutics, Inc., filed as
                                     Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2009.(1)

                           10.6(b)   Third Amendment to Option Agreement effective January 26, 2010 between Cephalon, Inc. and Ception
                                     Therapeutics, Inc., filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended
                                     March 31, 2010.

                           10.7(a)   License and Supply Agreement dated July 7, 2004 between Barr Laboratories, Inc. and Cephalon, Inc., filed as
                                     Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2004.

                           10.7(b)   Amendment No. 1 to the License and Supply Agreement between Barr Laboratories, Inc. and Cephalon, Inc. dated
                                     July 9, 2004, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended September 30,
                                     2004.

                              10.8   Decision and Order of the Federal Trade Commission in the matter of Cephalon, Inc. and CIMA LABS INC. dated
                                     August 9, 2004, filed as Exhibit 10.1(c) to the Company's Quarterly Report on Form 10-Q for the period ended
                                     September 30, 2004.

                              10.9   Acquisition Agreement by and among Cell Therapeutics, Inc., CTI Technologies, Inc. and Cephalon, Inc. dated June 10,
                                     2005, incorporated by reference from Exhibit 10.1 to Cell Therapeutics' Current Report on Form 8-K filed on June 14,
                                     2005.

                          10.10(a)   License and Collaboration Agreement between Alkermes, Inc. and Cephalon, Inc. dated as of June 23, 2005, filed as
                                     Exhibit 10.5(a) to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2005.(1)

                          10.10(b)   Supply Agreement between Alkermes, Inc. and Cephalon, Inc. dated as of June 23, 2005, filed as Exhibit 10.5(b) to the
                                     Company's Quarterly Report on Form 10-Q for the period ended June 30, 2005.(1)

                          10.10(c)   Amendment to the Supply Agreement between Alkermes, Inc. and Cephalon, Inc. dated as of December 21, 2006, filed
                                     as Exhibit 10.13(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 2006.(1)

                          10.10(d)   Amendment to the License and Collaboration Agreement between Alkermes, Inc. and Cephalon, Inc. dated as of
                                     December 21, 2006, filed as Exhibit 10.13(d) to the Company's Annual Report on Form 10-K for the year ended
                                     December 31, 2006.(1)

                          10.11(a)   Office Lease between The Multi-Employer Property Trust and Cephalon, Inc. dated January 14, 2004, filed as
                                     Exhibit 10.20(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 2004.(1)

                          10.11(b)   First Amendment to Lease, entered into as of May 11, 2006, by and between the New Tower Trust Company Multi-
                                     Employer Property Trust (f/k/a the Multi-Employer Property Trust), and Cephalon, Inc., filed as Exhibit 10.1 to the
                                     Company's Quarterly Report on Form 10-Q for the period ended June 30, 2006.

                          10.11(c)   Consent to Sublease between The Multi-Employer Property Trust, Systems & Computer Technology Corporation and
                                     Cephalon, Inc. dated April 2, 2004, filed as Exhibit 10.20(b) to the Company's Annual Report on Form 10-K for the year
                                     ended December 31, 2004.

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                    Exhibit No.                                                             Description
                          10.12(a)   Wiley Post Plaza Lease, dated December 7, 1994 between Anesta Corp. and Asset Management Services, filed as
                                     Exhibit 10.13 to Anesta Corp.'s Annual Report on Form 10-K (File No. 0-23160) for the year ended December 31, 1994.

                          10.12(b)   Amendment No. 1 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated October 26,
                                     1996, filed as Exhibit 10.11(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

                          10.12(c)   Amendment No. 2 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated January 7,
                                     1997, filed as Exhibit 10.11(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

                          10.12(d)   Amendment No. 3 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated
                                     September 30, 1998, filed as Exhibit 10.11(d) to the Company's Annual Report on Form 10-K for the year ended
                                     December 31, 2003.

                          10.12(e)   Amendment No. 4 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated February 29,
                                     2000, filed as Exhibit 10.11(e) to the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

                          10.12(f)   Amendment No. 5 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated July 20,
                                     2001, filed as Exhibit 10.11(f) to the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

                          10.12(g)   Amendment No. 6 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated July 20,
                                     2001, filed as Exhibit 10.11(g) to the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

                          10.12(h)   Amendment No. 7 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated July 20,
                                     2001, filed as Exhibit 10.11(h) to the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

                          10.12(i)   Amendment No. 8 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated October 14,
                                     2002, filed as Exhibit 10.11(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

                          10.12(j)   Amendment No. 9 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated May 15,
                                     2003, filed as Exhibit 10.11(j) to the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

                          10.12(k)   Amendment No. 10 to Wiley Post Plaza Lease between Anesta Corp. and Wiley Post Plaza, L.C. dated June 24, 2004,
                                     filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2004.(1)

                          10.13(a)   Amended and Restated Agreement of Limited Partnership, dated as of June 22, 1992 by and among Cephalon
                                     Development Corporation, as general partner, and each of the limited partners of Cephalon Clinical Partners, L.P., filed
                                     as Exhibit 10.1 to the Company's Registration Statement on Form S-3 (Registration No. 33-56816) filed on January 7,
                                     1993.

                          10.13(b)   Amended and Restated Product Development Agreement, dated as of August 11, 1992 between Cephalon, Inc. and
                                     Cephalon Clinical Partners, L.P., filed as Exhibit 10.2 to the Company's Registration Statement on Form S-3
                                     (Registration No. 33-56816) filed on January 7, 1993.

                                                                            153
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                    Exhibit No.                                                             Description
                          10.13(c)   Purchase Agreement, dated as of August 11, 1992 by and between Cephalon, Inc. and each of the limited partners of
                                     Cephalon Clinical Partners, L.P., filed as Exhibit 10.3 to the Company's Registration Statement on Form S-3
                                     (Registration No. 33-56816) filed on January 7, 1993.

                          10.13(d)   Pledge Agreement, dated as of August 11, 1992 by and between Cephalon, Inc. and Cephalon Clinical Partners, L.P.,
                                     filed as Exhibit 10.8 to the Company's Registration Statement on Form S-3 (Registration No. 33-56816) filed on
                                     January 7, 1993.

                          10.13(e)   Promissory Note, dated as of August 11, 1992 issued by Cephalon Clinical Partners, L.P. to Cephalon, Inc., filed as
                                     Exhibit 10.9 to the Company's Registration Statement on Form S-3 (Registration No. 33-56816) filed on January 7,
                                     1993.

                          10.13(f)   Form of Promissory Note, issued by each of the limited partners of Cephalon Clinical partners, L.P. to Cephalon Clinical
                                     Partners, L.P., filed as Exhibit 10.10 to the Company's Registration Statement on Form S-3 (Registration No. 33-56816)
                                     filed on January 7, 1993.

                          10.14(a)   ISDA Master Agreement dated January 22, 2003, between Credit Suisse First Boston International and Cephalon, Inc.,
                                     including Schedule to the Master Agreement dated as of January 22, 2003, filed as Exhibit 10.1 to the Company's
                                     Quarterly Report on Form 10-Q for the period ended March 31, 2003.

                          10.14(b)   ISDA Credit Support Annex to the Schedule to the ISDA Master Agreement dated as of January 22, 2003 between
                                     Credit Suisse First Boston International and Cephalon, Inc., including the Elections and Variables to the ISDA Credit
                                     Support Annex dated as of January 22, 2003, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
                                     the period ended March 31, 2003.

                          10.14(c)   Letter Agreement Confirmation dated January 22, 2003, between Credit Suisse First Boston International and Cephalon,
                                     Inc, filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2003.

                          10.14(d)   Termination of Letter Agreement dated July 22, 2005, between Credit Suisse First Boston International and
                                     Cephalon, Inc., filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended
                                     September 30, 2005.

                          10.15(a)   Five Year Warrant, dated June 6, 2003, between the Company and Credit Suisse First Boston International filed as
                                     Exhibit 99.d(3) to the Company's Schedule TO-I dated November 16, 2004.

                          10.15(b)   Seven Year Warrant, dated June 6, 2003, between the Company and Credit Suisse First Boston International filed as
                                     Exhibit 99.d(4) to the Company's Schedule TO-I dated November 16, 2004.

                          10.15(c)   Five Year Convertible Note Hedge, dated December 3, 2004, between the Company and Credit Suisse First Boston
                                     International, filed as Exhibit 99.d(5) to the Company's Schedule TO-I/A dated December 14, 2004.

                          10.15(d)   Seven Year Convertible Note Hedge, dated December 3, 2004, between the Company and Credit Suisse First Boston
                                     International, filed as Exhibit 99.d(6) to the Company's Schedule TO-I/A dated December 14, 2004.

                          10.15(e)   Amendment to Five Year Warrant, dated December 13, 2006, between the Company and Credit Suisse International (f/
                                     k/a Credit Suisse First Boston International) filed as Exhibit 10.19(e) to the Company's Annual Report on Form 10-K for
                                     the year ended December 31, 2006.
                                                                              154
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                    Exhibit No.                                                             Description


                          10.15(f)   Amendment to Seven Year Warrant, dated December 13, 2006, between the Company and Credit Suisse International (f/
                                     k/a Credit Suisse First Boston International) filed as Exhibit 10.19(f) to the Company's Annual Report on Form 10-K for
                                     the year ended December 31, 2006.
                          10.15(g)   Form of Five Year Convertible Note Hedge Amendment, dated December 13, 2006, between the Company and Credit
                                     Suisse International (f/k/a Credit Suisse First Boston International) filed as Exhibit 10.19(g) to the Company's Annual
                                     Report on Form 10-K for the year ended December 31, 2006.

                          10.15(h)   Form of Seven Year Convertible Note Hedge Amendment, dated December 13, 2006, between the Company and Credit
                                     Suisse International (f/k/a Credit Suisse First Boston International) filed as Exhibit 10.19(h) to the Company's Annual
                                     Report on Form 10-K for the year ended December 31, 2006.

                          10.16(a)   Convertible Note Hedge Confirmation, dated as of June 2, 2005, between the Company and Deutsche Bank AG, filed as
                                     Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 8, 2005.

                          10.16(b)   Warrant Confirmation, dated as of June 2, 2005, between the Company and Deutsche Bank AG, filed as Exhibit 10.2 to
                                     the Company's Current Report on Form 8-K filed on June 8, 2005.

                          10.16(c)   Amendment to Hedge Confirmation dated as of June 2, 2005 by and among the Company, Deutsche Bank AG, New
                                     York and Deutsche Bank AG, London, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on
                                     July 7, 2005.

                          10.16(d)   Hedge Confirmation dated as of June 28, 2005 by and among the Company, Deutsche Bank AG, New York and
                                     Deutsche Bank AG, London, filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on July 7, 2005.

                          10.16(e)   Amendment to Warrant Confirmation dated as of June 2, 2005 by and among the Company, Deutsche Bank AG, New
                                     York and Deutsche Bank AG, London, filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed on
                                     July 7, 2005.

                          10.16(f)   Termination and Assignment Agreement, dated as of December 19, 2006, between Deutsche Bank AG and
                                     Cephalon, Inc., filed as Exhibit 10.20(f) to the Company's Annual Report on Form 10-K for the year ended
                                     December 31, 2006.

                          10.16(g)   Amended and Restated Convertible Noted Hedge Confirmation, dated as of May 22, 2009, between Cephalon, Inc. and
                                     Deutsche Bank AG, London Branch, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on
                                     May 28, 2009.

                          10.16(h)   Amended and Restated Warrant Confirmation, dated as of May 22, 2009, between Cephalon, Inc. and Deutsche Bank
                                     AG, London Branch, filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 28, 2009.

                          10.17(a)   Agreement dated as of December 8, 2005 by and between Cephalon, Inc., Teva Pharmaceutical Industries Ltd., and Teva
                                     Pharmaceuticals USA, Inc., filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended
                                     December 31, 2005.(1)

                          10.17(b)   Settlement Agreement dated as of December 22, 2005 by and between Cephalon, Inc. and Ranbaxy Laboratories
                                     Limited., filed as Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended December 31, 2005.
                                     (1)

                                                                            155
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                    Exhibit No.                                                            Description
                          10.17(c)   Settlement Agreement dated January 9, 2006 by and between the Company and Mylan Pharmaceuticals Inc., filed as
                                     Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2006.(1)

                          10.17(d)   PROVIGIL Settlement Agreement dated February 1, 2006 by and between the Company and Barr Laboratories, Inc.,
                                     filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2006.(1)

                          10.17(e)   Modafinil License and Supply Agreement dated as of February 1, 2006 by and between the Company and Barr
                                     Laboratories, Inc., filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended
                                     March 31, 2006.(1)

                          10.17(f)   ACTIQ Settlement Agreement dated February 1, 2006 by and among the Company, the University of Utah Research
                                     Foundation and Barr Laboratories, Inc., filed as Exhibit 10.4 to the Company' Quarterly Report on Form 10-Q for the
                                     period ended March 31, 2006.

                          10.18(g)   ACTIQ Supplemental License and Supply Agreement dated as of February 1, 2006 by and between the Company and
                                     Barr Laboratories, Inc., filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the period ended
                                     March 31, 2006.

                          10.18(h)   Settlement and License Agreement dated August 2, 2006 by and between the Company, Carlsbad Technology, Inc. and
                                     Watson Pharmaceuticals, Inc., filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period
                                     ended September 30, 2006.(1)

                          10.19(a)   Form of Aircraft Time Share Agreement between Cephalon, Inc. and certain executive officers, filed as Exhibit 10.1 to
                                     the Company's Current Report on Form 8-K filed November 6, 2006.

                          10.19(b)   Amendment to the Second Amended and Restated Timesharing Agreement between Cephalon, Inc. and Frank Baldino,
                                     Jr., Ph.D. dated April 4, 2007, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period
                                     ended June 30, 2007.

                             10.20   Co-Promotion Agreement dated as of June 12, 2006 by and between the Company and Takeda Pharmaceuticals North
                                     America, Inc., filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended June 30,
                                     2006.(1)

                          10.20(a)   Termination Letter dated as of August 29, 2008 of Co-Promotion Agreement dated as of June 12, 2006 by and between
                                     the Company and Takeda Pharmaceuticals North America, Inc. filed as Exhibit 10.1 to the Company's Current Report on
                                     Form 8-K filed on September 3, 2008.

                             10.21   Asset Purchase Agreement by and between Anesta AG and E. Claiborne Robins Company, Inc., dated as of August 23,
                                     2007, filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2007.
                                     (1)

                             10.22   Credit Agreement dated as of August 15, 2008 among Cephalon, Inc., the lenders named therein, JPMorgan Chase Bank,
                                     N.A., as administrative agent, Deutsche Bank Securities Inc. and Bank of America N.A., as co-syndication agents,
                                     Wachovia Bank, N.A. and Barclays Bank plc, as co-documentation agents, and J.P. Morgan Securities Inc., Deutsche
                                     Bank Securities Inc. and Banc of America Securities LLC, as joint bookrunners and joint lead arrangers filed as
                                     Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 18, 2008.

                                                                            156
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                    Exhibit No.                                                             Description
                          10.22(a)   First Amendment dated December 3, 2008 to the Credit Agreement dated as of August 15, 2008 among Cephalon, Inc.,
                                     the lenders named therein, JPMorgan Chase Bank, N.A., as administrative agent, Deutsche Bank Securities Inc. and
                                     Bank of America N.A., as co-syndication agents, Wachovia Bank, N.A. and Barclays Bank plc, as co-documentation
                                     agents, and J.P. Morgan Securities Inc., Deutsche Bank Securities Inc. and Banc of America Securities LLC, as joint
                                     bookrunners and joint lead arrangers.

                          10.22(b)   Second Amendment dated February 27, 2009 to the Credit Agreement dated as of August 15, 2008 among
                                     Cephalon, Inc., the lenders named therein, JPMorgan Chase Bank, N.A., as administrative agent, Deutsche Bank
                                     Securities Inc. and Bank of America N.A., as co-syndication agents, Wachovia Bank, N.A. and Barclays Bank plc, as
                                     co-documentation agents, and J.P. Morgan Securities Inc., Deutsche Bank Securities Inc. and Banc of America
                                     Securities LLC, as joint bookrunners and joint lead arrangers, filed as Exhibit 10.1 to the Company's Quarterly Report
                                     on Form 10-Q filed for the period ended March 31, 2009.

                          10.22(c)   Third Amendment dated as of May 21, 2009 to the Credit Agreement dated as of August 15, 2008 among
                                     Cephalon, Inc., the lenders named therein, JPMorgan Chase Bank, N.A., as administrative agent, Deutsche Bank
                                     Securities Inc. and Bank of America N.A., as co-syndication agents, Wachovia Bank, N.A. and Barclays Bank plc, as
                                     co-documentation agents, and J.P. Morgan Securities Inc., Deutsche Bank Securities Inc. and Banc of America
                                     Securities LLC, as joint bookrunners and joint lead arrangers, filed as Exhibit 10.1 to the Company's Current Report on
                                     Form 8-K filed on May 27, 2009.

                          10.22(d)   Fourth Amendment dated as of December 22, 2009 to the Credit Agreement dated as of August 15, 2008 among
                                     Cephalon, Inc., the lenders named therein, JPMorgan Chase Bank, N.A., as administrative agent, Deutsche Bank
                                     Securities Inc. and Bank of America N.A., as co-syndication agents, Wachovia Bank, N.A. and Barclays Bank plc, as
                                     co-documentation agents, and J.P. Morgan Securities Inc., Deutsche Bank Securities Inc. and Banc of America
                                     Securities LLC, as joint bookrunners and joint lead arrangers, filed as Exhibit 10.1 to the Company's Current Report on
                                     Form 8-K filed on December 29, 2009.

                          10.22(e)   Fifth Amendment dated March 22, 2010 to the Credit Agreement dated as of August 15, 2008 among Cephalon, Inc., the
                                     lenders named therein, JPMorgan Chase Bank, N.A., as administrative agent, Deutsche Bank Securities Inc. and Bank of
                                     America N.A., as co-syndication agents, Wachovia Bank, N.A. and Barclays Bank plc, as co-documentation agents, and
                                     J.P. Morgan Securities Inc., Deutsche Bank Securities Inc. and Banc of America Securities LLC, as joint bookrunners
                                     and joint lead arrangers, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 24, 2010.

                          10.22(f)   Sixth Amendment dated December 7, 2010 to the Credit Agreement dated as of August 15, 2008 among Cephalon, Inc.,
                                     the lenders named therein, JPMorgan Chase Bank, N.A., as administrative agent, Deutsche Bank Securities Inc. and
                                     Bank of America N.A., as co-syndication agents, Wachovia Bank, N.A. and Barclays Bank plc, as co-documentation
                                     agents, and J.P. Morgan Securities Inc., Deutsche Bank Securities Inc. and Banc of America Securities LLC, as joint
                                     bookrunners and joint lead arrangers, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on
                                     December 10, 2010.

                                                                            157
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                    Exhibit No.                                                                Description
                          10.22(g)      Seventh Amendment effective as of February 9, 2011 to the Credit Agreement dated as of August 15, 2008 among
                                        Cephalon, Inc., the lenders named therein, JPMorgan Chase Bank, N.A., as administrative agent, Deutsche Bank
                                        Securities Inc. and Bank of America N.A., as co-syndication agents, Wachovia Bank, N.A. and Barclays Bank plc, as
                                        co-documentation agents, and J.P. Morgan Securities Inc., Deutsche Bank Securities Inc. and Banc of America
                                        Securities LLC, as joint bookrunners and joint lead arrangers, filed as Exhibit 10.1 to the Company's Current Report on
                                        Form 8-K filed on February 9, 2011.

                             10.23      Settlement Agreement dated as of September 29, 2008 among Cephalon, Inc., the U.S. Department of Justice, the U.S.
                                        Attorney's Office for the Eastern District of Pennsylvania, the Office of Inspector General of the Department of Health
                                        and Human Services, TRICARE Management Activity, the U.S. Office of Personnel Management and the relators
                                        identified therein, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 29, 2008.

                             10.24      Corporate Integrity Agreement dated as of September 29, 2008 between the Office of Inspector General of the
                                        Department of Health and Human Services and Cephalon, Inc., filed as Exhibit 10.2 to the Company's Current Report on
                                        Form 8-K filed on September 29, 2008.

                             10.25      Form of State Settlement Agreement and Release dated as of September 29, 2008 between Cephalon, Inc. and each of
                                        the 50 States and the District of Columbia, filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed on
                                        September 29, 2008.

                             10.26      Term Sheet dated November 6, 2009 by and among the Company, CIMA Labs, Inc., and Anesta Corp. and Barr
                                        Pharmaceuticals, LLC, as successor in interest to Barr Pharmaceuticals, Inc and Barr Laboratories, Inc.(1)

                           †10.27       Consulting Agreement dated as of February 5, 2010 by and between Cephalon, Inc. and Robert P. Roche, Jr., filed as
                                        Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 11, 2010.

                           *10.28       Settlement and License Agreement dated as of October 7, 2010 by and between Anesta AG and Eurand, Inc. and Impax
                                        Laboratories, Inc.(2)

                        *10.29(a)       Stock Purchase Agreement dated December 7, 2010 by and among Cephalon International Holdings, Inc., a wholly-
                                        owned subsidiary of the Company, Angioblast Systems Inc., a wholly-owned subsidiary of Mesoblast ("Angioblast"),
                                        and certain stockholders of Angioblast

                        *10.29(b)       Subscription Deed dated December 7, 2010 by and between Cephalon International Holdings, Inc. and Mesoblast

                        *10.29(c)       Development and Commercialization Agreement dated December 7, 2010 by and between the Company and
                                        Angioblast(2)

                             *12.1      Statement Regarding Computation of Ratios

                                  *21   List of Subsidiaries

                             *23.1      Consent of PricewaterhouseCoopers LLP.

                             *31.1      Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
                                        2002.

                             *31.2      Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
                                        2002.
                                                                                158
Table of Contents


                    Exhibit No.                                                               Description


                             *32.1      Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
                                        2002.

                             *32.2      Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
                                        2002.

                                  101   The following financial statements, formatted in XBRL: (i) Consolidated Statements of Operations—year ended
                                        December 31, 2010, 2009 and 2008., (ii) Consolidated Balance Sheets—December 31, 2010 and 2009, (iii) Consolidated
                                        Statements of Changes in Equity—years ended December 31, 2010, 2009 and 2008, (iv) Consolidated Statements of
                                        Cash Flows—years ended December 31, 2010, 2009 and 2008, and (v) Notes to Consolidated Financial Statements,
                                        tagged as blocks of text.


              *        Filed herewith.
              †        Compensation plans and arrangements for executives and others.
              (1)      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment granted
                       by the Securities and Exchange Commission.
              (2)      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment filed with
                       the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

ABELCET, ACTIQ, AMRIX, DURASOLV, EFFENTORA, FENTORA, GABITRIL, LYOC, MODIODAL, MYOCET, NUVIGIL, ORASOLV,
PROVIGIL, SPASFON, TREANDA, TRISENOX and VIGIL are trademarks or registered trademarks of Cephalon, Inc. or its subsidiaries. All other brands
and names used herein are trademarks of their respective owners.

                                                                              159
Table of Contents

                                                           CEPHALON, INC. AND
                                                             SUBSIDIARIES
                                                 SCHEDULE II—VALUATION AND QUALIFYING
                                                        ACCOUNTS     (In thousands)


                                                                                 Balance at                                                  Balance at
                                                                                 Beginning         Additions         Other Additions            End
              Year Ended December 31,                                             of the Year     (Deductions)(1)      (Deductions)(2)        of the Year
              Reserve for sales discounts, returns and allowances:
              2010                                                                $    165,048     $      401,436       $        (349,897)   $     216,587
              2009                                                                     127,992            317,729                (280,673)         165,048
              2008                                                                      89,091            282,996                (244,095)         127,992
              Reserve for inventories:
              2010                                                                        8,600             9,784                     624            19,008
              2009                                                                        5,685             7,695                  (4,780)            8,600
              2008                                                                        8,349             4,254                  (6,918)            5,685
              Reserve for income tax valuation allowance:
              2010                                                                     132,741             29,571                 (19,670)         142,642
              2009                                                                     140,448            (10,337)                  2,630          132,741
              2008                                                                     132,949             13,970                  (6,471)         140,448


              (1)    Amounts represent charges and reductions to expenses and revenue.
              (2)    Amounts represent utilization and adjustments of balance sheet reserve accounts.

                                                                          160
Table of Contents

                                                                        SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



                Date: February 11, 2011
                                                                CEPHALON, INC.
                                                                By:                                     /s/ J. KEVIN BUCHI

                                                                                              J. Kevin Buchi Chief Executive Officer
                                                                                                     (Principal executive officer)
    Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


                                Signature                                                       Title                                              Date

                        /s/ J. KEVIN BUCHI                    Chief Executive Officer (Principal executive officer)                        February 11, 2011

                             J. Kevin Buchi
                 /s/ WILCO GROENHUYSEN                        Executive Vice President and Chief Financial Officer                        February 11, 2011
                                                              (Principal financial and accounting officer)
                        Wilco Groenhuysen
                    /s/ WILLIAM P. EGAN                       Director                                                                    February 11, 2011

                        William P. Egan
                /s/ MARTYN D. GREENACRE                       Director                                                                    February 11, 2011

                       Martyn D. Greenacre
                  /s/ VAUGHN M. KAILIAN                       Director                                                                    February 11, 2011

                         Vaughn M. Kailian
                     /s/ KEVIN E. MOLEY                       Director                                                                    February 11, 2011

                           Kevin E. Moley
                                                              Director                                                                    February 11, 2011

                      Charles A. Sanders, M.D.
                    /s/ GAIL R. WILENSKY                      Director                                                                    February 11, 2011

                       Gail R. Wilensky, Ph.D.
                    /s/ DENNIS L. WINGER                      Director                                                                    February 11, 2011

                          Dennis L. Winger
                                                                              161
                                                                                                                            Exhibit 10.28

                                                                                                              Confidential Information

                                          SETTLEMENT AND LICENSE AGREEMENT
         This Settlement and License Agreement (the "Agreement") is entered into this 7th day of October, 2010 (the "Agreement
Date"), by and between Anesta AG and Eurand, Inc., each on their own behalf and on behalf of their Affiliates, and Impax
Laboratories, Inc., on its own behalf and on behalf of its Affiliates.

        WHEREAS, there is now pending in the United States District Court for the District of Delaware a lawsuit filed by Anesta
and Eurand against Impax Laboratories, Inc., Civil Action No. 09-018, involving United States Patent No. [**]; and

         WHEREAS, Impax has filed counterclaims against Anesta and Eurand in the Litigation, [**]; and

         WHEREAS, the parties wish to settle the Litigation;

         NOW, THEREFORE, in consideration of the foregoing premises and the mutual representations, covenants and conditions
herein set forth, the receipt and sufficiency of which consideration are hereby acknowledged, the parties agree as follows:

1.       DEFINITIONS

         For purposes of this Agreement, the terms set forth hereinafter shall be defined as follows:

         1.1.      "Affiliate" of, or any entity "Affiliated" with, a specified entity shall mean any corporation, company, partnership,
joint venture or other legal entity that controls, is controlled by, or is under common control with the entity specified, where "control"
means 50% or greater equity ownership or the ability to direct management activity.


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                     1
        1.2.      "AMRIX®" shall mean the drug listed in the FDA Orange Book under NDA 21-777, cyclobenzaprine hydrochloride
extended release capsule, and any supplements thereto relating to additional strengths.

         1.3      "Anesta" shall mean Anesta AG and all of its Affiliates including but not limited to Cephalon, Inc. ("Cephalon").

         1.4.     "Anesta and Eurand" shall mean Anesta AG and Eurand, Inc., and all of their Affiliates.

         1.5     "Applicable Law(s)" shall mean applicable laws, rules, statutes, codes, regulations, orders, judgments, ordinances or
requirements of any court, tribunal, agency, legislative body, commission or instrumentality of any federal, state, province, county or
city government related to the development, registration, manufacturing or marketing of pharmaceutical products in the Territory, or
the performance of the Parties' obligations under this Agreement.

         1.6.     "At-Risk Launch" shall mean the [**].

          1.7.       "At-Risk Launch Period" shall mean the period starting on the date of an At-Risk Launch and ending on the date
that is the earlier of: (i) the date the Third Party/Parties who undertook the At-Risk Launch stops the commercial sale of Generic
Equivalent Product, either as required by Court order or otherwise; (ii) the date of a final, non-appealable judgment of invalidity,
unenforceability or non-infringement of claims asserted against such Third Party of any Orange Book Patents; or (iii) the License
Effective Date occurs pursuant to Sections 3.2(a), (b), (c) or (e).

         1.8.       "Authorized Generic Product" shall mean the listed product, AMRIX®, that is marketed, sold, or distributed directly
or indirectly to retail class of trade with labeling,


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                   2
packaging, product code, labeler code, trade name, or trademark that differs from that of AMRIX.

          1.9      "Confidential Information" shall mean all confidential or other proprietary information that is disclosed by one Party
(the "disclosing party"), to another Party (the "receiving party"), during the term of this Agreement. When a disclosing party provides
Confidential Information to a receiving party, such information should be marked as "Confidential", "Restricted" or "Proprietary" (or
with words of similar import) at the time of first written disclosure or if first disclosed orally or visually, then designated as
"Confidential", "Restricted" or "Proprietary" (or with words of similar import) within thirty (30) days of the oral or visual disclosure,
provided, however, any proprietary or confidential information that the receiving party, through the exercise of reasonable judgment,
understands or should understand to be confidential or proprietary, shall also be considered Confidential Information of the disclosing
party for purposes of this Agreement. Information which: (i) is or becomes public knowledge without any action by, or involvement
of, the receiving party; (ii) is disclosed by the receiving party with the prior written approval of the disclosing party; (iii) is
intentionally disclosed by the disclosing party to a third party without restriction on disclosure; or (iv) is rightfully received by the
receiving party from a third party without a duty of confidentiality, shall not be deemed Confidential Information, even if such
information is so identified by the disclosing party. For the avoidance of doubt, this Agreement shall constitute Confidential
Information of both Parties.

         1.10.    "Covered Patents" shall mean [**].

         1.11.    "Eurand" shall mean Eurand, Inc., and all of its Affiliates.


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                    3
         1.12.    "FDA" shall mean the United States Food and Drug Administration or any successor agency thereof.

         1.13.    "First to File Exclusivity" means the period of one hundred eighty (180) days of marketing exclusivity in the
Territory granted by FDA under and pursuant to 21 U.S.C. section 355(j)(5)(B)(iv).

         1.14.    "Fully Allocated Manufacturing Costs" shall mean [**].

        1.15.    "Generic Equivalent Product" shall mean (a) a pharmaceutical product which has been approved by or submitted for
approval to FDA under an ANDA as a therapeutic equivalent (as defined in FDA regulations) to AMRIX®, or (b) an Authorized
Generic Product.

         1.16.    "Gross Profits" shall mean [**].

         1.17.    "Impax" shall mean Impax Laboratories, Inc., and all of its Affiliates.

         1.18.    "Impax ANDA Product" shall mean [**].

         1.19.    "Impax Authorized Generic Product" shall mean an Authorized Generic Product supplied to Impax by, or on behalf
of, Anesta and/or Eurand.

         1.20.    "Licensed Patents" shall mean Covered Patents and Orange Book Patents.

         1.21.    "License Effective Date" shall have the meaning provided in Section 3.2 below.

         1.22.    "Licensed Product" shall mean either the Impax ANDA Product or the Impax Authorized Generic Product.

         1.23.    "Net Sales" shall mean, [**].

          1.24.  "Orange Book Patents" shall mean any and all patents that are listed, now or in the future, in the Orange Book in
relation to NDA No. 21-777 (Anesta's AMRIX® product).

         1.25     The "Parties" shall mean collectively, Anesta, Eurand, and Impax.


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                   4
         1.26.    "Person" shall mean an individual, corporation, partnership or other entity and its Affiliates.

       1.27.    "Quarterly Period" shall mean that three (3) month period of the calendar year ending on March 31, June 30,
September 30 and December 31, respectively.

         1.28.    "Sales and Distribution Costs" means, [**].

         1.29.    "Territory" shall mean the United States and its territories and possessions, including Puerto Rico.

         1.30.    "Third Party" shall mean a party that is neither Anesta, Eurand, nor Impax.

         1.31.     "Third Party Licensed Product" shall mean a Generic Equivalent Product sold by a Third Party pursuant to
authorization or license from Anesta and/or Eurand.

         1.32.    "Transfer Price" shall [**].

         1.33.     "Valid Patent Claim" shall mean an unexpired claim in any issued Orange Book Patent which has not been held
invalid or unenforceable by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed
within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable by the owner through reissue or
disclaimer. If there should be two or more such decisions conflicting with respect to the validity of the same claim, the decision of the
higher or highest tribunal shall thereafter control; however, should the tribunals be of equal dignity, the decision or decisions holding
the claim valid shall prevail, unless and until the invalidity decision becomes a final, non-appealable decision.

2.       SETTLEMENT TERMS

         2.1.     Stipulation and Dismissal of the Litigation


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                    5
        The parties agree to execute a stipulation for the dismissal of the Litigation with prejudice, and without cost to either party.
The proposed stipulated dismissal shall be jointly submitted to the Court within five (5) business days of the Agreement Date.

         2.2.     Anesta, Cephalon, and Eurand's Release

         [**].

         2.3.     Impax's Release

         [**].

         2.4      Acknowledgement of Infringement, Validity and Enforceability [**]

         Impax hereby stipulates [**]. Notwithstanding the foregoing, no admission made in this Section 2.4 (including admissions
regarding validity and enforceability) shall apply outside the United States or to any product other than the Licensed Products.

         2.5      Agreement Not to Assist Third Parties

          Impax covenants not to assist, coordinate with, or otherwise help any Third Party in prosecuting, defending or settling
litigation regarding any Covered Patent in connection with a Third Party Generic Equivalent Product in any context or forum,
including but not limited to any court or proceeding before the United States Patent and Trademark Office (including reexamination
proceedings).

         2.6      Agreement Not to Challenge Validity or Enforceability

         Solely with respect to the Licensed Product, Impax covenants not to challenge the validity or enforceability of any claim of
the Licensed Patents in any context or forum in the Territory, including but not limited to any court or USPTO proceeding (including
reexamination proceedings), including, but not limited to, initiating a declaratory judgment action with respect to any of the Licensed
Patents. Notwithstanding the foregoing, if Anesta, Eurand or their


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                    6
Affiliates or any third party with rights to enforce the Covered Patents brings an action against Impax for infringement of any of the
Covered Patents, Impax may assert any defense with respect to said patent only, except if such action is in consequence of breach of
this agreement by Impax in which case paragraph 3.7 of this Agreement shall govern such action. With respect to products other than
the Licensed Product, nothing herein shall limit or restrict Impax's ability to challenge the validity or enforceability of the Licensed
Patents or asserting that such products do not infringe any claim of the Licensed Patents.

         2.7       Impax Agreement to Abide by License Effective Date

         Except as permitted under the license in Section 3 below, Impax agrees not to (i) make, use, import, offer to sell, or sell in the
Territory, (ii) actively induce or assist any other entity to make, use, import, offer to sell or sell in the Territory, or (iii) import or cause
to be imported in the Territory, the Licensed Product before the License Effective Date, except as permitted by the License in
Section 3 of this Agreement.

3.        LICENSE TERMS

         3.1.      Grant

          Subject to the terms and conditions herein, Anesta and Eurand hereby grant to Impax a non-exclusive license under the
Licensed Patents: (i) to make, have made, or offer to sell the Impax ANDA Product, effective as of the Agreement Date, but only for
the limited purpose of preparing for a launch of the Licensed Product consistent with the terms of this Agreement, and (ii) to promote,
use, import, and sell Licensed Product in the Territory as of the License Effective Date. Impax shall not have the right to sublicense
the Licensed Patents to any Third Party. In connection with the above license, Eurand shall not be required to transfer any know how,
trade secrets or other information relating to its manufacture or formulation of any product to Impax.


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                       7
        3.2.      License Effective Date

        The "License Effective Date," shall be the date which is the earliest of:

                 (a)       The later of February 26, 2024 or, in the event the date of expiration of US Patent No. 7,387,793 is
                          extended under 35 U.S.C. § 154(b) ("Extension of Patent Term"), 21 U.S.C. § 355 ("Pediatric Studies of
                          Drugs"), or under both such provisions of law, the date that is one year earlier than the date of expiration of
                          the patent as extended;

                 (b)      In the event that Anesta and/or Eurand license or authorize any Third Party who is entitled to First to File
                          Exclusivity to sell Generic Equivalent Product in the Territory, on the date immediately following the
                          expiration of any applicable First to File Exclusivity period after that first filer begins the commercial sale
                          of its Generic Equivalent Product;

                 (c)       the same entry date that any Third Party which is not entitled to First to File Exclusivity is licensed or
                          authorized by Anesta and/or Eurand to begin selling Generic Equivalent Product in the Territory;

                 (d)       the date of an At-Risk Launch, provided that the license granted pursuant to this Section 3.2(d) shall only
                          extend for the At-Risk Launch Period, after which Impax shall immediately exit the market unless the
                          license has become effective under another provision of this Section 3.2; and

                 (e)       The date that a Third Party obtains a final, non-appealable judgment of invalidity, unenforceability or non-
                          infringement of all asserted claims of any Orange Book Patents, following the expiration of any applicable
                          First to File Exclusivity period.


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                   8
Anesta and Eurand will notify Impax [**] following any settlement with any other defendant that would result in a License Effective
Date earlier than that provided in § 3.2(a).

         3.3.     Exclusivity waiver. Anesta and Eurand hereby agree to waive any period of regulatory exclusivity to the extent
such exclusivity would preclude or impede the launch of the Impax ANDA Product as of the License Effective Date. Anesta and
Eurand agree to provide reasonable cooperation to Impax in connection with such waiver, including by submitting a mutually
agreeable notice to FDA of the existence of such waiver and not opposing the approval of Impax ANDA Product effective as of the
License Effective Date based on any applicable regulatory exclusivity in force at the time. Such notice will be delivered by Anesta to
FDA within five (5) business days of receipt of written request from Impax. For purposes of clarity, nothing in this Section 3.3 is
intended to or does accelerate the License Effective Date as determined under Section 3.2.

         3.4      Transfer Price and Royalties.

                  3.4.1   In addition to the Royalties specified in Section 3.4.2 below, Impax shall pay Eurand the Transfer Price for
         all Authorized Generic Product purchased by Impax from Eurand.

                  3.4.2      Royalties shall be paid to Anesta as follows:

                  a)      License Effective Date of 3.2(a), (b), (c) or (e):

                           1) [**].

                  b)      License Effective Date of 3.2(d) (At-Risk Launch)

                           1) [**].

                           2) [**].

         3.5.     Royalty Term


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                      9
         Impax's obligation to pay the royalties pursuant to paragraphs 3.4.2(a) and 3.4.2(b), as applicable, shall remain in effect [**].

         3.6.     Accounting and Records

         (a)      [**]the Quarterly Period in respect of which payments are due under paragraph 3.4, Impax shall prepare and send to
Anesta a report setting forth [**] during such Quarterly Period, which report shall [**]. All reports submitted hereunder shall be
deemed Impax Confidential Information pursuant to Section 5.

          (b)      Simultaneously with the submission of each report pursuant to paragraph 3.6(a), Impax shall, in a commercially
reasonable manner, make payments, in United States currency, to Anesta or to a party or parties designated by Anesta, of the amounts
due for the period covered by the report. In the event any payments are made later than the dates set forth herein, Impax shall also pay
interest on such late payments, [**]. Impax shall be entitled to make all payments by corporate check or wire transfer.

         (c)      All payments to Anesta required under this Agreement shall be made to the name or account of Anesta or a party or
parties designated by Anesta at an address designated by Anesta. Any and/or all of such payments shall be subject to such
withholding tax laws, rules and regulations as may be applicable and, if such laws, rules or regulations require a withholding to be
made, such payment(s) will be reduced by such amount(s) withheld and the payment of (a) the reduced amount(s) to Anesta and
(b) the withheld amount to the taxing agency or body shall constitute full compliance of Impax's payment obligation under this
Agreement. Impax shall provide to Anesta appropriate proof of payment of any and all such taxes withheld. Impax shall timely pay
any such taxes withheld and any penalty or surcharge assessed to Impax or Anesta for late payment of such taxes.


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                    10

         (d)       Impax shall keep accurate records in respect of all sales of the Licensed Product by Impax and its Affiliates and shall
maintain such records [**]. Anesta shall have the right, at its sole cost and expense, [**], to have Impax's records reviewed [**] at
times that are reasonably convenient to Impax, using an independent certified public accountant designated by Anesta, provided the
independent accountant signs a confidentiality agreement with Impax providing that such records, books of account, information and
data shall be treated as Confidential Information which may be disclosed only to Anesta. Any report rendered by Impax prior to the
date of such review and to which Anesta raises no reasonable written objection [**] shall be deemed conclusive and binding, provided
that Impax has not unreasonably impeded such review. If the review determines that [**] reported by Impax for such Quarterly Period
pursuant to paragraph 3.6(a), then [**]. Any deficiencies in payment shall be payable with interest from the date the initial payment
was due at the rate specified in paragraph 3.6(b).

         (e)     At the termination of this Agreement, Impax shall render a final report to Anesta [**] the end of the Quarterly Period
in which such termination occurs, and payments shall be made to Anesta for that Quarterly Period (or portion thereof) in which such
termination occurs.

         3.7.     Consequence of Breach by Impax

        In the event of a judicial determination, after hearing before the United States District Court for the District of Delaware, that
Impax sold or distributed the Licensed Product before the License Effective Date, [**].

         [**]

4.       AUTHORIZED GENERIC

         4.1      At any time that is prior to the License Effective Date, Impax may elect by providing written notice to Eurand and
         Anesta to have Eurand supply Impax Authorized


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment filed
   with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

                                                                    11
         Generic Product to Impax for sale in the Territory from and after the applicable License Effective Date subject to all of the
         terms and conditions of this Agreement. Anything in this agreement to the contrary notwithstanding, [**], Eurand will use
         [**] supply Impax Authorized Generic Product to Impax by the License Effective Date or as soon thereafter as is reasonably
         practical.

         4.2      Supply of Impax Authorized Generic Product; Forecasts; Purchase Orders.

                  (a)      Subject to the terms, conditions and limitations hereof, during the Supply Term, Eurand agrees to supply
                  Impax Authorized Generic Product to Impax for marketing and in accordance with the terms of this Agreement. In
                  order to be in a position to timely and effectively enter the generic market, the Parties shall cooperate in good faith
                  to determine and prepare for the applicable License Effective Date, including communicating to one another, on an
                  ongoing basis, developments which may reasonably affect the License Effective Date and information necessary to
                  label the Impax Authorized Generic Product for sale as a generic by Impax.

                  (b)      All Impax Authorized Generic Product supplied will be supplied in bulk form which complies with
                  Anesta's NDA. Subject to compliance with Anesta's NDA, Impax will provide Eurand and Anesta with appropriate
                  and customary generic package and label design for Anesta's and Eurand's approval prior to Impax packaging the
                  Impax Authorized Generic Product, such approval not to be unreasonably withheld. Impax will provide Anesta with
                  final specimens. Eurand and Anesta will timely make all appropriate regulatory filings in order to enable Impax to
                  package the Impax Authorized Generic Product at the Impax site. Any


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment filed
   with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

                                                                   12
                  costs incurred by Eurand in performing other manufacturing specifications (such as capsule imprints) requested by
                  Impax (all of which must be consistent with the approved specifications under the NDA) and to which Eurand
                  agrees (such agreement not to be unreasonably withheld, delayed or conditioned), including related capital
                  expenditures, shall be at Impax's sole cost and expense.

                  (c)      At the time Impax provides notice under Section 4.1 that it elects to market Impax Authorized Generic
                  Product, [**] before the date Impax requests delivery of Launch Quantities (subject to Section 4.1), Impax will
                  provide to Eurand a good faith Forecast (as defined below) of the quantities of Impax Authorized Generic Product
                  required for the initial Launch of Impax Authorized Generic Product ([**], beginning with the License Effective
                  Date) (the "Launch Quantities"). The Launch Quantities may be adjusted from time to time by Impax, upon the
                  consent of Eurand (not to be unreasonably withheld, delayed or conditioned), based on reasonable assessments of
                  changes in market conditions. In anticipation of the Launch of Impax Authorized Generic Product by Impax,
                  Eurand shall use commercially reasonable efforts to deliver the Launch Quantities as soon as practicable to Impax
                  on or before the License Effective Date, so that Impax may Launch on the License Effective Date. Notwithstanding
                  the foregoing, in the event the License Effective Date occurs under Section 3.2(d) due to an At-Risk Launch earlier
                  than Impax's requested delivery of Launch Quantities, the parties shall reasonably cooperate to supply Launch
                  Quantities requested by Impax to enable Impax to launch Impax Authorized Generic Product


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment filed
   with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

                                                                  13
                  as soon as reasonably practicable following the License Effective Date under Section 3.2(d).

                  (d)       [**] following the License Effective Date, and [**] thereafter beginning with the date [**] the License
                  Effective Date, Impax shall deliver a forecast (a "Forecast") to Eurand of the quantities of Impax Authorized
                  Generic Product, by SKU, which Impax reasonably anticipates it will require for marketing [**] the License
                  Effective Date in the first instance, and thereafter [**] the date of such Forecast and shall include quantities required
                  to be delivered [**] of the Forecast Period. The foregoing notwithstanding, the first such Forecast shall be for [**]
                  after the License Effective Date. For each such Forecast, [**] of the Forecast Period shall be known as the
                  "Purchase Order Period" and the amounts specified in the Forecast for the Purchase Order Period shall constitute a
                  binding purchase order for such period. Additionally, in each subsequent Forecast, the amount ordered for the
                  Purchase Order Period shall not deviate [**] (as to the entire period or any month therein) from [**] of the
                  immediately preceding Forecast. Other than the specifically provided in this paragraph, the amounts set forth in the
                  Forecasts shall only constitute a non-binding estimate of the Impax Authorized Generic Product requirements.

                  (e)       Eurand shall use commercially reasonable efforts to make deliveries of Impax Authorized Generic Product
                  [**] of the agreed upon delivery dates, which delivery dates shall be at least [**] from the date a binding purchase
                  order is received by Eurand. All such shipments of Impax Authorized Generic Product shall be [**] Eurand's
                  manufacturing facilities to a carrier designated by Impax.


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment filed
   with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

                                                                    14
                  Title and risk of loss shall pass, and delivery shall occur, [**]. In no event shall Eurand be required to [**]. The
                  terms and conditions of this Agreement shall be controlling over any conflicting terms and conditions stated in
                  Impax's purchase order or Eurand's invoice or confirmation. Any other document which shall conflict with or be in
                  addition to the terms and conditions of this Agreement is hereby rejected (unless the Parties shall have mutually
                  agreed to the contrary in writing in respect of a particular instance).

                  (f)      Eurand shall promptly notify Impax in writing if at any time Eurand has reason to believe that Eurand will
                  not be able to [**] in accordance with the delivery schedule specified herein pursuant to the terms and conditions of
                  this Agreement.

                  (g)      Eurand shall invoice Impax at the time of each shipment of Impax Authorized Generic Product at the
                  Transfer Price for such shipment. Impax shall pay each such invoice [**].

                  (h)     In addition to the foregoing, the Parties shall work together in good faith and make commercially
                  reasonable efforts to timely satisfy any changes in the quantities and delivery dates of Impax Authorized Generic
                  Product specified in the Forecasts due to changes in demand.

                  (i)      Impax Authorized Generic Products supplied by Eurand shall (i) have a shelf life[**] and (ii) conform to
                  Anesta's NDA. The foregoing notwithstanding, the Launch Quantities shall instead have a shelf life [**].

                  (j)     All Impax Authorized Generic Products will be supplied by Eurand as bulk capsules packaged in drums, as
                  described in Section 4.2(b) above and in


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment filed
   with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

                                                                  15
                  accordance with the terms and conditions of this Agreement, Anesta's NDA, the Eurand/Impax Quality Agreement
                  (as defined below) , and Applicable Laws.

                  (k)      Impax shall be solely responsible for packaging and labeling the bulk product provided by Eurand into the
                  finished dosage form in accordance with this Agreement, the Anesta/Impax Quality Agreement, and Applicable
                  Laws. For clarity, Impax acknowledges that if it chooses not to use a site currently authorized under the NDA, or if
                  it chooses to use a container closure system not specified in the NDA, additional regulatory filings will be required,
                  possibly resulting in delays pending FDA approval. Anesta will reasonably cooperate with Impax in timely making
                  the appropriate regulatory filings.

                  (l)      During the Term, and for a period of [**] thereafter, Eurand shall, and shall ensure that its Affiliates shall,
                  keep at either its normal place of business, or at an off-site storage facility, detailed, accurate and up to date
                  information and data contained in any invoices provided to Impax in connection with this Agreement.

         4.3     Quality Assurance; Acceptance

                  (a)      Eurand represents, covenants and warrants to Impax that:

                           (i)     all Impax Authorized Generic Product hereunder shall be produced in accordance with cGMP, and
                           Applicable Laws, rules and regulations and that none of the Impax Authorized Generic Product supplied
                           hereunder shall be adulterated or misbranded as defined by Applicable Law; and


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment filed
   with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

                                                                    16
                           (ii)     all shipments of Impax Authorized Generic Product supplied hereunder shall at the time of
                  delivery, meet the specifications set forth in Anesta's NDA (including expiration dating).

                  (b)      Eurand will use commercially reasonable efforts to maintain throughout the term of this Agreement all
                  permits, licenses, registrations and other forms of governmental authorization and approval required in order for
                  Eurand to perform its obligations hereunder in accordance with all Applicable Laws.

                  (c)     to Eurand's knowledge upon due investigation, as of the Effective Date the manufacture or marketing of the
                  Impax Authorized Generic Products in the Territory pursuant to this Agreement does not infringe, misappropriate or
                  otherwise conflict with any intellectual property rights of any Third Party.

                  (d)      Eurand shall perform all quality control tests and other inspections required by applicable cGMP standards
                  and Anesta's NDA and shall furnish to Impax a certificate of analysis together with each lot of Impax Authorized
                  Generic Product shipped to Impax. Eurand will also provide Impax with Material Safety Data Sheets (hereinafter
                  "MSDS") for the Impax Authorized Generic Products, and updates of same as necessary, but in no event will Eurand
                  provide any specifications and/or quality control standards under the NDA beyond those necessary for Impax to
                  conduct the testing specified in subparagraph 4.3(f).

                  (e)     Anesta will promptly notify Impax of any request from the FDA to change Impax Authorized Generic
                  Product specifications or labeling and will notify Impax of any changes in specifications.


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment filed
   with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

                                                                  17
                  (f)       Impax shall conduct, at its own expense, such tests as it deems necessary to determine the compliance of
                  the Impax Authorized Generic Product with the requirements of Section 4.3(a). Impax shall notify Eurand and
                  Anesta within thirty (30) days of its receipt of each shipment of the Impax Authorized Generic Product of any non-
                  compliance of the Impax Authorized Generic Product with the requirements of Section 4.3(a) revealed by such
                  testing, and with respect to any latent defect, within ten (10) days of becoming aware of such defect and provide
                  documents alleged to support any such contention.

                  (g)      Subject to the provisions of Section 4.3(h), Eurand shall replace, at its own expense, including all freight
                  costs, any Impax Authorized Generic Product that does not meet the requirements of Section 4.3(a) upon delivery
                  (including shelf life dating).

                  (h)       If, no more than 30 days following the timely delivery of a notice by Impax pursuant to the provisions of
                  Section 4.3(f), Impax and Eurand do not agree that any lot or lots of the Impax Authorized Generic Product referred
                  to in the notice meets the requirements of Section 4.3(a), that lot or those lots of the Impax Authorized Generic
                  Product shall be tested for such compliance, within thirty (30) days after notice of the defect is delivered to Eurand,
                  by a disinterested Third Party expert selected by the mutual agreement of Impax and Eurand. The decision of such
                  Third Party expert with respect to the question of compliance shall be binding upon Impax and Eurand for the
                  purposes of Section 4.3(g) of this Agreement. The costs of such testing shall be borne by Eurand if such lot or lots


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment filed
   with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

                                                                   18
                  are found not to meet the requirements of Section 4.3(a) and by Impax in all other circumstances.

                  (i)     Impax represents, covenants and warrants to Eurand that all Impax Authorized Generic Product marketed
                  by Impax will be packaged, labeled, stored, shipped and handled in accordance with cGMP, Anesta's NDA, and all
                  Applicable Laws.

         4.4     Regulatory Responsibilities; Adverse Event Reporting; Recalls

                  (a)      Anesta will have sole authority to deal with regulatory matters relating to Anesta's NDA or Impax
                  Authorized Generic Product. During the term hereof, Anesta shall maintain Anesta's NDA in accordance with all
                  applicable requirements of the FDA, including, without limitation, the filing of all annual requirements and other
                  reports or filings required by the FDA. Impax shall provide Anesta all information as required for Anesta to submit
                  regulatory filings, including annual reports, as required by FDA in accordance with a schedule as specified by
                  Anesta or its Affiliates.

                  (b)       Impax shall submit to Anesta all reports of adverse drug experiences, together with all relevant information
                  possessed by it, in time for Anesta to meet all expedited and periodic regulatory obligations to the FDA. Impax
                  shall also promptly submit to Anesta all Impax Authorized Generic Product inquiries or complaints for handling by
                  Anesta. Each Party shall cooperate with the other and provide information in its possession to the extent necessary
                  for the other Party to comply with all legal requirements relating to the manufacture or marketing of Impax
                  Authorized Generic Product.


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment filed
   with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

                                                                  19
                  (c)       Each of Eurand, Anesta and Impax will immediately inform the other in writing if it believes one or more
                  lots of any Impax Authorized Generic Product should be subject to recall from distribution, setting forth the reasons
                  therefore with reasonable specificity. To the extent permitted by legal or public safety requirements, the Parties will
                  confer before initiating any recall. [**]. The Party initiating the recall shall initially bear the cost thereof and shall
                  carry out the recall in accordance with best industry practices. In the event it is determined that a recall resulted
                  from a breach by Eurand of any of its representations or warranties set forth in Section 4.3(a) hereunder, [**].

                  (d)      Eurand shall keep, or cause its Affiliates to keep, as required, such samples and such records (or copies
                  thereof) in respect of the Impax Authorized Generic Products as are required by Applicable Law for such period of
                  time as may be required thereunder.

                  (e)       Each of Eurand, Anesta, and Impax shall promptly inform the other of any correspondence from the FDA
                  that would materially affect its ability to meet its obligations under this Agreement. Eurand shall notify Impax
                  promptly, but in no event later than ten (10) business days following the occurrence of any materially adverse
                  inspections by the FDA or other regulatory authorities which pertain to the Impax Authorized Generic Products or to
                  the facilities where the Impax Authorized Generic Products are being manufactured or stored.

                  (f)      Within forty-five (45) days following the date that Impax provides notice to Eurand that it elects to be
                  supplied Impax Authorized Generic Product under Section 4.1, Eurand and Impax shall enter into a Quality
                  Agreement in form and


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment filed
   with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

                                                                    20

                  content reasonably acceptable to Impax and Eurand ("Eurand/Impax Quality Agreement") and within 45 days
                  following the date that Impax provides notice to Anesta that it elects to be supplied with Impax Authorized Generic
                  Product under Section 4.1, Impax and Anesta (and Eurand, if Eurand so elects) shall enter into a Quality Agreement
                  in form and content reasonably acceptable to Impax and Anesta ("Impax/Anesta Quality Agreement"). The Impax/
                  Anesta Quality Agreement will include protocols and specific quality responsibilities for handling Impax Authorized
                  Generic Product quality complaints, ADE reports, and professional medical services inquiries in accordance with
                  Anesta's standard operating procedures and in conformity with Applicable Laws.

                  (g)       Impax and Anesta (and Eurand if Eurand so elects) shall meet within thirty (30) days from the date that
                  Impax provides notice under Section 4.1 to negotiate in good faith and agree on a process and procedure for sharing
                  adverse event information which shall be documented in a pharmacovigilance agreement ("PVA"). Also, upon
                  execution of this Agreement, each Party shall assign a representative to ensure such a pharmacovigilance agreement
                  is adopted prior to the Impax Authorized Generic Product being distributed and marketed. Following adoption of
                  the PVA, the parties shall ensure the prompt exchange of any and all information concerning adverse events related
                  to use of the Impax Authorized Generic Product regardless of source, complying with the contents of the PVA and
                  legal requirements in their respective territories.

                  (h)     Consistent with Anesta's obligations as NDA holder, if Impax elects to create and/or distribute any
                  promotional material for an Impax Authorized


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                    21
                  Generic Product, such promotional materials shall be subject to Anesta's prior written approval for the limited
                  purpose of ensuring that they comply with any obligations under the NDA, such approval not to be unreasonably
                  withheld. Impax shall ensure that its promotional materials contain no representations, warranties, or claims with
                  respect to an Impax Authorized Generic Product, except as approved in writing by Anesta pursuant to this
                  paragraph. For purposed of clarity, if Impax elects to distribute Impax Authorized Generic Product, Impax at a
                  minimum shall be permitted to disclose that such product is an Authorized Generic Product.

5.       CONFIDENTIALITY

        5.1        Confidentiality. During the term of this Agreement and for a period of [**], the Parties shall maintain as
confidential and not disclose to any Third Party any Confidential Information supplied by another Party. The Parties shall use the
Confidential Information of the other Parties solely for the performance of their respective obligations under this Agreement.

           5.2       Exclusions. The obligations of confidentiality and non-use under Section 5.1 shall not apply to any information
that: (i) is shown by contemporaneous documentation of the receiving Party to have been in its rightful possession on a non-
confidential basis prior to receipt from the disclosing Party; (ii) is or becomes, through no fault of the receiving Party, publicly known;
(iii) is furnished to the receiving Party by a Third Party without breach of a duty to the disclosing Party; or (iv) is independently
developed by the receiving Party without access to the Confidential Information of the disclosing Party.

        5.3       Exceptions. Notwithstanding Section 5.1, a Party receiving Confidential Information may disclose such
Confidential Information to the extent that such disclosure has


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                    22
been ordered by a court of law or otherwise required by law or regulation, provided that the disclosure is limited to the extent ordered
or required and wherever practicable, the Party owning the Confidential Information has been given written notice in advance in order
to enable it to seek protection or confidential treatment of such Confidential Information. In the event any Party determines that
disclosure of this Agreement or any terms of this Agreement is required under applicable securities laws or regulations, such party
shall provide the proposed disclosure in writing to the other Parties for an opportunity to comment thereon. Such proposed disclosure
shall be provided [**] the date of the disclosure, provided, however, that if the disclosing Party is required to make the disclosure in a
shorter period of time, such Party will nonetheless give the other Parties such notice and as much opportunity to comment thereon as
is practical in advance of such disclosure.

          5.4       Notwithstanding the foregoing, Anesta shall have the right to disclose this Agreement and any other documents
associated with it to ECR Pharmaceuticals, Inc. ("ECR") and/or its representatives for the limited purpose of satisfying obligations to
ECR under Anesta's agreement (as amended) with ECR related to the acquisition of AMRIX, provided that such disclosure is
undertaken under a confidentiality agreement preventing further disclosure of this Agreement and any other documents associated
with it that are subject to paragraph 5.1.

          5.5       Impax understands that Anesta and Eurand are currently and may in the future be in patent litigation against Third
Parties relating to Third Party Generic Equivalent Products ("non-Impax litigations"), and that ANDA 90-771 and related FDA
correspondence produced by Impax in the Litigation ("Impax Documents") [**].

        For the avoidance of doubt, the Protective Order in the Litigation remains in full force and effect except as expressly
modified herein, including but not limited to Anesta's and


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                    23
Eurand's obligation to destroy all information and documents produced by Impax in the Litigation other than the Impax Documents.
[**].

6.       ADDITIONAL TERMS OF AGREEMENT

         6. 1     Parties in Interest

        The parties hereby represent and warrant to each other that they have not sold, assigned, transferred, conveyed or otherwise
disposed of any right or claim covered or released by this

Agreement and that they have the authority to enter into this Agreement.

         6.2      Successors and Assigns

         This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective
successors and assigns. This Agreement may not be assigned by either party without the prior written consent of the other, which
consent shall not be unreasonably withheld.

         6.3      All Negotiations and Representations Superseded — Entire Agreement

         This Agreement, the Eurand/Impax Quality Agreement, the Impax/Anesta Quality Agreement, the Transfer Price Agreement
between Eurand and Impax, and PVA (if applicable) are the entire agreements between the parties and supersede any and all prior
negotiations and understandings among all of the parties concerning the subject matter hereof.

         6.4      Representation by Impax

         Impax represents that ANDA No 90-771 is its only application for approval referencing the AMRIX® product, and further
represents that it neither filed nor assisted in the Suitability Petition currently docketed at the FDA as Docket No. FDA 2009 P 0168.

         6.5      Representations by Eurand and Anesta


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                  24
         (a)       Eurand and Anesta have the right to grant all of the rights and licenses granted herein to Impax and neither is under
any obligation to any Third Party that conflicts with the terms of this Agreement.

         (b)      Anesta owns and possesses all right, title and interest in NDA 21-777.

         6.6.      Amendments in Writing

         This Agreement may not be amended or modified except by a written agreement signed by all parties. No breach of any
provision of this Agreement can be waived unless in writing. Waiver of any one breach shall not be deemed to be a waiver of any
other breach of the same or any other provision hereof.

         6.7.      Severability

          In the event that any condition or covenant herein is held to be invalid or void by any court of competent jurisdiction, the
same shall be deemed severable from the remainder of the Agreement, and shall in no way affect any other covenant or condition
contained herein. If any condition or covenant of this Agreement is deemed invalid or void due to its scope or breadth, such provision
shall be deemed valid to the extent permitted by law.

         6.8.      Governing Law

       This Agreement is made pursuant to, and shall be governed by, the laws of the State of Delaware without regard to
Delaware's conflict of laws principles.

         6.9.      Advice of Counsel

         The parties hereto represent and declare that, in executing this Agreement, they rely solely upon their own judgment, belief
and knowledge, and the advice and recommendations of their own independently selected counsel, concerning the nature, extent and
duration of their rights and claims, and they have not been influenced to any extent whatsoever in executing the


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                   25
same by any representations or statements made or omitted to be made by the other party hereto or by any person representing the
other party.

        6.10.     Indemnification

         (a)       Impax will indemnify, defend, and hold Anesta and Eurand harmless against any actions, claims, liabilities and
expenses resulting from the manufacture, sale or use of the Impax ANDA Product sold by Impax, its Affiliates or their customers
("Impax Indemnification Claims"). Impax's indemnification obligations are conditioned upon prompt written notification by Anesta
and Eurand of any Impax Indemnification Claims and Anesta and Eurand's reasonable cooperation, at Impax's expense, in Impax's
defense of such claims.

           (b)     Eurand will indemnify, defend and hold Impax harmless against any actions, claims, liabilities and expenses
resulting from failure by Eurand to manufacture the Impax Authorized Generic Product in accordance with this Agreement, except
that this indemnification shall not apply to personal injury claims caused by the actions or negligence of Impax ("Eurand
Indemnification Claims"). Eurand's indemnification obligations are conditioned upon prompt written notification by Impax of any
Eurand Indemnification Claims and Impax's reasonable cooperation, at Eurand's expense, in Eurand's defense of such claims.

        6.11.     Termination and Effect of Termination

        (a)       Term. [**].

          (b)      Termination. This Agreement may be terminated in the event that a party fails to perform or otherwise breaches
any material obligations hereunder. Additionally, in the event that Impax breaches paragraph 2.7 above, Anesta and Eurand shall have
the right to terminate this Agreement, although Impax's agreements, and acknowledgements referenced in paragraph 3.7 shall survive
such termination. Termination is effected by one party giving notice to the


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                 26
other party in writing of its intent to terminate, while stating with specificity the grounds therefore. Unless otherwise provided herein,
the party so notified shall have sixty (60) days after receipt of the notice to cure the breach or seek legal redress. In no event shall
such notice of intention to terminate be deemed to waive any right to damages or any other remedy which the party giving the notice
may have as a consequence of such failure or such breach. Termination of this Agreement shall serve to terminate all licenses granted
hereunder.

         6.12      Dispute Resolution.

         (a)        Preliminary Process. If there is a disagreement among the Parties as to the interpretation of this Agreement or in
         relation to any aspect of the performance by either Party of its obligations under this Agreement, the Parties shall, within ten
         (10) Business Days of receipt of a written request from any Party, meet in good faith and try to resolve the disagreement
         without recourse to legal proceedings.

         (b)      Escalation of Dispute. If resolution of the disagreement does not occur within five (5) business days after such
         meeting, the matter shall be escalated for determination by the President of Impax Generics Division and Ross Oehler for
         Anesta and/or Manya Deehr for Eurand for resolution, who may resolve the matter themselves or jointly appoint a mediator
         or independent expert to do so.

         (c)        Equitable Relief. Nothing in this Section 6.12 restricts any Party's freedom to seek urgent relief to preserve a legal
         right or remedy, or to protect a proprietary or trade secret right, or to otherwise seek legal remedies through any available
         channel if resolution is not otherwise achieved under this Section 6.12.

         (d)      Section 3.7 Supersedes. Nothing in this Section 6.12 restricts Anesta and/or Eurand's freedom to invoke the
         remedies of Section 3.7 for sale by Impax of Licensed Product before the License Effective Date.

         6.13.     Relationship of Parties

          None of the parties or their agents and employees shall under any circumstance be deemed an agent or representative of any
other party, and none shall have authority to act for and/or bind the other in any way, or represent that it is in any way responsible for
acts of the


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                    27
other. This Agreement does not establish a joint venture, agency or partnership between the parties.

         6.14.     Notice

        Any notice required or permitted to be given by this Agreement shall be given by postpaid first class certified mail, or
overnight delivery service or by facsimile with confirmation of receipt, addressed to:

         In the case of Anesta and Eurand:

         Anesta AG
         Baarerstrasse 23
         6300 Zug
         Switzerland

         With a copy to:

         Anesta AG
         Attn: Kevin Buchi
         c/o Cephalon, Inc.
         41 Moores Road
         Frazer, PA 19355
         USA

         In the case of Impax:

         Impax Laboratories, Inc.
         30831 Huntwood Avenue
         Hayward, CA 94544
         Attention: CEO
         Facsimile: (510) 972-7756

         with copy to:

         Legal Department
         Impax Laboratories, Inc.
         31047 Genstar Road
         Hayward, CA 94544
         Facsimile: (510) 972-7756


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                  28
         Such addresses may be altered by written notice. If no time limit is specified for a notice required or permitted to be given
under this Agreement, the time limit therefore shall be two (2) full business days, not including the day of mailing.

         6.15.     Counterparts

         This Agreement may be executed in any number of counterparts, each of which shall be an original and all of which, taken
together, shall constitute one and the same instrument.

         6.16      Government Review

          The Parties agree to submit this Agreement to the U.S. Federal Trade Commission ("FTC") and the U.S. Department of
Justice ("DOJ") as required by statute.


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                   29
          IN WITNESS WHEREOF, the parties have by their duly authorized representatives hereunder set their hands the day and
year first above written.


DATED: October 7, 2010                                            ANESTA AG
                                                                  On behalf of itself and its Affiliates,


                                                                  By: /s/ J. Kevin Buchi
                                                                  Print Name: J. Kevin Buchi
                                                                  Title: Chairman of the Board

DATED: October 8, 2010                                            EURAND, INC.
                                                                  On behalf of itself and its Affiliates,


                                                                  By: /s/ John Framer
                                                                  Print Name: John Framer
                                                                  Title: President


DATED: October 7, 2010                                            IMPAX LABORATORIES, INC.
                                                                  On behalf of itself and its Affiliates,


                                                                  By: /s/ Larry Hsu
                                                                  Print Name: Larry Hsu
                                                                  Title: Chief Executive Officer


** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
   filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
   amended.

                                                                 30
                                                                                                                        Exhibit 10.29(a)
                                                STOCK PURCHASE AGREEMENT
           This STOCK PURCHASE AGREEMENT (the "Agreement") is made as of December 7, 2010 by and among Angioblast
Systems, Inc., a Delaware corporation (the "Company"), the individuals and entities listed on Exhibit A hereto (the "Sellers," and each a
"Seller"), the individuals and entities listed on Exhibit B hereto (the "Non-Selling Holders") and Cephalon International Holdings, Inc.
(the "Purchaser").

                                                                Recitals

         WHEREAS, each of the Sellers currently holds that number of shares of common stock, par value $0.0001 (the "Common
Stock"), of the Company, as provided on Exhibit A hereto;

         WHEREAS, the Purchaser desires to purchase from each Seller an amount equal to 42.9415389% of the total number of
shares of Common Stock owned by such Seller at a per share price of $275.5736 USD, for an aggregate of Four Hundred Eighty-Five
Thousand Eight Hundred Forty-Seven (485,847) shares of Common Stock (the "Shares") at an aggregate purchase price of
$133,886,606.84 USD (the "Purchase Price"), as provided on Exhibit A hereto (the "Transfer");

         WHEREAS, pursuant to Section 1.8(a) of that certain Second Amended and Restated Investor Rights Agreement, dated as of
November 14, 2008, by and among the Company and the parties listed on Exhibit A thereto (the "Investor Rights Agreement"), the Sellers
and the Non-Selling Holders are entitled to certain rights, including notice rights and tag along rights, with respect to the proposed
Transfer;

         WHEREAS, the Purchaser's willingness to consummate the Transfer is conditioned upon the terms contained herein;

          WHEREAS, the Sellers and the Non-Selling Holders desire to consummate the Transfer on the terms contained herein and
are willing to waive and amend certain of their rights under the Investor Rights Agreement to accommodate the Transfer;

          WHEREAS, pursuant to Section 4.4 of the Investor Rights Agreement, (i) the Investor Rights Agreement or any provisions
thereof benefitting the holders of shares of Common Stock may be amended, waived, discharged or terminated with the written
consent of the holders holding at least a majority of the shares of Common Stock then held by the holders of shares of Common Stock
(the "Majority Common Holders") so long as the effect thereof will be that all holders of shares of Common Stock will be treated equally
and (ii) the Investor Rights Agreement or any provisions thereof benefitting Mesoblast Limited ("Mesoblast") may be waived by the
holders of a majority of the shares of the Company's capital stock owned by Mesoblast;

          WHEREAS, this Agreement constitutes a waiver and amendment of the Investor Rights Agreement and (i) affects all parties
to the Investor Rights Agreement similarly; (ii) does not decrease the rights of any single party under the Investor Rights Agreement
in comparison to such party's current rights in regards the other holders of shares of the Company's capital stock; and (iii) does not
increase such party's obligations under the Investor Rights Agreement; all except as specifically waived or amended herein;

         WHEREAS, the undersigned constitute the Company, the Majority Common Holders and Mesoblast;
          WHEREAS, the Company, Mesoblast, and Angioblast Acquisition Corp, a wholly-owned subsidiary of Mesoblast (the
"Sub") are parties to that certain Agreement and Plan of Merger, dated as of September 28, 2010 and subsequently amended on
October 13, 2010 (the "Merger Agreement"), pursuant to which the Sub will merge with and into the Company and the Company will
become a wholly-owned subsidiary of Mesoblast immediately following the Transfer and all Shares as well as all other outstanding
capital stock of the Company shall be treated as set forth in the Merger Agreement (the "Merger");

          WHEREAS, pursuant to the Merger Agreement, upon the Merger, the Shares shall be cancelled and automatically converted
into the right to receive ordinary shares of Mesoblast;

        WHEREAS, pursuant to the terms of the Merger Agreement, each of the Sellers is entitled to elect to receive fifteen percent
(15%) of such Seller's pro rata share of the merger consideration in cash (the "Cash Election");

         WHEREAS, as a condition to the Transfer, (a) the Sellers and (b) the Purchaser must each agree to waive any and all rights
to the Cash Election;

      WHEREAS, the Sellers and the Purchaser are each willing to waive any and all rights to the Cash Election in order to
accommodate the Transfer; and

         WHEREAS, the parties desire to set forth certain representations, warranties and covenants made by each to the other to
induce the sale of the Shares to the Purchaser and the consummation of the transactions contemplated by this Agreement.

         NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties and covenants herein
contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, the
parties hereby agree as follows:

         1.   Purchase of Stock.

                  (a) Purchase. Subject to the terms and conditions of this Agreement, each of the Sellers agree to sell to the
Purchaser, and the Purchaser agrees to purchase from each of the Sellers, the Shares in exchange for the Purchase Price, in the
amounts provided on Exhibit A hereto.

                  (b) Closing Date. The closing of the purchase contemplated by this Agreement (the "Closing") shall take place at
such location to be determined by the Sellers and the Purchaser on the date hereof (the "Closing Date").

                  (c) Delivery.

                          (1) At the Closing, the Purchaser will deliver to each of the Sellers, each such Seller's share of the
Purchase Price, in the amounts provided on Exhibit A hereto, paid by check or wire transfer.

                            (2) At the Closing, each of the Sellers shall (i) deliver the original stock certificate(s) or stock
power(s) evidencing ownership and transfer of the Shares registered in his, her or its name to the Company and (ii) the Company shall
deliver to the Purchaser an original stock certificate evidencing ownership of the Shares registered in the name of the Purchaser.

                                                                   2
                             (3) Promptly following the Closing, the Company shall (i) deliver to each of the Sellers an original stock
certificate evidencing ownership of the balance of the shares of the Company's Common Stock registered in the name of such Seller
and (ii) update its stock record books to reflect the purchase of the Shares by the Purchaser and the issuance of the remaining shares to
the Sellers.

                   (d) Assignment by Sellers. The Sellers hereby agree to assign and transfer to the Purchaser the Shares standing in
each of the Sellers' names on the Company's books at the Closing, and hereby irrevocably constitute and appoint Wilson Sonsini
Goodrich & Rosati, Professional Corporation, as attorney to transfer the Shares on the books of the Company with full power of
substitution in the premises.

                   (e) Further Assurances. The Purchaser and each of the Sellers, respectively, shall use all reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including the execution or
delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes
of, this Agreement.

           2.   Representations and Warranties of the Purchaser. The Purchaser represents and warrants to each of the Sellers as
follows:

                   (a) Authority. The Purchaser has the requisite corporate power and authority to enter into this Agreement, and has
taken all action necessary to authorize the transactions effected hereby. This Agreement has been duly and validly executed and
delivered by, and is the valid, legal and binding obligation of, the Purchaser, enforceable in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors'
rights generally and general principles of equity.

                  (b) No Violations. Neither the execution nor the delivery of this Agreement, nor the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof will conflict with or result in any violation of or constitute a
default under any terms of any material written agreement, mortgage, indenture, franchise, license, permit, authorization, lease or
other instrument, judgment, decree, order, law or regulation, to which the Purchaser is subject or by which it may be bound.

                   (c) Investment Representations. The Purchaser hereby represents and warrants to the Company as follows:

                             (1)        Authorization. The Purchaser has the requisite corporate power and authority to execute, deliver
and perform this Agreement. This Agreement, when executed and delivered by the Purchaser, will constitute a valid and legally
binding obligation of the Purchaser, enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and by laws
relating to the availability of specific performance, injunctive relief or other equitable remedies.

                           (2)       Accredited Investor. The Purchaser is an accredited investor, as defined in Rule 501 promulgated
under the Securities Act of 1933, as amended (the "Securities Act").

                            (3)      Purchase Entirely for Own Account. The Purchaser confirms that the Shares are being acquired
for investment for the Purchaser's own account, not as a nominee or agent, and not with a view to the resale or distribution of all or
any part thereof, and that the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the
same. By executing this

                                                                     3
Agreement, the Purchaser further represents that it does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third person with respect to any of the Shares.

                           (4)       Access to Data. The Purchaser has received and reviewed information about the Company and
has had an opportunity to discuss the Company's business, management and financial affairs with its management and to review the
Company's facilities.

                           (5)       Investment Experience. The Purchaser has such knowledge and experience in financial or
business matters that the Purchaser is capable of evaluating the merits and risks of the investment in the Shares, and the Purchaser can
bear the economic risk of its investment, including the risk of total loss.

                           (6)        Address. The state and country of the principal place of business of the Purchaser is correctly set
forth on signature page hereto.

         3. Representations and Warranties of the Sellers. Each of the Sellers, severally and not jointly, represents and warrants to
the Purchaser as follows:

                  (a) Authority. The Seller has full power and authority to enter into this Agreement, and to consummate the
transactions contemplated hereby and has taken all action necessary to authorize the transactions effected hereby. This Agreement has
been duly and validly executed and delivered by, and is the valid, legal and binding obligation of, the Seller, enforceable in
accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and general principles of equity.

                  (b) No Violations. Neither the execution nor the delivery of this Agreement, nor the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof will conflict with or result in any violation of or constitute a
default under any terms of any written agreement, mortgage, indenture, franchise, license, permit, authorization, lease or other
instrument, judgment, decree, order, law or regulation, to which the Seller is subject or by which the Seller may be bound.

                   (c) Title to the Shares. The Seller is the sole record and beneficial owner of the Shares. The Seller has, and will
deliver to the Purchaser, good and valid title to the Shares, free and clear of any mortgages, liens, encumbrances or other interests of
third parties of any nature, including but not limited to any right of first refusal. Seller has not granted any right to purchase the
Shares to any other person or entity. The Seller has the sole right to transfer the Shares to the Purchaser.

                   (d) Tax Liability. The Seller has reviewed with the Seller's own tax advisors the federal, state, local and foreign
tax consequences of the transactions contemplated by this Agreement. The Seller relies solely on such advisors and not on any
statements or representations of the Company or any of its agents for the federal, state, local and foreign tax consequences to the Seller
that may result from the transactions contemplated by this Agreement. The Seller understands that the Seller (and not the Company or
the Purchaser) shall be responsible for any tax liability of the Seller that may arise as a result of the transactions contemplated by this
Agreement.

                  (e) Brokers or Finders. The Seller has not incurred, and will not incur, directly or indirectly, as a result of any
action taken by the Seller, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with
this Agreement or any of the transactions contemplated hereby.

                                                                     4
         4. Acknowledgements by Purchaser and Sellers. The Purchaser and each of the Sellers acknowledge and represent to the
Company that the purchase price for the Shares hereby is agreed to solely between the Purchaser and each of the Sellers. The
Purchaser and each of the Sellers acknowledge and agree that the Company takes no position on the appropriateness or adequacy of
the purchase price and makes no representation or warranty regarding the value of the Shares. The Purchaser and each of the Sellers
acknowledge and agree that the actual value of the Shares may be substantially different than the purchase price for the Shares paid by
the Purchaser to any of the Sellers hereunder.

         5. Conditions to Obligation of the Purchaser to Close. The obligations of the Purchaser to purchase the Shares at the
Closing are subject to the satisfaction, at or prior to the Closing Date, of the following conditions:

                   (a) Representations and Warranties Correct. The representations and warranties made by each of the Sellers in
Section 3 of this Agreement shall be true and correct on the Closing Date.

                    (b) Delivery of Stock Certificates and/or Stock Powers. Each of the Sellers shall have delivered to the Company
all original stock certificate(s) and/or stock power(s) evidencing ownership and transfer of the Shares.

                  (c) Wire Transfer Instructions. Wire transfer instructions for each of the Sellers shall be correctly set down on the
signature pages hereto.

         6. Conditions to Obligation of the Sellers to Close. The obligations of each of the Sellers to sell the Shares at the Closing
are subject to the satisfaction, at or prior to the Closing Date, of the following conditions:

                   (a) Representations and Warranties Correct. The representations and warranties made by the Purchaser in
Section 2 of this Agreement shall be true and correct on the Closing Date.

                  (b) Delivery of Purchase Price. The Purchaser shall have delivered to each of the Sellers the Purchase Price for the
Shares.

          7.   Amendment of Investor Rights Agreement.

                  (a) Section 1.6(a) of the Investor Rights Agreement is hereby amended and restated in its entirety and replaced with
the following:

                            "(a)     Any Shareholder may transfer up to one third of their then current shareholding in which case (but
                  only in the case of this Section 1.6(a)) Tag Along Rights and Drag Along Rights shall not apply but the transferee
                  must enter into an agreement (1) to be bound by the terms of that certain Stock Purchase Agreement, dated as of
                  December 6, 2010, by and among the Company, the Selling Holders listed on Exhibit A thereto, the Non-Selling
                  Holders listed on Exhibit B thereto and Cephalon International Holdings, Inc. (the "December 2010 Stock Purchase
                  Agreement") and (2) acknowledging and approving the terms of that certain Agreement and Plan of Merger, by and
                  among Mesoblast, the Company and Angioblast Acquisition Corp., dated as of September 28, 2010 and
                  subsequently amended on October 13, 2010 (the "Merger Agreement"); and"

                  (b) Section 1.8 of the Investor Rights Agreement is hereby amended by adding the following Section 1.8(g):

                                                                   5
                             "(g)      This section 1.8 shall not apply to the offer or sale of shares of the Company by certain of its
                     stockholders pursuant to the December 2010 Stock Purchase Agreement."

                     (c) Section 4 of the Investor Rights Agreement shall be amended by adding the following Section 4.12:

                               "4.12     Termination. This Agreement shall terminate and be of no further force and effect immediately
                     prior to the closing of the merger contemplated by the Merger Agreement."

         8.   Waiver of Rights under Investor Rights Agreement.

                 (a) Waiver. Each of the Sellers and Mesoblast hereby waive any and all rights pursuant to Section 1.8 of the
Investor Rights Agreement with respect to the Transfer (the "Waiver").

                  (b) Effectiveness. Notwithstanding anything to the contrary contained herein, this Waiver shall become effective
and binding on all the holders of shares of Common Stock upon execution by the Company, the Sellers and Mesoblast. The failure of
one or more holders of shares of Common Stock to sign this Waiver shall not affect its effectiveness.

                     (c) Effect. This Waiver applies solely with respect to the Transfer and not with respect to any other sale, transfer or
other transaction.

          9. Waiver of Right to Cash Election. Each of the Sellers and the Purchaser, severally and not jointly, waives any and all
right to the Cash Election pursuant to the terms of the Merger Agreement.

         10. Restrictions on Transfer.

                 (a) Investment Representations and Legend Requirements. The Purchaser understands and agrees that the
Company shall cause the legends set forth below, or substantially equivalent legends, to be placed upon any certificate(s) evidencing
ownership of the Shares, together with any other legends that may be required by the Company or by applicable state or federal
securities laws:

         "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
         NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE
         SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY
         RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REASONABLY
         ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
         PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT."

         "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH
         THE TERMS OF A CERTAIN INVESTOR RIGHTS AGREEMENT BY AND AMONG THE COMPANY, THE
         STOCKHOLDER AND THE OTHER PARTIES IDENTIFIED THEREIN, A COPY OF WHICH IS ON FILE WITH THE
         SECRETARY OF THE COMPANY."

                 (b) Stop-Transfer Notices. The Purchaser hereby agrees that to ensure compliance with the restrictions referred to
herein, the Company may issue appropriate "stop transfer" instructions to its

                                                                       6
transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its
own records.

                  (c) Refusal to Transfer. The Purchaser hereby agrees that the Company shall not be required (i) to transfer on its
books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall
have been so transferred.

         11. Miscellaneous Provisions.

                   (a) Governing Law. This Agreement will be construed in accordance with Delaware law, without giving effect to
its choice of law provisions, as applied to agreements among Delaware residents entered into and to be performed entirely within
Delaware.

                   (b) Counterparts. This Agreement may be executed in any number of counterparts and each will be considered an
original, and together they will constitute one Agreement. Facsimile signatures will be considered original signatures for all
applicable purposes.

                 (c) Survival. The representations, warranties, covenants and agreements made herein shall survive any
investigation made by the parties hereto and the closing of the transactions contemplated hereby.

                   (d) Entire Agreement. This Agreement and the agreements contemplated hereby set forth the entire understanding
as the parties hereto and supercede any prior and or written agreements and understandings with respect to the subject matter hereof.

                 (e) Amendments and Modification. This Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement executed by each of the parties.

                   (f) Reliance on Counsel and Advisors. Each of the Company, the Purchaser, the Sellers and the Non-Selling
Holders acknowledge that he, she or it had the opportunity to review this Agreement and the transactions contemplated hereby with
his, her or its own legal counsel, tax advisors and other advisors. Each of the Company, the Purchaser, the Sellers and Non-Selling
Holders are relying solely on his, her or its own counsel and advisors and not on any statements or representations of the Company or
its agents for legal or other advice with respect to this investment or the transactions contemplated by this Agreement.

                  (g) Section Headings. The section headings and subheadings contained in this Agreement are for convenient
reference only, and will not in any way affect the interpretation of this Agreement.

                  (h) Binding Effect. All of the terms, covenants, representations, warranties and conditions of this Agreement will
be binding upon, and inure to the benefit of and be enforceable by, the parties and their respective successors, assigns or other legal
representatives, but this Agreement and the rights and obligations hereunder may only be assigned with the prior written consent of
the parties.

                  (i) Expenses. Each of the Company, the Purchaser, the Sellers and Non-Selling Holders agree to bear their own
legal, accounting and other professional expenses in connection with the preparation and consummation of this Agreement and the
transactions contemplated hereby.

                                                                     7
                   (j) Notices. Any notice, demand, offer, request or other communication required or permitted to be given by either
the Company, the Sellers, the Non-Selling Holder or the Purchaser pursuant to the terms of this Agreement shall be in writing and
shall be deemed effectively given the earlier of (i) when received, (ii) when delivered personally, (iii) one business day after being
delivered by facsimile (with receipt of appropriate confirmation), (iv) one business day after being deposited with an overnight courier
service or (v) four days after being deposited in the U.S. mail, First Class with postage prepaid and return receipt requested, addressed:
(i) if to the Company, to Angioblast Systems, Inc., 275 Madison Avenue, 4th Floor, New York, NY, 10016, Attn: CEO, with a copy to
Mark R. Fitzgerald, Esq., 1700 K Street NW, Washington, D.C., 20006 (which copy shall not constitute notice), (ii) if to the
Purchaser, to such address set forth under the Purchaser's name on the signature page hereto, (iii) if to a Seller, to such address set
forth under the such Seller's name on Exhibit A hereto, and (iv) if to a Non-Selling Holder, to such address set forth under such Non-
Selling Holder's name on Exhibit B hereto, or such other address as a party may request by notifying the others in writing.

                   (k) Assignment; Transfers. Except as set forth in this Agreement, this Agreement, and any and all rights, duties
and obligations hereunder, shall not be assigned, transferred, delegated or sublicensed by the Purchaser without the prior written
consent of the Company. Any attempt by the Purchaser without such consent to assign, transfer or delegate any rights, duties or
obligations that arise under this Agreement shall be void. .

                 (l) Adjustment for Stock Split. All references to the number of Shares and the purchase price of the Shares in this
Agreement shall be adjusted to reflect any stock split, stock dividend or other change in the Shares which may be made after the date
of this Agreement.

                    (m) Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision, provided
that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party.

                                                   [SIGNATURE PAGE FOLLOWS]

                                                                    8

        IN WITNESS WHEREOF, the Company, the Purchaser, the Sellers and the Non-Selling Holders have executed this Stock
Purchase Agreement or caused this Stock Purchase Agreement to be executed, all as of the date and year first above written.

                                                                     COMPANY:

                                                                     ANGIOBLAST SYSTEMS, INC.

                                                                     By:    /s/ Carter Eckert

                                                                     Name: Carter Eckert

                                                                     Title: Chairman


                                                                     PURCHASER:

                                                                     Cephalon International Holdings, Inc.


                                                                     By:    /s/ J. Kevin Buchi

                                                                     Name: J. Kevin Buchi

                                                                     Title: Chief Operating Officer


                                                                     Address:
                                                                     41 Moores Road
                                                                     Frazer, PA 19355 U.S.A.


                                                                     Telephone: 610-344-0200
                                                                     Facsimile: 610-344-0065
                                                                     Email:
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
                      NON-SELLING HOLDER:

                      MESOBLAST LIMITED


                      By: /s/ Brian Jamieson
                      Name: Brian Jamieson
                      Title: Chairman


                      By: /s/ Kevin Hollingsworth
                      Name: Kevin Hollingsworth
                      Title: Company Secretary

[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
                      SELLER:

                      DR. SILVIU ITESCU

                          /s/ Silviu Itescu


                      Wire Transfer Instructions:

[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
                      SELLER:

                      MICHAEL SCHUSTER

                          /s/ Michael Schuster


                      Wire Transfer Instructions:

[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
                      SELLER: THORNEY HOLDINGS PTY LTD

                      c/o ANZ NOMINEES LIMITED CUSTODIAL   ACCOUNT:
                      283700021108

                      By: /s/ Ashley West

                      Name: Ashley West

                      Title: Director


                      SELLER: THORNEY HOLDINGS PTY LTD

                      c/o ANZ NOMINEES LIMITED CUSTODIAL   ACCOUNT:
                      283700021108

                      By: /s/ Craig Smith

                      Name: Craig Smith

                      Title: Secretary


                      Wire Transfer Instructions:

[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
                      SELLER:

                      ABBOTT CARDIOVASCULAR SYSTEMS, INC.

                      By: /s/ Robert B. Hance

                      Name: Robert B. Hance

                      Title: Authorized Signatory


                      Wire Transfer Instructions:

[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
                      SELLER:


                      WS INVESTMENT COMPANY, LLC (2003A)

                      By:      /s/ James Terranova

                      Name: James Terranova

                      Title:


                      Wire Transfer Instructions:

[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
                      SELLER:

                      CARTER ECKERT

                      /s/ Carter Eckert
                      Carter Eckert


                      Wire Transfer Instructions:

[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
                      SELLER:

                      ABBOTT CARDIOVASCULAR SYSTEMS, INC.

                      By: /s/ Robert B. Hance

                      Name: Robert B. Hance

                      Title: Authorized Signatory


                      Wire Transfer Instructions:

[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
                                                                  SELLER:

                                                                  THE TRUSTEES OF COLUMBIA UNIVERSITY IN THE CITY
                                                                  OF NEW YORK

                                                                  By: /s/ Orin Herskowitz

                                                                  Name: Orin Herskowitz

                                                                  Title: Executive Director, CTV


                                                                  Wire Transfer Instructions:

                                 [SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]


                                                           EXHIBIT A
                                                        SELLING HOLDERS
                                                                                                                          Shares of
                                                           Total                                                          Angioblast
                                                         Shares of       Shares of                                         Systems,
                                                         Angioblast     Angioblast                                           Inc.
                                                          Systems,     Systems, Inc.                                      Common
                                                            Inc.         Common          Aggregate        Aggregate       Stock held
                                                         Common         Stock to be    Purchase Price   Purchase Price    following
Name and Address                                             Stock       Transferred        (AUD)            (USD)          Transfer
Silviu Itescu
c/o Angioblast Systems, Inc.
275 Madison Avenue, 4th Floor
New York, NY, 10016
Fax: +1.212.880.2061                                         905,050         388,642 $ 108,191,873.25 $ 107,099,475.05        516,408

Michael Schuster
c/o Angioblast Systems, Inc.
275 Madison Avenue, 4th Floor
New York, NY, 10016
Fax: +1.212.880.2061                                          20,000            8,588 $   2,390,847.00 $   2,366,626.08        11,412

ANZ Nominees Ltd, Custodial Account: 283700021108
c/o Thorney Holdings Pty Ltd.
55 Collins Street, Level 39
Melbourne 3000
Australia                                                     19,950            8,566 $   2,384,870.10 $   2,360,563.46        11,384

Abbott Cardiovascular Systems, Inc.
3200 Lakeside Drive
Santa Clara, CA 95054
Attn: Division Vice President and Section Head, Legal         70,091          30,098 $    8,378,843.85 $   8,294,214.21        39,993

Carter Eckert
c/o Angioblast Systems, Inc.
275 Madison Avenue, 4th Floor
New York, NY, 10016
Fax: +1.212.880.2061                                          37,500          16,103 $    4,482,840.30 $   4,437,561.68        21,397
WS Investment Company, LLC (2003A)
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: Jim Terranova
Fax: 1.650.493.6811                                    15,000    6,441 $     1,793,135.25 $     1,774,969.56    8,559

The Trustees of Columbia University
in the City of New York
Executive Director Science and Technology Ventures
Columbia Innovation Enterprises
Columbia University
Engineering Terrace, Suite 363
500 West 120th Street, Mailcode 2206
New York, NY 10027
Attn: Michael J. Cleare                                63,829   27,409 $     7,630,269.75 $     7,553,196.80   36,420

Total:                                               1,131,420 485,847 $   135,252,679.50 $   133,886,606.84 645,573
                                   EXHIBIT B
                              NON-SELLING HOLDERS
                                                    Total Shares of Angioblast
Name and Address                                    Systems, Inc. Common Stock
Mesoblast Limited
55 Collins Street, Level 39
Melbourne 3000
Australia                                                                 705,323
                                                        EXHIBIT C
                                                  ILLUSTRATIVE EXAMPLE

                             Shares of Mesoblast to be issued pursuant to Merger following Transfer
                                                                                                                     Shares of
                                                                                                 Shares of           Mesoblast
                                                                                             Mesoblast Shares         held by
                                                                                             to be Received by         Seller
                                                                        Total Shares of         Cephalon in          following
Name and Address                                                            Mesoblast               Merger              Merger
Silviu Itescu
c/o Angioblast Systems, Inc.
275 Madison Avenue, 4th Floor
New York, NY, 10016
Fax: +1.212.880.2061                                                            57,919,899             24,871,695      33,048,204

Michael Schuster
c/o Angioblast Systems, Inc.
275 Madison Avenue, 4th Floor
New York, NY, 10016
Fax: +1.212.880.2061                                                             1,279,927                 549,620        730,307

ANZ Nominees Ltd, Custodial Account: 283700021108
c/o Thorney Holdings Pty Ltd.
55 Collins Street, Level 39
Melbourne 3000
Australia                                                                        1,276,727                 548,246        728,481

Abbott Cardiovascular Systems, Inc.
3200 Lakeside Drive
Santa Clara, CA 95054
Attn: Division Vice President and Section Head, Legal                            4,485,568              1,926,171       2,559,397

Carter Eckert
c/o Angioblast Systems, Inc.
275 Madison Avenue, 4th Floor
New York, NY, 10016
Fax: +1.212.880.2061                                                             2,399,863              1,030,538       1,369,325

WS Investment Company, LLC (2003A)
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: Jim Terranova
Fax: 1.650.493.6811                                                                959,945                 412,215        547,730
The Trustees of Columbia University
in the City of New York
Executive Director Science and Technology Ventures
Columbia Innovation Enterprises
Columbia University
Engineering Terrace, Suite 363
500 West 120th Street, Mailcode 2206
New York, NY 10027
Attn: Michael J. Cleare                                               4,084,823    1,754,085    2,330,738

Total:                                                              117,544,851   31,092,570   41,314,182

                                         FOR EXPLANATORY PURPOSES ONLY.

                                         ACTUAL SHARE NUMBERS MAY VARY.
                     Exhibit 10.29(b)

                   Subscription Deed


                  Mesoblast Limited
                 ABN 68 109 431 870


                                 and


Cephalon International Holdings, Inc.


                 Middletons Lawyers

                  Melbourne office
         Ref: MLUM.NZM:10024006
Subscription Deed

Date                                                         2010

Parties

1.        Mesoblast Limited ABN 68 109 431 870 of Level 39, 55 Collins Street, Melbourne, Victoria 3000, Australia (Mesoblast)

2.        Cephalon International Holdings, Inc. of 41 Moores Road, Frazer, PA 19355, United States of America (Cephalon)

Background
A.        Mesoblast and Angioblast Systems, Inc (Angioblast) have entered into a merger agreement dated as of September 28, 2010
          and amended on October 13, 2010 for the acquisition by Mesoblast of all of the issued capital of Angioblast (Merger
          Agreement).

B.        Cephalon, simultaneously with the execution of this Subscription Deed, will:

          (a)     enter into a licence agreement with Angioblast under which Cephalon is to acquire the license of certain intellectual
                  property rights of Angioblast in specified applications and territories; and

          (b)      acquire certain stock in Angioblast which in accordance with the terms of the Merger Agreement will on completion
                  under that agreement be extinguished with Mesoblast issuing new Shares to those persons holding Angioblast stock
                  on the date of completion.

C.         Mesoblast wishes to issue and Cephalon wishes to subscribe for additional Shares which on issue, in aggregate with the
          Shares to be issued to Cephalon on completion under the Merger Agreement, will result in Cephalon holding 19.99% of the
          issued Shares.

D.         Mesoblast has agreed to issue and Cephalon has agreed to subscribe for the additional Shares as outlined in accordance with
          recital C on the terms and condition of this Deed.

Operative Provisions

1.        Definitions and interpretation

1.1       Definitions

          In this Deed:

          AEDST means Australian Eastern daylight saving time;

          Angioblast means Angioblast Systems, Inc a company incorporated under the laws of State of Delaware, in the United States;

          ASX means the Australian Securities Exchange or ASX Limited, as the context requires;

          ASX Listing Rules means the Official Listing Rules of ASX;
Business Day means a day which is not a Saturday, Sunday, public holiday or bank holiday in Victoria Australia;

Cephalon Associates means any officer of Cephalon or any person or entity who would constitute an "associate" of Cephalon
(where Cephalon was an Australian company) within the meaning given to the term "associate" under sections 11, 12 and 15
of the Corporations Act;

Cephalon Group means Cephalon and its subsidiaries and controlled entities;

Completion Date means (subject to clause 2.6(b)) that date being not more than 2 Business Days after the date that each of
the Conditions Precedent is satisfied;

Conditions Precedent means the conditions precedent to the issue of the Subscription Shares as detailed in clause 3.1;

Control Proposal means any proposed or possible transaction or arrangement which, if entered into or completed, would
result in any person:

(a)     acquiring (whether directly or indirectly):

        (i)      an interest in all or a substantial part of the business of the Mesoblast Group, or a right to acquire any such
                interest; or

        (ii)     a relevant interest in 20% or more of Shares, or a right to acquire any such relevant interest;

(b)      acquiring control (as determined in accordance with section 50AA of the Corporations Act) of Mesoblast;

(c)      otherwise acquiring or merging with Mesoblast;

Corporations Act means the Corporations Act 2001 (Cth);

Deed means this Deed including the recitals, any schedules and any annexures;

Government Agency includes any government, or any government, semi-government or judicial agency or authority;

Mesoblast Board means the Board of Directors of Mesoblast;

Mesoblast Group means Mesoblast and its related bodies corporate;

Notice of Meeting means a notice of meeting of Shareholders to approve the issue of the Subscription Shares to Cephalon for
the purposes of ASX Listing Rule 7.1;

related body corporate has the meaning given to that term in the Corporations Act;

relevant interest has the meaning given to that term in the Corporations Act;

Shares means fully paid ordinary shares in the capital of Mesoblast;

Subscription Amount means the aggregate Subscription Price per Share for the issue of all of the Subscription Shares being
equal to the number of Subscription Shares multiplied by the Subscription Price;

                                                           2
      Subscription Price means a price per Subscription Share being the lesser of (a) Au$110,601,295 divided by the total
      Subscription Shares and (b) Au$4.35; and

      Subscription Shares means a number of Shares equal to 19.99% of the issued Shares (after the issue of the Subscription
      Shares) less that number of Shares already issued to Cephalon under the Merger Agreement.

1.2   Interpretation

      In this Deed, unless the context requires otherwise:

      (a)      the singular includes the plural and vice versa and a gender includes the other genders;

      (b)      the headings are used for convenience only and do not affect the interpretation of this Deed;

      (c)      other grammatical forms of defined words or expressions have corresponding meanings;

      (d)      the word "person" includes a natural person and any body or entity whether incorporated or not;

      (e)      the words "in writing" include any communication sent by letter or facsimile transmission;

      (f)      a reference to all or any part of a statute, rule, regulation or ordinance (statute) includes that statute as amended,
              consolidated, re-enacted or replaced from time to time;

      (g)      wherever "include" or any form of that word is used, it must be construed as if it were followed by "(without being
              limited to)" and

      (h)      a reference to any agency or body, if that agency or body ceases to exist or is reconstituted, renamed or replaced or
              has its powers or functions removed (defunct body), means the agency or body which performs most closely the
              functions of the defunct body.

2.    Issue of Subscription Shares

2.1   Application for Subscription Shares

      Cephalon by executing this Deed agrees to subscribe for and Mesoblast agrees to issue the Subscription Shares on the terms
      and conditions of this Deed. Cephalon's agreement to subscribe for the Subscription Shares is irrevocable and, except as
      otherwise provided by this Deed, unconditional.

2.2   Subscriber's obligations

      Cephalon must by 3.00pm AEDST on the Completion Date pay (in cleared funds) the Subscription Amount to Mesoblast by
      bank cheque or electronic funds transfer to an account nominated by Mesoblast.

                                                                  3
2.3   Mesoblast's obligations

      Subject to compliance by Cephalon with clause 2.2, Mesoblast must, on the Completion Date:

      (a)     allot and issue the Subscription Shares to Cephalon, including by causing Mesoblast's share registry to register
              Cephalon as the holder of the Subscription Shares;

      (b)      apply for and do everything the ASX reasonably requires to obtain quotation of the Subscription Shares; and

      (c)      deliver or cause to be delivered to Cephalon a holding statement for the Subscription Shares.

2.4   Constitution

      Cephalon agrees to be bound by and to hold the Subscription Shares subject to the terms of Mesoblast's Constitution (as
      amended from time to time).

2.5   Cleansing notice

      If on the Completion Date:

      (a)     the requirements of section 708A(5)(a), (b), (c) and (d) of the Corporations Act are satisfied in relation to Mesoblast
              and the existing issued Shares (as applicable);

      (b)      Mesoblast has complied with:

              (i)      the provisions of Chapter 2M of the Corporations Act as they apply to Mesoblast; and

              (ii)     section 674 of the Corporations Act; and

              (iii)      there is no determination in force under section 708A(2) of the Corporations Act,

      Mesoblast must, on the Completion Date, issue a notice in accordance with section 708A(5)(e) of the Corporations Act
      (cleansing statement) in relation to the Subscription Shares issued on the Completion Date.

2.6   Disclosure document

      If any of the requirements referred to in clause 2.5 will not be satisfied on the Completion Date:

      (a)      Mesoblast must so notify Cephalon before the Completion Date promptly upon becoming aware that such
              requirements will not be satisfied; and

      (b)      Mesoblast must as soon as reasonably practicable issue a disclosure document which complies with Part 6D.2 of the
              Corporations Act (disclosure document) on or prior to the Completion Date (which shall be postponed to such date
              notified by Mesoblast to Cephalon with the notification given under paragraph (a) as will give Mesoblast sufficient
              time to prepare and issue the disclosure document) so that

                                                                 4
              Cephalon will not be subject to any on-sale restrictions in respect of such Shares under section 707(3) of the
              Corporations Act.

      Mesoblast's obligation to issue a disclosure document in accordance with this clause 2.6 is subject to Cephalon and its
      directors (if applicable) giving the consent required under section 720 of the Corporations Act. Mesoblast must do everything
      reasonably required by Cephalon (in accordance with customary procedures and practice) to facilitate Cephalon and its
      directors (if applicable) giving such consent.

3.    Precondition to the issue of the Subscription Shares

3.1   Conditions precedent

      The issue of the Subscription Shares by Mesoblast to Cephalon is conditional on:

      (a)     Mesoblast obtaining the approval of its Shareholders for the purposes of ASX Listing Rule 7.1;

      (b)     no objection being received and the period of 30 days expiring (or earlier terminated) from the date of the filing by
              Mesoblast and Cephalon of a merger / acquisition notification (HSR filing) as required under the US Hart-Scott-
              Rodino Antitrust Improvements Act of 1976, as amended; and

      (c)      the Treasurer of the Commonwealth of Australia either:

              (i)      issuing a notice stating that the Commonwealth Government does not object to the proposed acquisition of
                      the Subscription Shares by Cephalon, either without conditions or with conditions that Cephalon considers
                      acceptable (acting reasonably); or

              (ii)     becoming, or being, precluded under the Foreign Acquisitions and Takeovers Act 1975 (Cth) from making
                      an order in respect of the proposed acquisition of the Subscription Shares by Cephalon,

      in each case on or before 28 February 2011 or any other date agreed by Mesoblast and Cephalon in writing.

3.2   Duties in relation to Conditions Precedent

      (a)     Each party must use its reasonable endeavours to ensure that the Conditions Precedent are fulfilled on or before the
              date specified in that clause.

      (b)      Without limiting the generality of paragraph (a), Mesoblast must use reasonable endeavours to convene a meeting of
              Shareholders to consider the Shareholders' approval required by the Condition Precedent in clause 3.1(a), including
              by dispatching the Notice of Meeting by no later than 15 January 2011.

      (c)      Each party must:

              (i)      supply the other with all information and documents necessary or desirable for the purpose of enabling the
                      other party to fulfil or procure the fulfilment of each Condition Precedent; and

              (ii)     not take any action that would, or would be likely to, prevent or hinder the fulfilment of each Condition
                      Precedent.

                                                                5
      (d)      Without limiting the generality of paragraph (c), Cephalon must promptly provide Mesoblast with such information
              in relation to Cephalon and the Cephalon Group (Cephalon Information) as is reasonably required for the purposes of
              any disclosure that must be included in the Notice of Meeting or the HSR filing.

      (e)      Mesoblast must consult with Cephalon as to the content and presentation of the Notice of Meeting and must:

              (i)       provide to Cephalon successive drafts of the Notice of Meeting and of any other document which it is
                       proposed will accompany the Notice of Meeting to enable Cephalon to review and comment on those drafts;

              (ii)      take all comments made by Cephalon into account in good faith when producing revised drafts of the Notice
                       of Meeting and any accompanying documents;

              (iii)     before issuing the final Notice of Meeting and any accompanying documents, obtain Cephalon's written
                       approval for the form and content in which the Cephalon Information appears in those documents; and

              (iv)      keep Cephalon informed of any issues raised by the ASX or any other person about the Notice of Meeting or
                       generally the transactions to be given effect by this Deed and take into account in good faith in resolving
                       such issues any matters raised by Cephalon.

      (f)      If the parties are unable to agree on the final form of the Notice of Meeting and any accompanying documents, the
              final form and content shall be determined by Mesoblast acting reasonably but if Cephalon disagrees with such form
              and content:

              (i)      Mesoblast must include a statement to that effect in the Notice of Meeting; and

              (ii)      if the failure to agree relates to the Cephalon Information or any other information concerning the Cephalon
                       Group, Mesoblast must include a statement that Cephalon takes no responsibility for the relevant form and
                       content to the extent that Cephalon disagrees with it.

3.3   Failure of Conditions Precedent

      Either party may, if not otherwise in breach of this Deed, terminate the obligation on the parties to proceed with the issue of
      the Subscription Shares in accordance with clause 2 of this Deed by giving written notice to all other party at any time before
      Completion if the Conditions Precedent are not satisfied before 5.00 pm AEST on the date specified in clause 3.1.

3.4   No Share issues pending satisfaction of Conditions Precedent

      Mesoblast represents and warrants to Cephalon that Mesoblast does not foresee the need for any additional capital or other
      funding during the period from the execution of this agreement and the date by which each Condition Precedent must be
      satisfied or the obligation on the parties to proceed with the issue of the Subscription Shares in accordance with clause 2 is
      terminated under clause 3.3 (the Condition Satisfaction Period) beyond the funding to be received by Angioblast from Cephalon
      pursuant to the licence agreement referred to in recital B. Accordingly, during the Condition Satisfaction

                                                                 6
      Period, Mesoblast must not issue any Shares, partly paid shares or any other class of shares or securities convertible into
      shares other than under any employee or Director Share or option plan or remuneration arrangements for employees or
      Directors (including upon the exercise of options granted under such arrangements).

4.    Standstill obligation

4.1   Not to acquire any interest in further Shares

      Subject to clause 4.3, Cephalon agrees that for a period of 12 months from the date of this Deed it will not and it will procure
      that its Cephalon Associates do not:

      (a)     acquire or obtain any right, title or interest of any nature whatever in any further Shares or securities capable of
              conversion into Shares or which give substantially the economic benefit of Shares; or

      (b)      enter into any arrangement, understanding or agreement with any party concerning Shares or securities capable of
              conversion into Shares which give substantially the economic benefit of Shares,

      which in aggregate would give Cephalon a relevant interest in Shares of more than 19.99%. For the purpose of clarity in the
      event of any dilutive issue (including without limitation those matters referred to in clause 7.3 below) which as a consequence
      results in Cephalon's relevant interest being less than 19.99%, Cephalon can buy (on market or off market) from any
      Mesoblast shareholder which in aggregate would give Cephalon a relevant interest in Shares of no more than 19.99%.

4.2   Not to announce or make any Takeover Offer or like action

      Subject to clause 4.3, Cephalon agrees that for a period of 12 months from the date of this Deed it will not and it will ensure
      that its Cephalon Associates do not announce or make any takeover offer or like corporate action to offer to acquire any right,
      title or interest in further Shares other than in respect of the Shares to be issued to Cephalon under the Merger Agreement or,
      where the Condition Precedent is satisfied under clause 2 of this Deed, the Shares to be issued under this Deed or as otherwise
      permitted by this Deed.

4.3   Third Party Control Proposals

      Clauses 4.1 and 4.2 cease to apply if:

      (a)      any person (other than Cephalon or a Cephalon Associate) announces or makes any Control Proposal; or

      (b)      Mesoblast announces that it is in any discussions with any person (other than Cephalon or a Cephalon Associate)
              concerning a Control Proposal.

4.4   No action to cause classification as Controlled Foreign Corporation

      Cephalon agrees that for a period of 12 months from the date of this Deed it will take no action which is reasonably likely to
      result in Mesoblast being classified or treated as a controlled foreign corporation for the purpose of the taxation laws of the
      United States.

                                                                 7
5.    Parties'Acknowledgments and Representations

5.1   Cephalon's acknowledgments

      Cephalon acknowledges that:

      (a)      the issue of the Subscription Shares to Cephalon does not (except pursuant to clause 2.5 or clause 2.6) require a
              disclosure document, prospectus or like registerable document to be prepared by Mesoblast pursuant to any
              applicable legislation and therefore Cephalon has not received that information which would otherwise be available
              to a potential investor in such a document;

      (b)      Cephalon has investigated all material matters that a prudent intending subscriber for the Subscription Shares would
              investigate and has satisfied itself about anything arising from its investigation (but having regard to Mesoblast's
              representations and warranties in clauses 5.2 and 5.3);

      (c)      it has received independent professional advice in relation to the subscription for the Subscription Shares (including
              legal, accounting, tax and financial advice), has satisfied itself about anything arising from that advice and is able to
              evaluate the risks and merits of subscribing for the Subscription Shares;

      (d)      an investment in the Subscription Shares is speculative and there is no guarantee that there will be any return on
              holding the Subscription Shares, any class of shares in Mesoblast or Mesoblast itself (whether by way of dividends or
              return of capital or any other manner whatever);

      (e)      apart from Mesoblast's representations and warranties in clauses 5.2 and 5.3, neither Mesoblast, nor its officers,
              agents or advisers, have made any representation or warranty of any kind whatever in connection with this Deed,
              Mesoblast, its financial position or trading in shares of any class in Mesoblast; and

      (f)      apart from Mesoblast's representations and warranties in clauses 5.2 and 5.3, to the fullest extent permitted by law,
              all terms, conditions, undertakings, inducements, warranties or representations (whether express or implied, statutory
              or otherwise), which relate to or are connected with terms of this Deed are excluded.

5.2   Mutual Representations and Warranties

      Each party represents and warrants to the other, as an inducement to the other to enter into this Deed and to subscribe for or
      issue the Subscription Shares that:

      (a)     it has full and lawful authority to execute and deliver this Deed and to perform, or cause to be performed, its
              obligations under this Deed;

      (b)      apart from the Conditions Precedent, it has taken all action required and obtained or been granted all consents,
              approvals, permissions and authorisations, whether internal or external, necessary to enable it to enter into and
              perform its obligations under this Deed;

      (c)      this Deed constitutes a legal, valid and binding obligation of the party enforceable in accordance with its terms by
              appropriate legal remedy; and

                                                                 8
      (d)      the execution, delivery and performance of this Deed will not contravene:

              (i)       any law, regulation, order, judgment or decree of any court or Government Agency which is binding on it or
                       any of its property;

              (ii)      any provision of its constitution or equivalent documents; or

              (iii)     any agreement, undertaking or instrument which is binding on the party or any of its property.

5.3   Mesoblast's Representations and warranties

      Mesoblast represents and warrants to Cephalon, as an inducement to Cephalon to enter into this Deed and to subscribe for the
      Subscription Shares that:

      (a)     Mesoblast has complied with its obligations under ASX Listing Rule 3.1 and, other than as fairly disclosed to
              Cephalon, is not relying on ASX Listing Rule 3.1A to withhold information from disclosure; and

      (b)      Mesoblast has complied with its obligations under Chapter 2M of the Corporations Act.

6.    Director Appointment

6.1   Appointment of Cephalon Nominee

      Having regard to the matters described in recital B, Mesoblast agrees to procure that the Mesoblast Board upon the execution
      of this Deed appoints a person nominated by Cephalon as a Director of Mesoblast (the Cephalon Nominee). The first Cephalon
      Nominee will be Mr Kevin Buchi.

6.2   Replacement of Cephalon Nominee

      Cephalon may nominate a person to replace the existing Cephalon Nominee at any time and in that event Mesoblast must
      procure the Mesoblast Board to appoint the replacement as a Director, as long as the replacement is suitably qualified and
      acceptable to the Mesoblast Board acting reasonably.

6.3   Appointment of Alternate

      Mesoblast must procure that the Mesoblast Board consents to the Cephalon Nominee appointing another person to act as the
      Cephalon Nominee's alternate, subject to the alternate meeting the requirement specified in clause 6.2.

6.4   Other Directors

      Clause 6.1 does not limit Cephalon's rights as a Shareholder to nominate for election or vote for or against the election or re-
      election of any Director or proposed Director of Mesoblast (in addition to the Cephalon Nominee) at any general meeting of
      Mesoblast Shareholders.

6.5   Disclosure of Information by Cephalon Nominee to Cephalon

      Having regard to the benefits to Mesoblast of having Cephalon's contribution through the Cephalon Nominee to the
      deliberations of the Mesoblast Board, Mesoblast agrees that

                                                                  9

      the Cephalon Nominee may provide information obtained by the Cephalon Nominee as a Director of Mesoblast to Cephalon,
      officers of Cephalon or Cephalon, Inc. and the advisers to Cephalon or Cephalon, Inc., subject to:

      (a)      Cephalon ensuring that any such information which is confidential is not further disclosed unless required by law
              (including pursuant to an order, rule, regulation or policy of any Government Agency or securities exchange or stock
              market) and then only to the extent so required and after consulting with Mesoblast to the extent practicable; and

      (b)     such information not being used for any purpose other than to obtain Cephalon's contribution through the Cephalon
              Nominee to the deliberations of the Mesoblast Board,

      except where there is an actual conflict of interest between Cephalon and Mesoblast in respect of a particular matter and the
      information relates to that matter (in which case the relevant information must remain confidential and the Cephalon Nominee
      may, at the discretion of the other members of the Mesoblast Board, be excluded from deliberations in relation to that matter
      if required by section 195 of the Corporations Act).

6.6   Disclosure of Financial Information to Cephalon
Mesoblast (in this clause 6.6 referred to as the Company) must:

(a)      deliver to Cephalon as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year
        of the Company, a consolidated income statement for such fiscal year, a consolidated balance sheet as of the end of
        such year and a consolidated cash flow statement for such fiscal year, such year-end financial reports to be in
        reasonable detail, prepared in accordance with applicable generally accepted accounting principles consistently
        applied, and audited in accordance with Australian International Financial Reporting Standards by independent
        public accountants of nationally recognized standing selected by the Company, and additionally, the Company shall
        deliver a draft of such year end financial reports to Cephalon as soon as practicable, but in any even within seventy-
        five (75) days after the end of each fiscal year of the Company;

(b)      deliver to Cephalon as soon as practicable, but in any event within fifteen (15) days after the end of each of the
        quarter of each fiscal year of the Company, an unaudited consolidated profit or loss statement for such fiscal quarter,
        an unaudited consolidated balance sheet as of the end of such fiscal quarter and an unaudited consolidated cash flow
        statement for such fiscal quarter;

(c)      deliver to Cephalon as soon as reasonably practicable, additional supporting financial information as mutually
        agreed upon by Cephalon and the Company;

(d)      deliver to Cephalon, with respect to the audited financial statements called for in this clause 6.6 and the unaudited
        financial statements called for in this clause 6.6, an instrument executed by the chief financial officer or chief
        executive officer of the Company, certifying that such financials were prepared in accordance with International
        Financial Reporting Standards and generally accepted accounting principles consistently applied with prior practice
        for earlier periods and fairly present, in all material respects, the consolidated financial condition of the Company and
        its results of operation for the period specified, subject to year-end audit adjustments and, in the case of the financial
        statements called for in paragraphs (b) and (c) of this clause 6.6, footnotes;

                                                          10
      (e)      to the extent reasonably necessary to enable Cephalon to prepare all of its statutory financial reporting statements in
              accordance with the rules of any exchange on which its securities are traded or generally in accordance with its
              reporting obligations under US Generally Accepted Accounting Principles (US GAAP), the Company must afford
              appropriately qualified officers and employees (including independent accountants) as agreed in advance with the
              Company, reasonable access during normal business hours to the offices, properties, employees, financial records and
              financial information (including computer files, retrieval programs and similar documentation) only to the extent it
              relates to financial information of the Company. Cephalon agrees that such investigation shall be conducted in such a
              manner as not to interfere unreasonably with the operations of the Company and its Subsidiaries. Cephalon agrees
              that such information gathered will be used for no further purpose other than to prepare its statutory financial
              statements, without obtaining the prior consent from the Company; and

      (f)      Cephalon will hold and will procure that Cephalon's officers, employees and authorized representatives of Cephalon
              (including independent public accountants and attorneys) will hold, any information obtained pursuant to this clause
              6.6 in strict confidence (it being understood that Cephalon shall be permitted to disclose such information to the
              extent required by applicable requirements of law or the rules of any applicable securities exchange).

7.    Top-up Right

7.1   Future Placements

      Subject to clauses 7.2, 7.3 and 7.4, if Mesoblast proposes in the future to make a placement of Shares, partly paid shares or
      any other class of shares or to issue shares on the conversion of securities convertible into shares (each, Placement Shares) then
      Mesoblast must offer to Cephalon the right (top-up right) to subscribe for additional Shares on the same terms and, to the
      extent reasonably practicable, at precisely the same time as Mesoblast proposes to issue such other Shares in such number as
      would, upon the issue of the Placement Shares and the Shares issued to Cephalon, result in Cephalon's percentage
      Shareholding being maintained at the same percentage as Cephalon had immediately prior to such issue.

7.2   Sell down by Cephalon

      Clauses 6 and 7.1 does not apply if Cephalon ceases to have a relevant interest (as defined in the Corporations Act) in less
      than 10% of the issued Shares.

7.3   Excluded Issues

      Clause 7.1 does not apply in relation to any Shares issued by Mesoblast:

      (a)      under any employee or Director Share or option plan or remuneration arrangements for employees or Directors
              (including upon the exercise of options granted under such arrangements) or its options issued to consultants or in
              respect of the underwriting the Angioblast 2009 Convertible Note Issue; or

      (b)      under a dividend reinvestment plan; or

      (c)      pursuant to an acquisition agreement or like arrangement to acquire another entity or assets (whether by acquisition,
              license or other like arrangement).

                                                                 11
7.4   ASX Waiver

      The top-up right referred to in clause 7.1 is conditional on the ASX granting a waiver of ASX Listing Rule 6.18. Mesoblast
      must use reasonable endeavours to obtain such a waiver as soon as possible and must:

      (a)      provide to Cephalon drafts of the waiver application to enable Cephalon to review and comment on those drafts;

      (b)      take all comments made by Cephalon into account in good faith when producing revised drafts of waiver
              application; and

      (c)      keep Cephalon informed of any issues raised by the ASX or any other person about the waiver and take into account
              in good faith in resolving such issues any matters raised by Cephalon.

      In the event that the ASX requires an adjustment to the terms of the top-up right as a condition of the waiver, and such
      adjustment is acceptable to Cephalon, the parties must adjust the terms of the top-up right as so required.

7.5   No ASX waiver

      If the ASX does not grant the waiver referred to in clause 7.1, Mesoblast agrees that it will not issue additional Shares, partly
      paid shares or any other class of shares or securities convertible into shares for a period of 12 months from the Completion
      Date other than:

      (a)      under any employee or Director Share or option plan or remuneration arrangements for employees or Directors
              (including upon the exercise of options granted under such arrangements) or its options issued to consultants or in
              respect of the underwriting of the Angioblast 2009 Convertible Note Issue; or

      (b)      under a dividend reinvestment plan; or

      (c)      pursuant to an acquisition agreement or like arrangement to acquire another entity or assets (whether by acquisition,
              license or other like arrangement).

8.    Public Announcement

      Immediately after the execution of this Deed, Mesoblast must make the announcement to the ASX which is set out in
      Annexure A.

9.    GST

9.1   GST Gross-Up

      If a party (supplier) is required to pay GST in respect of a supply made under or in connection with (including by reason of a
      breach of) this Deed, the recipient of the supply must (in addition to any other payment for, or in connection with, the supply)
      pay to the supplier an amount equal to such GST (GST gross-up).

9.2   GST Invoice

      If a GST gross-up is payable, then the supplier must give the recipient a tax invoice for the supply.

                                                                 12
9.3    Payment

       Provided a tax invoice has been given, the GST gross-up must be paid by the recipient:

       (a)      if any monetary consideration is payable for the supply, at the same time and in the same manner as such monetary
               consideration; or

       (b)      if no monetary consideration is payable for the supply within 10 Business Days after the day on which the tax
               invoice is given.

9.4    Reimbursement

       If any payment to be made to a party under or in connection with this Deed is a reimbursement or indemnification of an
       expense or other liability incurred or to be incurred by that party, then the amount of the payment must be reduced by the
       amount of any input tax credit to which that party is entitled for that expense or other liability, such reduction to be effected
       before any increase in accordance with clause 9.1.

9.5    Adjustments

       If an adjustment event has occurred in respect of a supply made under or in connection with this Deed, any party that becomes
       aware of the occurrence of that adjustment event must notify the other party as soon as practicable, and the parties agree to
       take whatever steps are necessary (including to issue an adjustment note), and to make whatever adjustments are required, to
       ensure that any GST or additional GST on that supply, or any refund of GST (or part thereof), is paid no later than 20
       Business Days after the supplier first becomes aware that the adjustment event has occurred.

9.6    Definitions

       (a)      Terms used in this clause 9 which are defined in the A New Tax System (Goods and Services Tax) Act 1999 (Cth)
               have the meaning given to them in that Act.

       (b)      In this clause 9, a reference to a payment includes any payment of money and any form of consideration other than
               payment of money.

       (c)      In this Deed, all references to payments and obligations to make payments, including all references to compensation
               (including by way of reimbursement or indemnity), are, but for the operation of this clause, exclusive of GST.

10.    General

10.1   Time of the Essence

       In this Deed, time is of the essence unless otherwise stipulated.

10.2   Entire Understanding

       This Deed and all documents referred to in this Deed contain the entire understanding between the parties concerning the
       subject matter of the Deed and supersede all prior communications between the parties. Each party acknowledges that, except
       as expressly stated in this Deed, that party has not relied on any representation, warranty or undertaking of any kind made by
       or on behalf of the other party in relation to the subject matter of this Deed.

                                                                   13
10.3    No Adverse Construction

        This Deed is not to be construed to the disadvantage of a party because that party was responsible for its preparation.

10.4    Further Assurances

        A party, at its own expense and within a reasonable time of being requested by another party to do so, must do all things and
        execute all documents that are reasonably necessary to give full effect to this Deed.

10.5    No Waiver

        A failure, delay, relaxation or indulgence by a party in exercising any power or right conferred on the party by this Deed does
        not operate as a waiver of the power or right. A single or partial exercise of the power or right does not preclude a further
        exercise of it or the exercise of any other power or right under this Deed. A waiver of a breach does not operate as a waiver
        of any other breach.

10.6    Severability

        If any provision of this Deed offends any law applicable to it and is as a consequence illegal, invalid or unenforceable then:

        (a)      where the offending provision can be read down so as to give it a valid and enforceable operation of a partial nature,
                it must be read down to the minimum extent necessary to achieve that result; and

        (b)      in any other case the offending provision must be severed from this Deed, in which event the remaining provisions
                of the Deed operate as if the severed provision had not been included.

10.7    Successors and Assigns

        This Deed binds and benefits the parties and their respective successors and permitted assigns under clause 10.8.

10.8    No Assignment

        A party cannot assign or otherwise transfer the benefit of this Deed without the prior written consent of each other party.

10.9    Consents and Approvals

        Where anything depends on the consent or approval of a party then, unless this Deed provides otherwise, that consent or
        approval may be given conditionally or unconditionally or withheld, in the absolute discretion of that party.

10.10   No Variation

        This Deed cannot be amended or varied except in writing signed by the parties.

                                                                  14
10.11   Costs

        Each party must pay its own legal costs of and incidental to the preparation and completion of this Deed.

10.12   Governing Law and Jurisdiction

        This Deed is governed by and must be construed in accordance with the laws in force in the State of Victoria, Australia. The
        parties submit to the exclusive jurisdiction of the courts of that State and Australia in respect of all matters arising out of or
        relating to this Deed, its performance or subject matter.

10.13   Counterparts

        If this Deed consists of a number of signed counterparts, each is an original and all of the counterparts together constitute the
        same document.

10.14   Conflicting Provisions

        If there is any conflict between the main body of this Deed and any schedules or annexures comprising it, then the provisions
        of the main body of this Deed prevail.

10.15   Non Merger

        No provision of this Deed merges on completion of the subscription by Cephalon for the Subscription Shares. A term or
        condition of, or act done in connection with, this Deed does not operate as a merger of any of the rights or remedies of the
        parties under this Deed and those rights and remedies continue unchanged.

10.16   No Right of Set-off

        Unless this Deed expressly provides otherwise, a party has no right of set-off against a payment due to another party.

10.17   Relationship of Parties

        Unless this Deed expressly provides otherwise, nothing in this Deed may be construed as creating a relationship of
        partnership, of principal and agent or of trustee and beneficiary.

10.18   Notices

        Each communication (including each notice, consent, approval, request and demand) under or in connection with this Deed:

        (a)       must be in writing;

        (b)       must be addressed as follows (or as otherwise notified by that party to each other party from time to time):

                  Mesoblast

                  Name:          Mesoblast Limited
                  Address:       Level 39, 55 Collins Street, Melbourne, Victoria 3000, Australia

                                                                    15
       Fax:
       For the attention of:            Company Secretary

       CEPHALON

       Name:                 Cephalon International Holdings, Inc. c/- Johnson Winter & Slattery
       Address:              Level 30, 264 George Street, Sydney, New South Wales, 2000
       Fax:                  +61 2 8274 9500
       For the attention of:           Mr. Damian Reichel

(c)    must be signed by the party making it or (on that party's behalf) by the solicitor for, or any attorney, director,
      secretary or authorized agent of, that party;

(d)    must be delivered by hand or posted by prepaid post to the address, or sent by fax to the number, of the addressee, in
      accordance with clause 10.18(b); and

(e)   is taken to be received by the addressee:

      (i)      (in the case of prepaid post sent to an address in the same country) on the third day after the date of posting;

      (ii)     (in the case of prepaid post sent to an address in another country) on the fifth day after the date of posting by
              airmail;

      (iii)    (in the case of fax) at the time in the place to which it is sent equivalent to the time shown on the
              transmission confirmation report produced by the fax machine from which it was sent; and

      (iv)     (in the case of delivery by hand) on delivery,

      but if the communication is taken to be received on a day that is not a Business Day or after 5.00 pm, it is taken to be
      received at 9.00 am on the next Business Day.

                                                         16
Executed as a Deed

Executed by Mesoblast Limited ACN 109            431 870 in accordance with section 127 of   )
the Corporations Act 2001 (Cth)                                                              )
                                                                                             )

                                          /s/ Brian Jameson                                              /s/ Kevin Hollingsworth
                                        Signature of Director                                         Signature of Director/Secretary

                                      Brian Jameson                                                       Kevin Hollingsworth
                               Name of Director (please print)                                   Name of Director/Secretary (please print)


Executed by Cephalon                                                                         )
International                                                                                )
Holdings, Inc. by its duly authorised      representative/s:                                 )

                                         /s/ J. Kevin Buchi
                                        Signature of Director                                         Signature of Director/Secretary

                                      J. Kevin Buchi
                               Name of Director (please print)                                   Name of Director/Secretary (please print)

                                                                      17
                                                                                                                       Exhibit 10.29(c)

                                                                                                              EXECUTION COPY
                                                                                                                  CONFIDENTIAL

                               DEVELOPMENT AND COMMERCIALIZATION AGREEMENT
         THIS DEVELOPMENT AND COMMERCIALIZATION AGREEMENT ("Agreement") dated as of December 7, 2010
("Effective Date"), is entered into by and between Angioblast Systems Inc., a Delaware corporation having its principal place of
business at 275 Madison Ave., 4th floor, New York, New York 10016 ("Angioblast") and Cephalon, Inc., a Delaware corporation
having its principal place of business at 41 Moores Road, Frazer, Pennsylvania 19355 ("Cephalon").

                                                          BACKGROUND
         A.        Angioblast has developed a proprietary technology platform based on MPCs (as defined below) that can produce
certain novel therapeutic products for the treatment of various indications including those in the Field (as defined below). Angioblast
owns or controls certain patents, know-how and other intellectual property relating to MPCs and Products;

        B.        Cephalon desires to develop and commercialize the Products in the Field in the Territory (as defined below), and
Angioblast desires to have the Products developed and commercialized by and with Cephalon, in accordance with this Agreement; and

         C.       Cephalon desires to obtain from Angioblast certain rights and licenses for the Products, and Angioblast is willing to
grant to Cephalon such rights on the terms and conditions set forth in this Agreement.

        NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

                                                        ARTICLE I
                                               DEFINITIONS / INTERPRETATION
         1.1       "Accounting Standards" means then current generally accepted accounting principles in the United States,
consistently applied.

         1.2       "Adverse Drug Reaction" has the meaning as defined in the then-current guidelines and regulations promulgated by
the ICH (International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use)
and shall include any "Adverse Drug Experience" as defined in the then-current 21 CFR Section 314.80.


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.
         1.3       "Affiliate" means, with respect to a Person, any Person that, directly or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with such first Person, as the case may be, for as long as such
control exists. As used in this Section 1.3, "control" means: (a) to possess, directly or indirectly, the power to direct the management
and policies of such Person, whether through ownership of voting securities or by contract relating to voting rights or corporate
governance; or (b) direct or indirect beneficial ownership of at least fifty percent (50%) (or such lesser percentage that is the
maximum allowed to be owned by a foreign corporation in a particular jurisdiction) of the voting share capital in such Person.

         1.4        "Angioblast Know-How" means any and all Know-How Controlled by Angioblast during the Term that is
(a) useful or necessary for (i) the Development or Commercialization of Products in the Field or (ii) the expansion or other processing
of Expanded HPCs in the Oncology Field, in each case in the Territory or (b) otherwise made available to Cephalon hereunder.

         1.5        "Angioblast Patents" means any and all Patents Controlled by Angioblast during the Term that: (a) but for the
Agreement, would be infringed by using, selling or importing any Product for use in the Field in the Territory; (b) but for the
Agreement, would be infringed by processing or manufacturing Expanded HPCs using MPCs for use in the Oncology Field in the
Territory, in each case including, but not limited to: (i) compositions of matter of any Product, (ii) methods of use, administration or
treatment involving any Product (iii) methods of processing or other manufacture of Expanded HPCs using MPCs; or (c) any Patent
reasonably necessary or useful for the Development and Commercialization of Products for use in the Field in the Territory in
accordance with this Agreement. Without limiting the foregoing, a list of Angioblast Patents believed to be complete as of the
Effective Date is appended hereto as Exhibit 1.5 and will be updated periodically to reflect changes thereto during the Term.

         1.6     "Angioblast Technology" means, individually and collectively, the Angioblast Know-How and Angioblast Patents,
including any Know-How and Patents consisting of Inventions owned by Angioblast hereunder (including any and all Improvements).

          1.7      "Annual Net Sales" means aggregate Net Sales of all Products sold in the Territory in a particular calendar year.
For such purposes, units of Product shall be considered sold when such units are shipped to a Third Party or the revenue from the sale
thereof is recognized by the Selling Party for financial reporting purposes, whichever occurs first.

         1.8       "Asia-Pacific" means the countries and territories listed on Exhibit 1.8.

         1.9      "BMT MPCs" means MPCs intended for use [**], which MPCs are packaged and labeled for use in clinical trials
or for commercial purposes in accordance with the applicable Specifications and legal requirements in the Territory.


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    2
        1.10    "Business Day" means any day other than a Saturday, Sunday or any other day on which commercial banks in New
York, New York or Melbourne, Australia (as applicable) are authorized or required by law to remain closed.

        1.11     "Cardiovascular Field" means use in the following indications: [**] in each case in humans, using any delivery
modality; however, the Cardiovascular Field shall exclude [**].

        1.12      "Cardiovascular Product" means an MPC Product intended for use (whether in clinical trials or end use) in the
Cardiovascular Field.

         1.13     "Cephalon Know-How" means any and all Know-How Controlled by Cephalon during the Term that is (a) used for
(i) the Development or Commercialization of Products in the Field or (ii) the expansion or other processing of Expanded HPCs in the
Oncology Field, or (b) otherwise made available to Angioblast hereunder. Cephalon Know-How shall include all Data and Regulatory
Materials generated with respect to the Products by or on behalf of Cephalon hereunder.

         1.14      "CNS Field" means use in the following indications: [**], in each case in humans, using any delivery modality.

         1.15      "CNS Product" means an MPC Product intended for use (whether in clinical trials or end use) in the CNS Field.

       1.16       "Collaboration" means all activities performed by or on behalf of each Party with respect to the Field under this
Agreement, including all activities of each Party under any Plan.

          1.17      "Commercialization" (including any variations thereof, such as "Commercialize" and "Commercializing") means,
with respect to a particular Product in the Field, the conduct of any and all processes and activities to establish and maintain sales for
such Product (including with respect to reimbursement and patient access), including offering for sale, selling (including prelaunch
and launch), marketing (including education and advertising activities), promoting, storing, transporting, distributing, and importing
such Product, in each case with respect to the Field. For clarity, Commercialization shall exclude research and manufacturing
activities and processes with respect to the Products.

         1.18      "Confidential Information" means, with respect to a Party, all information of such Party that is disclosed to the
other Party under this Agreement (a) in any form (oral, written, graphic, electronic or otherwise) and which is of the type generally
deemed to be proprietary in the pharmaceutical industry or (b) in any tangible form and which is marked "Confidential" or with other
similar designation to indicate its confidential or proprietary nature or (c) in oral form and which is indicated to be confidential or
proprietary by the Party disclosing such information at the time of initial disclosure and is confirmed in writing as confidential or
proprietary by the disclosing Party within forty-


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                     3
five (45) days after such disclosure. All information disclosed by either Party pursuant to the Mutual Confidentiality Agreement
between the Parties dated June 24, 2009 (the "Prior Confidentiality Agreement"), shall be deemed to be such Party's Confidential
Information disclosed hereunder.

          1.19      "Control" (including any variations thereof, such as "Controlled" and "Controlling"), means with respect to Know-
How, Patents or other intellectual property rights, possession by the Party granting the applicable right, license or sublicense to the
other Party as provided herein, of the power and authority, whether arising by ownership, license, or other authorization, to disclose
and deliver the particular Know-How to the other Party, and to grant and authorize under such Know-How, Patent or other intellectual
property rights the right, license or sublicense, as applicable, of or within the scope granted to such other Party in this Agreement
without giving rise to a violation of the terms of any written agreement with any Third Party existing as of the Effective Date or any
written agreement entered into after the Effective Date with respect to Know-How, Patent, or other intellectual property in-licensed
after the Effective Date pursuant to which such Party in-licensed such Know-How, Patents or other intellectual property.
Notwithstanding anything to the contrary in this Agreement, the following shall not be deemed to be Controlled by a Party: (i) any
Know-How, Patent or intellectual property owned or licensed by any Acquiring Entity immediately prior to the effective date of
merger, consolidation or transfer, and (ii) any Know-How, Patent or intellectual property that any Acquiring Entity subsequently
develops independently, without accessing or practicing the Angioblast Technology (in the case of an Acquiring Entity of Angioblast)
or the Cephalon Know-How (in the case of an Acquiring Entity of Cephalon). For purposes of this Section 1.19, "Acquiring Entity"
means a Third Party that merges or consolidates with or acquires a Party, or to which a Party transfers all or substantially all of its
assets to which this Agreement pertains, except with respect to Mesoblast Limited, which shall not be considered an Acquiring Entity
for purposes of this Agreement.

         1.20      "Data" means any and all research data, pharmacology data, preclinical data, clinical data and/or all regulatory
documentation, information and submissions pertaining to, or made in association with any Regulatory Materials or the like for any
Product, in each case that are Controlled by a Party during the Term.

           1.21      "Development" (including any variations thereof, such as "Develop" and "Developing") means, with respect to any
Product in the Field, the conduct of any and all clinical trials, regulatory and associated activities such as data analysis necessary to
prepare and file for, obtain and maintain any Marketing Approval for such Product. For clarity, Development shall (a) include clinical
trials for additional indications in the Field for a Product for which a Marketing Approval has been obtained or other label expansion
studies, quality of life assessments, pharmacoeconomics, mandatory post-marketing studies, regulatory affairs (including preparation
of CMC (chemistry, manufacturing and controls) and Regulatory Materials and (b) exclude research, non-clinical and preclinical
testing, toxicology studies and manufacturing activities and processes with respect to the Products.


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    4
         1.22       "Dollars" or "$" means the official currency of the United States.

         1.23       "EMA" means the European Medicines Agency, or any successor entity thereto performing similar functions.

         1.24       "Europe" means all countries, nations, states or other territories under the jurisdiction of the EMA.

        1.25        "Existing Mark" means the trademark "[**]" together with all stylizations thereof and representations thereof in any
language.

         1.26      "Expanded HPCs" means any and all [**] expanded or otherwise processed using MPCs in a final packaged form
and labeled for use in clinical trials or for commercial purposes in accordance with the applicable Specifications and legal
requirements in the Territory.

         1.27       "FDA" means the United States Food and Drug Administration, or any successor entity thereto performing similar
functions.

         1.28     "Field" means, with respect to the Cardiovascular Product, the Cardiovascular Field; with respect to the CNS
Product, the CNS Field and with respect to the Expanded HPCs, the Oncology Field.

         1.29       "GMP" means the then-current good manufacturing practice (or similar standards) for the manufacture, handling
and storage of pharmaceutical products with respect to [**](as applicable) as required by the Regulatory Materials for such [**] in the
applicable jurisdiction, including any IND, MAA or Marketing Approval.

         1.30      "IND" means any Investigational New Drug Application (including any amendments thereto) filed with the FDA
pursuant to 21 C.F.R. §321 before the commencement of clinical trials of a Product, or any comparable filings with any Regulatory
Authority in any other jurisdiction.

           1.31       "Initiate" (including any variations thereof, such as "Initiation" and "Initiated") means, with respect to a clinical
trial, the first dosing of a subject in such clinical trial in accordance with the protocol therefor.

         1.32       "Know-How" means any and all information, tangible materials and other subject matter comprising (i) ideas,
discoveries, inventions, improvements or trade secrets, (ii) techniques, methods, formulas, processes and Data, and (iii) compositions
of matter, including MPCs. Know-How shall exclude any Patent rights with respect thereto and any and all patient-specific and other
similar data to the extent such exclusion is required by applicable Law.


**       Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
         filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
         amended.

                                                                       5
         1.33      "Knowledge" means with respect to a Party, the actual knowledge of the Party (and with respect to Angioblast,
including the actual knowledge of [**]).

         1.34      "Law" means, individually and collectively, any and all laws, ordinances, orders, rules, rulings, directives and
regulations of any kind whatsoever of any governmental or regulatory authority within the applicable jurisdiction.

         1.35      "Major European Countries" means, collectively, France, Germany, Italy, Spain and the United Kingdom.

          1.36      "Marketing Approval" means, with respect to a Product in a particular jurisdiction, all approvals, licenses,
registrations or authorizations necessary for the Commercialization of such Product in such jurisdiction, including only where
mandatory for Commercialization of such Product, approval of labeling, price or reimbursement.

         1.37     "Marketing Approval Application" or "MAA" means an application submitted to a Regulatory Authority for
Marketing Approval (together with supporting documentation), including in the United States a biologic license application (as
described in 21 CFR 601.2).

         1.38      "Marketing Partner" means a Third Party to which Cephalon has granted rights to Commercialize a Product
(including any right to promote or co-promote) for use in the Field within the Territory on such Third Party's own behalf. For clarity,
Marketing Partner shall exclude distributors, wholesalers and resellers of Products appointed by Cephalon that do not engage in any
marketing or promotion of the Products.

         1.39    "MHLW" means Ministry for Health, Labor and Welfare of Japan together with the Pharmaceutical and Medical
Devices Agency (formerly known as IYAKUHIN SOGO KIKO), in either case or any successor entity thereto performing similar
functions.

         1.40      "MPC" means [**].

         1.41       "MPC Product" means a pharmaceutical product containing a population of MPCs in a final packaged form and
labeled for use in clinical trials or for commercial purposes in accordance with the applicable Specifications and legal requirements in
the Territory.

         1.42      "Net Sales" means [**]:

                  (a)       [**];

                  (b)       [**];


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    6
                  (c)       [**];

                  (d)       [**];

                  (e)       [**];

                  (f)       [**]; and

                  (g)       [**].

 [**].

         1.43      "Oncology Field" means [**].

         1.44      "Party" means Angioblast or Cephalon, individually, and "Parties" means Angioblast and Cephalon, collectively.

         1.45       "Patent(s)" means any patents and patent applications, together with all additions, divisions, continuations,
continuations-in-part, substitutions, reissues, re-examinations, extensions, registrations, patent term extensions, supplemental
protection certificates and renewals of any of the foregoing.

         1.46      "Person" means any individual, corporation, partnership, association, joint-stock company, trust, unincorporated
organization or government or political subdivision thereof.

          1.47       "Phase 2a Clinical Trial" means any human clinical trial conducted in the United States on a sufficient number of
patients the primary purpose of which is to identify a dose or range of doses of a Product at a limited number of clinical sites, and
which clinical trial meets the standards set forth at 21 CFR Section 312.21(b), or, with respect to a jurisdiction other than the United
States, a similar clinical trial.

          1.48       "Phase 2b Clinical Trial" means any human clinical trial conducted in the United States on a sufficient number of
patients the primary purpose of which is to make a preliminary or qualitative determination of efficacy of a Product in the patients
being studied for the dosage regimes indicated in the related Phase 2a Clinical Trial as required under 21 C.F.R. §312.21(b), or, with
respect to a jurisdiction other than the United States, a similar clinical trial.

          1.49      "Phase 3 Clinical Trial" means any human clinical trial conducted in the United States with respect to a Product, on
a sufficient number of patients, which is prospectively designed to demonstrate statistically whether such Product is effective and safe
for use in a particular indication in a manner sufficient to support Marketing Approval of such Product for the indication being
investigated


**       Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
         filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
         amended.

                                                                    7
by the study as required under 21 C.F.R. § 312.21(c), any other pivotal clinical trial that is intended to gather the additional
information about effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of a Product in a manner
sufficient to support Marketing Approval of such Product in the indication beings studied, or, with respect to a jurisdiction other than
the United States, a similar clinical trial.

           1.50      "Product" means, individually and collectively, the Cardiovascular Product, the Expanded HPCs, and the CNS
Product.

         1.51        "Prosecution and Maintenance" (including any variations thereof, such as "Prosecute and Maintain" and
"Prosecuting and Maintaining") means, with respect to a Patent, the preparing, filing, prosecuting and maintenance of such Patent, as
well as continuations, continuations-in-part, divisionals, re-examinations, reissues and requests for patent term extensions and the like
with respect to such Patent, together with the conduct of interferences, the defense of oppositions and other similar proceedings with
respect to a Patent.

           1.52      "Region" means, individually, each of (i) Asia-Pacific, (ii) Europe and (iii) ROT.

         1.53      "Regulatory Authority" means, in a particular country or regulatory jurisdiction, any applicable governmental
authority involved in granting Marketing Approval in such country or jurisdiction, including, (a) in the U.S., the FDA, (b) with respect
to Europe, the EMA, (c) in Japan, the MHLW and (d) in China, the SFDA.

         1.54       "Regulatory Materials" means regulatory applications (including INDs and MAAs), submissions, notifications,
communications, correspondence, registrations, approvals (including Marketing Approvals) and/or other filings made to, received
from or otherwise conducted with a Regulatory Authority (including minutes of meeting with Regulatory Authorities) that are
necessary or reasonably desirable to access in connection with the Development, manufacture or Commercialization of any Product in
a particular country or regulatory jurisdiction.

        1.55      "Rest of Territory" or "ROT" means all countries and territories of the world including the United States, but
excluding Asia-Pacific and Europe.

         1.56      "SFDA" means the State Food and Drug Administration of China, or any successor entity thereto performing
similar functions.

         1.57       "Specifications" means, with respect to the BMT MPCs, Cardiovascular Product or the CNS Product those written
specifications therefor initially established by Angioblast as may be modified by mutual agreement of the Parties as set forth in this
Agreement.


**         Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
           filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
           amended.

                                                                     8
        1.58      "Sub-Field" means, individually, each of the Cardiovascular Field, the Oncology Field and the CNS Field.

         1.59    "Term" means the period beginning on the Effective Date and, unless terminated earlier, expiring when this
Agreement has expired for each of the Cardiovascular Field, the Oncology Field and the CNS Field in accordance with the provisions
of Section 13.1.

        1.60      "Territory" means all countries and territories of the world.

        1.61      "Third Party" means any Person other than Angioblast, Cephalon and their respective Affiliates.

         1.62     Additional Definitions. Each of the following terms shall have the meaning described in the corresponding section
of this Agreement indicated below:
Term                                                                                                Section Defined
Agreement                                                                           Preamble
Alliance Manager                                                                    3.2
Angioblast                                                                          Preamble
Angioblast Competing Activities                                                     2.4(b)
Angioblast Indemnitees                                                              12.1
Angioblast Logos                                                                    10.2
BMF                                                                                 4.6(c)
Cephalon                                                                            Preamble
Cephalon Competing Activities                                                       2.4(a)
Cephalon Indemnitees                                                                12.2
CMC Information                                                                     4.6(c)
[**]                                                                                [**]
Commercialization Plan                                                              5.2
Committee                                                                           3.3
Competitive Product                                                                 2.4(c)
Conditional Forecast                                                                4.4(c)
Costs                                                                               9.4(b)
Cover                                                                               9.5(c)
Defensive Action                                                                    9.4(a)
Dispute                                                                             14.1
Effective Date                                                                      Preamble
Enforcement Action                                                                  9.3(b)
[**]                                                                                [**]
[**]                                                                                [**]
[**]                                                                                [**]
[**]                                                                                [**]
General Plan                                                                        4.2(a)
Improvements                                                                        9.1(b)
Indemnitee                                                                          12.3
Indemnitor                                                                          12.3
Infringing Product                                                                  9.3(b)
Inventions                                                                          9.1(a)
JAMS Rules                                                                          14.3(b)(ii)
JMC                                                                                 7.7
Joint Steering Committee                                                            3.1
Joint Defense Agreement                                                             9.4(a)
Joint Interest Agreement                                                            9.5(a)
Joint Patent                                                                        9.2(b)
JSC                                                                                 3.1
Liabilities                                                                         12.1
Noticed Party                                                                       9.5(a)
Noticing Party                                                                      9.5(a)
Other Dispute                                                                       14.3
Other Enforcement Action                                                            9.3(c)
Other Infringing Product                                                            9.3(c)
Participating Party                                                                 4.7
Patent Challenge                                                                    13.3(c)
Payee                                                                               6.6
Payor                                                                                 6.6
Plan                                                                                  3.4
Prior Confidentiality Agreement                                                       1.18
Research Plan                                                                         4.1
Responsible Party                                                                     4.7
[**]                                                                                  [**]
SFDA                                                                                  1.56
Specific Angioblast Patent                                                            9.2(a)


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                  9
Term                                                                                                      Section Defined
[**]                                                                                     [**]
Supply Agreement                                                                         7.1
Territory                                                                                1.60
Third Party Claim                                                                        12.1
[**]                                                                                     [**]
[**]                                                                                     [**]
[**]                                                                                     [**]


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    10

          1.63       Interpretation. Unless specified to the contrary, references to Articles, Sections, Paragraphs and Exhibits mean the
particular Articles, Sections, Exhibits and Paragraphs to this Agreement and references to this Agreement include all Exhibits hereto.
Unless the context clearly requires otherwise, whenever used in this Agreement: (a) the words "include" or "including" shall be
construed as incorporating, also, "but not limited to" or "without limitation," whether or not such additional words are written; (b) the
word "or" shall have its inclusive meaning of "and/or" except when paired as "either/or" (c) the word "day" or "quarter" or "year"
means a calendar day or calendar quarter or calendar year unless otherwise specified; (d) the word "notice" shall require notice in
writing (whether or not specifically stated) and shall include notices, consents, approvals and other communications contemplated
under this Agreement; (e) the words "hereof," "herein," "hereunder," "hereby" and derivative or similar words refer to this Agreement
(including the Exhibits hereto); (f) provisions that require that a Party, the Parties or a committee hereunder "agree," "consent" or
"approve" or the like shall require that such agreement, consent or approval be specific and in writing, whether by written agreement,
letter or otherwise; (g) words of any gender include the other gender; (h) words using the singular or plural number also include the
plural or singular number, respectively; (i) references to any specific Law, article, section or other division thereof, shall be deemed to
include the then-current amendments thereto or any replacement thereof; (j) the phrase "by or on behalf of" or "on behalf of" means,
with respect to a Party, all Persons, including such Party's employees, contractors, and consultants, acting under such Party's authority
and its Affiliates and, in the case of Angioblast, licensees, or in the case of Cephalon, Marketing Partners; provided, however, neither
Party or its Affiliates (including their employees, contractors and consultants acting within the scope of their duties as such) shall be
deemed to be acting "by or on behalf of" the other Party or its Affiliates hereto. This Agreement has been prepared jointly and shall
not be strictly construed against either Party. Ambiguities, if any, in this Agreement shall not be construed against any Party,
irrespective of which Party may be deemed to have authored the ambiguous provision.

                                                      ARTICLE II
                                             GENERAL RIGHTS AND LIMITATIONS
         2.1      Grant of Rights to Cephalon.

                    (a)      General. Subject to the terms and conditions of this Agreement (including Angioblast's right to supply
[**]), Angioblast hereby grants to Cephalon an exclusive, transferable (in accordance with Section 15.8) right (even as to Angioblast)
under the Angioblast Technology to: (i) Develop and Commercialize Cardiovascular Products for use in the Cardiovascular Field in
the Territory; (iii) Develop and Commercialize CNS Products for use in the CNS Field in the Territory;


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    11
and (ii) Develop, expand and otherwise process Expanded HPCs using BMT MPCs supplied hereunder and Commercialize BMT
MPCs and such Expanded HPCs for use in the Oncology Field in the Territory. The rights granted under this Section 2.1(a) shall be
irrevocable except as provided under Section 13.2 or 13.3.

                    (b)        Affiliates; Marketing Partners. Cephalon shall have the right to exercise any of the rights under
Section 2.1(a) through one or more of its Affiliates and permitted Marketing Partners. Angioblast shall have the right to approve any
Marketing Partner (such approval not to be unreasonably withheld, conditioned or delayed), if such entity does not have (i) an
enterprise value of [**] or more or (ii) revenues from sales of pharmaceutical products in the Territory for indications in the
Cardiovascular Field, CNS Field or Oncology Field of [**] or more, or an Affiliate or such Person. Cephalon shall ensure that each of
its Marketing Partners is bound by a written agreement consistent with the terms and conditions of this Agreement and containing
provisions as protective of Angioblast and the Products as this Agreement; and Cephalon shall remain responsible to Angioblast for all
activities of its Affiliates and Marketing Partners to the same extent as if such activities had been undertaken by Cephalon itself.
Promptly following the execution of each agreement with a Marketing Partner, Cephalon shall provide Angioblast with a complete
copy of such agreement, which may be redacted with respect to provisions not applicable to compliance with the terms and conditions
of this Agreement.

         2.2      Grant of Rights to Angioblast.

                  (a)       Cephalon Know-How. Subject to the terms and conditions of this Agreement, Cephalon hereby grants to
Angioblast a non-exclusive transferable (in accordance with Section 15.8) right to use and exploit the Cephalon Know-How (i) for
purposes of carrying out is obligations under this Agreement including performing such Development activities with respect to the
Products as provided in Section 4.3 and supplying [**] in accordance with ARTICLE VII and (ii) for purposes of researching,
developing, manufacturing, using, selling, offering for sale, importing and otherwise exploiting MPC Products for use outside the
Field. The rights granted under this Section 2.2(a) shall be irrevocable.

                    (b)       Covenant Not to Sue. Subject to the terms and conditions of this Agreement, Cephalon (on behalf of
itself, its predecessors, successors, Affiliates, and their respective predecessors, successors, parent and subsidiary corporations,
together with each of their assigns, including in bankruptcy) covenants not to bring any action or initiate any proceeding against
Angioblast (or any Person acting under authority or on behalf of Angioblast) under any claim of a Patent Controlled by Cephalon or
its Affiliate alleging infringement (direct or contributory) or inducement of infringement in connection with the manufacture, use, sale,
offer for sale, importation or other exploitation of any pharmaceutical product containing MPCs for use outside of the Field.


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                   12
         2.3      Certain Restrictions.

                   (a)       On Cephalon. Cephalon agrees that neither it, nor any of its Affiliates or Marketing Partners, will sell or
provide the Products to any Third Party if Cephalon or its relevant Affiliate or Marketing Partner knows, or has reason to believe, that
the Products, as the case may be, sold or provided to such Third Party would be sold or transferred, directly or indirectly, for use
outside the Field. Cephalon and its Affiliates and Marketing Partners shall promptly notify Angioblast in the event it or its Affiliate or
Marketing Partner has reason to believe that any such Product sold or otherwise distributed has been or will be used outside the Field.
In addition, except as the Parties may mutually agree in writing from time to time, Cephalon and its Affiliates and Marketing Partners
shall not, and shall not authorize, facilitate, collaborate with or assist any Third Party to, conduct any clinical trials, testing or other
development activities with respect to the Products for use outside the Field. Without limiting the foregoing, Cephalon, its Affiliates
and Marketing Partners shall not (i) cooperate with any Third Party to develop or use any Product for applications outside the Field,
including providing Products or funding for any physician-sponsored trial for such purpose or sponsoring or endorsing any publication
indicating the Products are effective for any application outside the Field or (ii) seek any labeling for any Product outside of the Field.

                    (b)       On Angioblast. Angioblast agrees that neither it, nor any of its Affiliates, will sell or provide MPC
Products to any Third Party if Angioblast or its relevant Affiliate knows, or has reason to believe, that the MPC Products sold or
provided to such Third Party would be sold or transferred, directly or indirectly, for use in the Field in the Territory. Angioblast and
its Affiliates and licensees shall promptly notify Cephalon in the event it or its Affiliate or licensee has reason to believe that any such
MPC Product sold or otherwise distributed has been or will be used in the Field. In addition, except as the Parties may mutually agree
in writing from time to time or in the fulfillment of their obligations hereunder, Angioblast and its Affiliates shall not, and shall not
authorize, facilitate, collaborate with or assist any Third Party to, conduct any clinical trials, testing or other development activities
with respect to any product containing MPCs for use in the Field. Without limiting the foregoing, Angioblast and its Affiliates shall
not, except in fulfillment of their obligations hereunder, (i) cooperate with any Third Party to develop or use of any products
containing MPCs for applications in the Field, including providing such products or funding for any physician-sponsored trial for such
purpose or sponsoring or endorsing any publication indicating products containing MPCs are effective for any application in the Field
or (ii) seek any labeling for any such product for use in the Field. It is understood that nothing in this Agreement (including this
Section 2.3(b)) shall be deemed to limit Angioblast's reservation of rights under Section 2.6(b).


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    13
         2.4      Exclusivity.

                   (a)       Cephalon. During the Term, on a Product-by-Product basis, except for the conduct of the activities
pursuant to this Agreement, Cephalon agrees on its behalf and on behalf of its Affiliates (i) not to conduct, participate in or sponsor,
directly or indirectly, any activities directed toward the development, manufacture, sales, marketing, promotion or distribution of any
Competitive Product for the Field in the Territory (collectively, such activities "Cephalon Competing Activities") or (ii) not to appoint,
license or otherwise authorize any Third Party, whether pursuant to such license, appointment, or authorization or otherwise to
perform any Cephalon Competing Activities.

                   (b)        Angioblast. During the Term, on a Product-by-Product basis, except for the conduct of the activities
pursuant to this Agreement, Angioblast agrees on its behalf and on behalf of its Affiliates (i) not to conduct, participate in or sponsor,
directly or indirectly, any activities directed toward the sales, marketing, promotion or distribution of any Competitive Product for the
Field in the Territory (collectively, such activities "Angioblast Competing Activities") or (ii) not to appoint, license or otherwise
authorize any Third Party, whether pursuant to such license, appointment, or authorization or otherwise to perform any Angioblast
Competing Activities. For clarity, from and after a termination of this Agreement with respect to a Product or Region, Angioblast's
obligations under this Section 2.4(b) shall expire with respect to such Product or Region, as applicable.

                  (c)      Definition of Competitive Product. For purposes of this Section 2.4, "Competitive Product" means (i) with
respect to the Cardiovascular Product, a pharmaceutical product comprising any stem cell(s) or MPC(s) being developed or
commercialized for use in any of the following indications in humans: [**] (ii) with respect to CNS Products, a pharmaceutical
product comprising any[**] and (iii) with respect to the Expanded HPCs, a pharmaceutical product comprising any [**].

                    (d)      Post-Effective Date Affiliate. Notwithstanding anything herein to the contrary, if during the Exclusivity
Period, Angioblast or any of its Affiliates is acquired by or merges or is otherwise consolidated with any Person that is performing or
thereafter initiates performance of an Angioblast Competing Activity or such Person otherwise becomes an Affiliate of Angioblast
after the Effective Date, then such Person may continue such Angioblast Competing Activity (an "Outside Competing Activity")
without breach of the exclusivity obligations under Section 2.4(b); provided that Angioblast shall sequester such Outside Competing
Activity to ensure that the Outside Competing Activity is kept separate and independent of the Development, research, manufacture
and Commercialization of the Products, including using commercially reasonable efforts to ensure that no personnel involved in such
Outside Competing Activity has access to Data or Confidential Information relating to the Products. For clarity, any Data, Know-
How, Patent or other intellectual property right resulting from such Outside Competing Activity shall not be included as Angioblast
Technology under this Agreement, and nothing in this Agreement shall be construed to grant any


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    14
rights to Cephalon under such Data, Know-How, Patent or other intellectual property right. Similarly, the Outside Competing Activity
shall not make use of any Angioblast Technology.

Notwithstanding anything herein to the contrary, in the event that Angioblast is acquired by or merges or is otherwise consolidated
with a Person performing any Other Competing Activity, then Cephalon shall have the right to elect upon written notice to Angioblast
referencing this Section 2.4(d) to amend this Agreement such that (i) all rights to the Angioblast Technology granted to Cephalon
hereunder shall survive pursuant to the terms hereof, (ii) Cephalon shall have the sole discretion to Develop and Commercialize the
Products for use in the Field in the Territory as contemplated hereby, without giving effect to the JSC and other collaborative activities
hereunder except as required by Law, (iii) subject to (i) and (ii), Angioblast's sole obligations under the Agreement would be to supply
the BMT MPCs and Cardiovascular Products and CNS Products for use in the Field in the Territory in accordance with ARTICLE VII
and the Supply Agreement (once executed) and (iv) Cephalon's sole obligation under this Agreement would be to pay and report all
amounts owed and due in accordance with ARTICLE VI and Exhibit 6.3. For clarity, any right of Angioblast to terminate this
Agreement pursuant to Section 13.3(a) and (b) would no longer apply under the Agreement as amended.

         2.5      Subcontractors. Except as otherwise provided under Section 2.1(b), either Party may engage Third Party
subcontractors (including contract research organizations) in any country within the Territory to exercise the rights or perform the
obligations of such Party under this Agreement; provided that such Party shall ensure that each such Third Party subcontractor is
bound by a written agreement containing provisions as protective of the Angioblast Technology and the Products as this Agreement;
and such Party shall remain responsible to the other Party for all activities of its Third Party subcontractors to the same extent as if
such activities had been undertaken by such Party itself.

         2.6      No Other Rights.

                   (a)       General. Except for the rights expressly granted in this Agreement, each Party retains all rights under its
intellectual property, and no additional rights shall be deemed granted to the other Party by implication, estoppel or otherwise.

                   (b)      Certain Reservations. For clarity, (i) the rights granted in this Agreement shall not be construed to convey
any licenses or rights under the Angioblast Technology with respect to any product other than the Products and (ii) Angioblast retains
all rights under the Angioblast Technology with respect to (A) manufacture of the Products except as otherwise provided in
accordance with ARTICLE VII or any Supply Agreement (once executed) and otherwise fulfill its obligations hereunder, and
(B) development, manufacture and commercialization (including marketing, promoting, selling and offering for sale) of products for
use outside of the Field.


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    15
                                                            ARTICLE III
                                                            GOVERNANCE
         3.1     Joint Steering Committee. The Parties shall establish a joint steering committee ("Joint Steering Committee" or
"JSC") to govern certain matters in relation to the Parties actions and interactions under this Agreement as set forth in further detail on
Exhibit 3.1.

           3.2     Alliance Managers. Promptly following the Effective Date, each Party shall appoint a representative ("Alliance
Manager") to facilitate communications between the Parties (including coordinating the exchange of Data and Know-How of each
Party as required under this Agreement) and to act as a liaison between the Parties with respect to such other matters as the Parties
may mutually agree in order to maximize the efficiency of the Collaboration. Each Party may replace its Alliance Manager with an
alternative representative satisfying the requirements of this Section 3.2 at any time with prior written notice to the other Party. For
clarity, the Alliance Managers may seek the advice and assistance of other personnel of either Party in fulfilling their obligations
hereunder.

         3.3       Scope of Governance. Notwithstanding the creation of the JSC and any Subcommittee created by the JSC pursuant
to Paragraph 1 of Exhibit 3.1 (each a "Committee"), each Party shall retain the rights, powers and discretion granted to it hereunder,
and no Committee shall be delegated or vested with rights, powers or discretion unless such delegation or vesting is expressly
provided herein, or the Parties expressly so agree in writing. No Committee shall have the power to (a) amend or modify this
Agreement, (b) to determine whether or not a Party has met its diligence or other obligations under the Agreement, or (c) to determine
whether or not a breach of this Agreement has occurred, and no decision of any Committee shall be in contravention of any terms and
conditions of this Agreement. It is understood and agreed that issues to be formally decided by the JSC and any Subcommittee, as
applicable, are only those specific issues that are expressly provided in this Agreement to be decided by the JSC and any such
Subcommittee, as applicable.

         3.4      Day-to-Day Responsibilities. Each Party shall: (i) be responsible for day-to-day implementation and operations of
the Development, manufacturing and Commercialization activities with respect to Products in the Field for which it has or is otherwise
assigned responsibility under the applicable Plan or this Agreement, and (ii) keep the other Party reasonably informed as to the
progress of such activities, as reasonably requested by the other Party. For purposes of this Agreement, "Plan" means the
Development Plan or the Commercialization Plan, in each case then-currently in effect.

        3.5      Information Sharing. Without limiting the other provisions of this Agreement, each Party will keep the other
reasonably informed on a timely basis as to the plans for and results of the


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    16
activities of the Collaboration carried out by or under authority of such Party through the JSC and Alliance Managers.

         3.6      Conflicts of Interest. If Cephalon or its Affiliate or Marketing Partner sells a Product to a Third Party to which it
also provides other products or services, Cephalon or such Affiliate or Marketing Partner (as applicable) shall not price, discount or
otherwise offer (including bundling or rebating) any Product in any way that benefits such other products or services at the expense of
such Product or otherwise disadvantage the Products in a manner intentionally designed to reduce the amounts payable hereunder. In
all events, Cephalon and its Affiliates and Marketing Partners shall price and offer the Products sold by it hereunder in accordance
with applicable Law.

                                                  ARTICLE IV
                                      DEVELOPMENT AND REGULATORY ACTIVITIES
          4.1      Certain Research and Preclinical Activities. The Parties acknowledge that the advancement of the use of Products in
certain of the indications within the Field is [**]not otherwise included in the General Plan described under Section 4.2(a) below.
Accordingly from time to time the Alliance Managers shall prepare and submit a plan and budget for such research and preclinical
activities for each of the Products for use in the indications in the Field, including timelines setting forth the prioritization of each
indication for each Product for use in the Field (the "Research Plan"), and the JSC shall meet within thirty (30) days of the submission
of such Research Plan to the JSC to review and approve such Research Plan. Each Party shall use commercially reasonable efforts to
conduct such research and preclinical activities assigned to it in the Research Plan and [**]of the budgeted Third Party costs incurred
by the Parties for conducting such activities in accordance with the Research Plan, the amount so incurred shall be reconciled on a
quarterly basis in arrears such that [**]. For clarity, neither Party shall be obligated to perform or reimburse the costs of such
activities except pursuant to an approved Research Plan therefor. For clarity, such research and preclinical activities to be performed
by Angioblast in accordance with this Section 4.1 shall not include any development work for CMC (chemistry, manufacturing and
controls) and Cephalon shall [**].

         4.2      Development Plans.

                  (a)       General Plan. A general plan describing overall Development goals, principles and timelines for the
Collaboration is attached to this Agreement as Exhibit 4.1 (the "General Plan") and sets out separately certain Development activities
to be conducted by each Party. The Parties shall use commercially reasonable efforts to Develop each of the Cardiovascular Product,
Expanded HPCs and CNS Product for the Territory in a manner compatible with such goals, principles and timelines.


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                   17
                    (b)       Establishment of the Development Plan. Within sixty (60) days of the Effective Date, the Alliance
Managers shall prepare and submit an initial draft of the Development Plan consistent with the General Plan and all applicable Law,
including the standards and review of the FDA and other applicable Regulatory Authorities, and the requirements of Section 4.1(c) for
activities to be carried out with respect to Development for each of the Cardiovascular Product, Expanded HPCs and CNS Product for
the Territory through the period ending 31 December 2011 to the JSC for review, comment and approval. Accordingly, the JSC shall
meet within thirty (30) days of the provision of such Development Plan to the JSC to review and approve such Development Plan. If
the JSC is unable to reach consensus with respect to the Development Plan during such thirty (30) day period, then the applicable
Party shall have the right to exercise its final decision with respect thereto in accordance with Paragraph 5 of Exhibit 3.1. On or
before October 31st of each year, the Alliance Managers shall prepare and submit an updated Development Plan to the JSC for its
review and approval following the same procedures. Without limiting the foregoing, the Alliance Managers may propose updates to
the Development Plan from time to time and the JSC shall review the Development Plan and the Parties' performance thereunder on
an ongoing basis. For clarity, except as otherwise expressly provided herein, any material update to the Development Plan shall be
subject to the review and approval of the JSC following the same procedures.

                    (c)       Content. Each Development Plan shall contain a description of the activities to be carried out for the
Cardiovascular Product, Expanded HPCs and CNS Product for the Field in the Territory with timelines for the completion of such
activities and in a level of detail consistent with practice in the biopharmaceutical industry. Except as otherwise provided herein, the
timing and order of such activities shall be determined by the JSC. Notwithstanding anything herein to the contrary, each
Development Plan shall be consistent with the General Plan and the obligations of the Parties under this ARTICLE IV.

                   (d)       Performance. Each Party shall (i) use commercially reasonable efforts to conduct those activities assigned
to it under the applicable Development Plan in accordance with this ARTICLE IV and (ii) conduct those activities allocated to such
Party under the Development Plan in compliance in all material respects with applicable Law and in accordance with good scientific
and clinical practices. For clarity, neither Party shall conduct any Development with respect to Products in the Field for the Territory
except in accordance with the Development Plan.

         4.3      Development Activities of Angioblast.

                   (a)       Conduct of Development Activities. Angioblast shall use commercially reasonable efforts to conduct
those activities assigned to it under the then-current Development Plan in accordance with the timelines specified therein.


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                   18
                           (i)       If Cephalon provides written notice to Angioblast referencing this Section 4.3(a)(i),
(A) requesting that Angioblast conduct a [**] Clinical Trial with respect to any of the following indications [**] Trial for such
indication in accordance with Section 4.4(b), then Angioblast (in consultation with Cephalon) shall prepare and present to the JSC a
protocol for the conduct of such [**] Clinical Trial for such indication for the JSC's review and approval. Angioblast shall use
commercially reasonable efforts to Initiate such clinical trial as soon as practicable under the circumstances and thereafter use
commercially reasonable efforts to continue such clinical trial to completion in a timely manner in accordance with the protocol
approved by the JSC. [**]. For clarity and subject to the terms and conditions of this Agreement, Angioblast may at its own election,
conduct one or more [**] for any indication within the Field.

                            (ii)       Except as otherwise provided herein, the timing and order of [**] Clinical Trials to be conducted
pursuant to this Section 4.3 shall be determined by the JSC and set forth in the Development Plan. In this regard, the Alliance
Managers will include in the Development Plan submitted to the JSC for its review and approval a plan and budget for Angioblast's
conduct of such activities, and the JSC shall meet within [**] of the submission of such Development Plan to the JSC to review and
approve such Development Plan. Angioblast shall be responsible for and conduct such [**] Clinical Trials in accordance the
Development Plan and at its own expense, [**]. For clarity, Angioblast shall have no obligation to perform and Cephalon shall have
no obligation to fund such [**]except pursuant to an approved plan and budget therefor.

                   (b)       JSC Review. Within thirty (30) days of Angioblast's providing to the JSC the data from a [**]Clinical
Trial conducted pursuant to Section 4.3(a), the JSC shall meet and review such data and determine how to proceed with respect to the
Development of the Product for such indication. If any [**](as defined in the applicable protocol) for the applicable Phase 2a Clinical
Trial is met, then the JSC shall promptly approve an appropriate protocol consistent with applicable Law so that Cephalon can Initiate
a [**] Clinical Trial or [**]Clinical Trial, as determined by the JSC, with respect to the corresponding indication, but in no case longer
than [**] after Angioblast presenting the data from the underlying [**] Clinical Trial to the JSC; otherwise, if a primary efficacy
endpoint is not met, the JSC shall review such data and make a recommendation as to how to proceed with respect to the Development
of the applicable Product for such indication (including for Angioblast to perform additional Development) and the timing therefor. If
the JSC determines to conduct further Development of a Product for a particular indication, then the Development Plan shall be
promptly updated accordingly.

         4.4      Development Activities of Cephalon.

                  (a)       [Intentionally Omitted.]


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                   19
                    (b)       Diligence. Cephalon shall use commercially reasonable efforts to conduct those activities assigned to it
under the then-current Development Plan in accordance with the timelines specified therein and with an overall goal to realize the
commercial opportunity for the Products for use in the Field in the Territory. Without limiting the foregoing, subject to
Section 4.4(c) below, Cephalon shall Initiate (i) a [**] of the JSC's approval of the protocol therefor and thereafter use commercially
reasonable efforts to continue such clinical trial to completion in a timely manner in accordance with the protocol approved by the
JSC, (ii) a [**] of the JSC's approval of the protocol therefor and thereafter use commercially reasonable efforts to continue such trial
to completion in a timely manner in accordance with such protocol; and (iii) a [**], as determined by the JSC, for each indication for
which Cephalon has provided prior written notice to Angioblast agreeing to conduct a clinical trial pursuant to this Section 4.4(b) or as
determined by the JSC as described in Section 4.3(b) and thereafter use commercially reasonable efforts to continue such trial to
completion in a timely manner in accordance with the protocol approved by the JSC. In any such event, Cephalon (in consultation
with Angioblast) shall prepare and present to the JSC a protocol for the conduct of such [**], as applicable; however, Cephalon
acknowledges that Angioblast has prepared proposed protocols and identified certain potential clinical sites with respect to the
conduct of the clinical trials described in clause (i) and (ii) above, and will consider in good faith using such protocols and clinical
sites in the conduct thereof. If the data generated from clinical trials performed pursuant to this Section 4.4(b) reasonably supports a
Marketing Approval in the applicable jurisdiction(s) as determined by the JSC, then Cephalon shall use commercially reasonable
efforts to file and prosecute an MAA to obtain such Marketing Approval for the Product subject to such clinical trial.

                   (c)       Conditions Precedent. Notwithstanding Section 4.4(b) above, Cephalon shall not have the obligation to
Initiate any [**] Clinical Trial or [**] Clinical Trial for a Product for use in the Field in the Territory unless and until (i) the applicable
Regulatory Authority has accepted CMC Information necessary to support filing an MAA for such Product, and (ii) Angioblast has
established through reasonable supporting documentation that it (or its Third Party contract manufacturer) has reasonably sufficient
capability to supply the anticipated commercial requirements of Cephalon, its Affiliates and Marketing Partners for such Product [**]
for use in the Field in the Territory. Except as otherwise provided below in this Section 4.4(c), [**] Angioblast's providing to the JSC
the data from a [**] Clinical Trial for a Product for an indication in the Field in the Territory conducted pursuant to Section 4.3(a),
Cephalon shall provide to Angioblast a reasonable forecast of the anticipated commercial requirements of it, its Affiliates and
Marketing Partners for such Product for the indication in the Field in the Territory based on any sales history for products for such
indication in the Field in the Territory and realistic forecasted demand (each a "Conditional Forecast"), and such Conditional Forecast
shall be used as the basis to establish the capability of Angioblast (or its Third party contract manufacturer) to supply such
requirements under subsection (ii) above. With respect to the Cardiovascular Product for congestive heart failure in the


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                      20

Cardiovascular Field, Cephalon shall provide Angioblast with a Conditional Forecast for such Product [**]. It is understood that the
failure to satisfy the requirements of subsections (i) or (ii) above shall not be deemed to be a breach of Angioblast's obligations to
supply the Products pursuant to ARTICLE VII.

         4.5      Clinical Protocols.

                    (a)       Each Party shall provide the JSC with copies of proposed clinical trial protocols, investigator brochures,
clinical trial analyses and reports, and material correspondence (including all Regulatory Materials) with Regulatory Authorities with
respect to each clinical trial and Product for use in the Field in the Territory. In any event, and without limiting the foregoing, each
Party shall provide the JSC with a copy of the clinical plan and protocols for each proposed clinical trial for a Product reasonably in
advance of the Initiation thereof for review and approval by the JSC.

                    (b)       In addition, Angioblast agrees to provide to the JSC solely for informational purposes a sufficiently
detailed synopsis of protocols to be used for clinical trials of pharmaceutical products containing MPCs for use outside the Field and
in the Territory reasonably in advance of the Initiation of such clinical trial to assess whether such clinical trial is likely to present a
material adverse risk to the Products for use in the Field in the Territory; however, Angioblast's obligation to so provide the JSC any
such synopsis shall be subject to Angioblast's right to do so under its agreements with any Third Party; provided further that
Angioblast shall use good faith efforts to obtain the right to provide such synopsizes to the JSC for such informational purposes. In
the event a Third Party is unwilling to allow Angioblast provide such synopsizes to the JSC, then Angioblast shall use good faith
efforts to obtain the right to provide such synopsizes to an independent clinical development expert acceptable to Cephalon and such
Third Party, which expert shall have the right to provide to Cephalon a report stating only whether he/she believes conduct of the
clinical trial described in such synopsizes is likely to present a material adverse risk to the Products for use in the Field in the
Territory. For clarity, (i) any synopsizes provided to the JSC under this Section 4.5(b) shall be deemed to be Angioblast Confidential
Information hereunder, (ii) neither Angioblast nor any of its Third Party partner shall be obligated to modify any such protocol and
(iii) Cephalon agrees that Angioblast may provide similar synopsizes provided under Section 4.5(a) to its Third Party partner(s) for
information purposes on a reciprocal basis as such Third Party partner allows access thereto to Cephalon hereunder.

         4.6      Regulatory Matters.
                   (a)       Assignment of Regulatory Filings. Subject to Section 4.6(b) below, at reasonable times to be mutually
agreed by the Parties in order to maximize the efficiency of the Development of the Products in accordance with each Party's
responsibilities assigned to it under the


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                 21
Development Plan, Angioblast shall assign and deliver, or cause to be assigned and delivered, to Cephalon all Regulatory Materials
(including INDs) obtained and maintained by Angioblast or its Affiliate or licensee for the Development of such Product for use in the
Field in the Territory; provided, however, that, prior to the assignment of any such Regulatory Materials, Angioblast shall maintain
such Regulatory Materials at its expense and shall take all reasonable actions to make available to Cephalon the benefits of such
Regulatory Materials to the extent required by Cephalon in connection with its activities under this Agreement.

                   (b)       Responsibility for Regulatory Filings. Each Party shall be responsible, [**], for filing, obtaining and
maintaining approvals for those activities assigned to such Party hereunder in connection with the Development, manufacture and
Commercialization of Products for the Field in the Territory. The Parties acknowledge that, as between the Parties, Cephalon shall
have the sole right and responsibility for filing any MAA or Marketing Approval, as well as pricing or reimbursement approvals for
the Products for the Field in the Territory and maintaining the same. All activities under this Section 4.6(b) shall be done subject to
the oversight and in full consultation with the JSC. Prior to the filing any MAA for a Product in the Field in the Territory, Cephalon
shall provide a copy thereof to the JSC for its review and approval (including any associated proposed labeling).

                  (c)         BMF; CMC Information. As long as Angioblast is supplying (or having supplied) to Cephalon the BMT
MPCs, Cardiovascular Product or CNS Products pursuant to ARTICLE VII or the Supply Agreement, Angioblast shall, on a Product-
by-Product and country-by-country basis: (a) file a biologics master file ("BMF") in the Territory (or shall arrange for its contractor
manufacturers to do so); or (b) provide to Cephalon Angioblast's then-current CMC Information, in each case, with respect to the [**]
supplied by Angioblast (or its contractor manufacturer) to Cephalon under this Agreement or the Supply Agreement; to the extent
reasonably necessary for Cephalon to file for, obtain and maintain obtain Marketing Approvals for the applicable Products in the
Territory. Angioblast shall permit Cephalon to cross-reference any such BMF for the purposes of its Regulatory Materials (including
INDs and MAAs) for the Products for use in the Field in the Territory in accordance with this Agreement. Cephalon shall reimburse
Angioblast for [**] in accordance with this Section 4.6(c). For purposes of this Section 4.6(c), "CMC Information" means all Data
regarding a Party's (or its contract manufacturer's) chemistry, manufacturing and controls filed or required to be filed to in connection
with the Development or Commercialization of the Products.

         4.7      Regulatory Cooperation. With respect to those Regulatory Materials Angioblast is required to file for, obtain and
maintain to perform the Development activities assigned to Angioblast hereunder until such Regulatory Materials are assigned to
Cephalon pursuant to Section 4.6(a), Angioblast shall be responsible for liaising with and managing all interactions with Regulatory
Authorities with respect to such Product for use in the Field in the Territory, and during


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                   22
the period of time from and after such Regulatory Materials are assigned to Cephalon pursuant to Section 4.6(a), Cephalon shall be
responsible for liaising with and managing all interactions with Regulatory Authorities with respect to such Product for use in the
Field in the Territory. During the period of time that a Party has responsibility for liaising and managing interactions with Regulatory
Authorities (the "Responsible Party"), the other Party (the "Participating Party") shall be entitled to participate in such interactions as
provided in this Section 4.7.

                   (a)        Involvement of the Participating Party. To the extent relating to the Products for use in the Field within
the Territory or activities under the Agreement, the Responsible Party shall provide the Participating Party with:

                                 (i) reasonable advanced notice (and in no event less than ten (10) Business Days' advance notice
whenever feasible) of substantive meetings with any Regulatory Authority within the Territory that are either scheduled with, or
initiated by or on behalf of, Responsible Party or its Affiliates, and an opportunity to have a reasonable number (but at least two (2))
representatives participate in all substantive meetings with such Regulatory Authority, and in any case shall keep the Participating
Party informed as to all material interactions with such Regulatory Authorities;

                                 (ii) a copy of any material documents, information and correspondence submitted to the FDA or any
other Regulatory Authority within the Territory as soon as reasonably practicable, together with English translations and summaries
thereof, to the extent such translations and summaries exist; and

                                  (iii) with respect to Cephalon as the Responsible Party, an opportunity to have an observer attend any
substantive meetings with Regulatory Authorities that are either scheduled with, or initiated by or on behalf of, the Responsible Party
or its Affiliates to the extent such meetings are material to the chemistry, manufacturing and controls or the safety of products
containing MPCs for use outside the Field or outside the Territory, and for clarity, such observer may be excluded from portions of
any such meetings during which such observer's attendance would be inappropriate because of Cephalon's Confidential Information or
other matters are discussed.

                  (b)       JSC Approval. The JSC shall approve the overall strategy and positioning of all material Regulatory
Materials (including product labeling) prior to their submission or filing, based upon reasonably detailed reports and summaries of
such submissions and filings presented to the JSC by the Responsible Party. In connection with such review, the Responsible Party
shall promptly provide to the JSC such additional information regarding a proposed filing as the Participating Party may reasonably
request.


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    23
                    (c)       Other Regulatory Matters. Each Party will promptly provide the other Party with copies of all material
documents, information and correspondence received from a Regulatory Authority (including a written summary of any material
communications in which such other Party did not participate) within the Territory and, upon reasonable request, with copies of any
other documents, reports and communications from or to any Regulatory Authority within the Territory relating to the Products for use
in the Field or activities under the Agreement. In addition, Angioblast shall provide to Cephalon reasonable advance notice of any
substantive meetings with Regulatory Authorities that are either scheduled with, or initiated by or on behalf of, Angioblast or its
Affiliates relating to products containing MPCs for use outside the Field within the Territory to the extent such meetings are material
to the chemistry, manufacturing and controls or the safety of the Products for use in the Field within the Territory, and an opportunity
to have an observer attend in such substantive meetings with such Regulatory Authority. For clarity, such observer may be excluded
from portions of any such meetings during which such observer's attendance would be inappropriate because a Third Party's
proprietary information or other matters are discussed.

         4.8     Exchange of Data and Know-How.

                  (a)        By Angioblast. Promptly following the Effective Date, Angioblast will make available to Cephalon all
Angioblast Know-How described in Section 1.4(a) for Cephalon to Develop or Commercialize the Products and process the Expanded
HPCs, in each case for use in Field in the Territory, including all Data from research, preclinical studies, and clinical trials for the
Products for use in the Field in the Territory existing as of the Effective Date.

                    (b)       By Either Party. During the Term, each Party shall provide to the other Party all such Party's Know-How
(i.e., in case of Angioblast, Angioblast Know-How described in Section 1.4(a), and in the case of Cephalon, Cephalon Know-How
described in Section 1.13(a)) that is Controlled by such Party and that has not previously been provided hereunder, in each case
promptly upon request by the other Party. The Party providing such Party's Know-How shall provide the same in electronic form to
the extent the same exists in electronic form, and shall provide copies as reasonably requested and an opportunity for the other Party
or its designee to inspect (and copy) all other materials comprising such Know-How (including for example, original patient report
forms and other original source data, to the extent access is allowed under applicable Law). The Parties, through the Alliance
Managers, will cooperate and reasonably agree upon formats and procedures to facilitate the orderly and efficient exchange of the
Angioblast Know-How and the Cephalon Know-How. This Section 4.8(b) shall be the sole obligation of Angioblast and the sole
remedy of Cephalon for any breach of the obligation to provide Know-How pursuant to Section 4.8(a) above.

                 (c)      Provision of Data to JSC. Upon request by the JSC, each Party shall promptly provide the JSC with
summaries in reasonable detail of all Data generated or obtained in the course of such Party's performance of activities under the
Development Plan.


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                  24
         4.9      Sharing of Regulatory Filings. Without limiting Section 4.8, each Party shall permit the other Party to access, and
shall provide the other Party with sufficient rights to reference and use in association with exercising its rights and performing its
obligations under this Agreement, all of such Party's, its Affiliates' and, to the extent it has the right to do so, its Marketing Partners'
Regulatory Materials (including Data), with respect to the Products in the Field in the Territory.

         4.10      Inspection Right.

                   (a)        Inspection by a Party. Each Party shall permit an independent (i.e., having no prior or existing relationship
with either Party) Third Party or internal regulatory consultant reasonably acceptable to such Party, to enter the relevant facilities of
such Party and its Affiliates during normal business hours and upon reasonable advance notice to inspect and verify compliance with
applicable regulatory and other requirements as well as with this Agreement, with respect to matters relating to the Products for use in
the Field in the Territory, all Know-How to be provided to the other Party pursuant to Section 4.8 and the activities under the
Collaboration. Such inspection right shall include the right to examine any internal procedures or records of the inspected Party
relating to the Products for use in the Field in the Territory. The inspected Party shall give such Third Party all necessary and
reasonable assistance for a full and correct carrying out of the inspection. Such inspection shall not relieve the inspected Party of any
of its obligations under this Agreement.

                   (b)        Diligence. Each Party shall use commercially reasonable efforts to secure for the other Party the rights set
forth in Section 4.10(a) from Third Parties acting on its behalf, including trial sites and other contractors with respect to the Product
for use in the Field (including in the case of Cephalon, any Marketing Partner). In the event a Party is unable to secure such
inspection rights from any such Third Party, the Party agrees to secure such rights for itself and, if requested by the other Party, shall
exercise such rights, at its own expense, for the other Party and fully report the results thereof to such other Party.

         4.11      Reporting; Adverse Drug Reactions.

                  (a)       Pharmaco-Vigilance Agreement. In conjunction with this Agreement, the Parties shall enter into a
pharmaco-vigilance agreement on reasonable and customary terms, including: (i) providing detailed procedures regarding the
maintenance of core safety information and the exchange of safety data relating to the Products; and (ii) ensuring compliance with the
reporting requirements of all applicable Regulatory Authorities on a worldwide basis.

                 (b)       Adverse Event Reporting. As between the Parties, Cephalon shall be responsible for the timely reporting
of all Adverse Drug Reactions, complaints and safety data relating to the Products for use in the Field in the Territory to the
appropriate Regulatory Authorities


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                      25
in all countries in the Territory in accordance with the Law. Cephalon shall ensure that its Affiliates and Marketing Partners comply
with such reporting obligations in the Territory. To the extent required by applicable Law or as requested by the applicable
Regulatory Authority, Angioblast shall provide Cephalon with timely reporting of any Adverse Drug Reactions, complaints and safety
data relating to MPC Products for use outside the Field.

          4.12     Delays Outside of a Party's Control. In addition to the provisions of Section 15.1, neither Party will be responsible
for failure to meet timelines with respect to the Development of the Products for the Field caused by factors beyond its reasonable
control (e.g., regulatory delays, changes in regulatory timelines, being placed on clinical hold) and despite its commercially reasonable
efforts to accomplish the objective within the applicable time therefor.

                                                     ARTICLE V
                                           COMMERCIALIZATION AND PROMOTION
          5.1      Commercialization of the Products. Cephalon shall be responsible for, and shall use commercially reasonable
efforts to Commercialize Products in the Field throughout the Territory in a prompt and expeditious manner and meet the sales and
other goals set forth in the then-current Commercialization Plan. It is understood and agreed that, except as otherwise expressly
provided herein, all Commercialization efforts for the Products in the Field in the Territory shall be at the sole expense of Cephalon.

          5.2     Commercialization Plan. At such time as Cephalon prepares a plan for Commercialization of a Product for its own
internal purposes (the "Commercialization Plan") and update such plan on an annual basis, which plan and updates shall be presented
by Cephalon to the JSC for review and approval. Cephalon shall use commercially reasonable efforts to carry out all marketing,
promotion and commercialization of the Products in the Territory in accordance with the then-current Commercialization Plan
therefor.

                                                           ARTICLE VI
                                                            PAYMENTS
        6.1      Initial License Fee. Cephalon shall pay to Angioblast an initial license fee in the amount of One Hundred Thirty
Million United States Dollars (US$130,000,000) as follows:

                                (i)   One Hundred Million United States Dollars (US$100,000,000) within five (5) days following the
Effective Date; and

                              (ii) Thirty Million United States Dollars (US$30,000,000) within five (5) days following the date on
which all Conditions Precedent (as defined in that certain Subscription


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                   26
Deed by and between Mesoblast Limited and Cephalon effective as of even date herewith) have been met.

      The initial license fee set forth in this Section 6.1 shall be paid in accordance with the payment provisions of this
ARTICLE VI and shall not be refundable or creditable against any other payments by Cephalon to Angioblast under this Agreement.

           6.2      Equity Purchase. Simultaneous with the execution of this Agreement Cephalon and Angioblast have entered into
that certain Stock Purchase Agreement dated as of even date herewith by and among Angioblast, Cephalon and the individuals and
entities listed on the exhibits thereto pursuant to which Cephalon shall purchase certain currently outstanding equity securities of
Angioblast in accordance with the terms of such agreement.

         6.3     Other Payments. Cephalon shall make the other payments to Angioblast as set forth in Exhibit 6.3.

         6.4       Payment Method. All payments under this Agreement shall be made by bank wire transfer in immediately available
funds to an account designated by the Party to which such payments are due. Any payments or portions thereof due under this
Agreement that are not paid by the date such payments are due under this Agreement shall bear interest at a rate equal to: [**]. This
Section 6.4 shall in no way limit any other remedies available to the Parties.

         6.5      Currency Conversion. Unless otherwise expressly stated in this Agreement, all amounts specified in this Agreement
are in Dollars, and all payments by one Party to the other Party under this Agreement shall be paid in Dollars. If any currency
conversion shall be required in connection with the payment of the transfer price under this Agreement, such conversion shall be
calculated using the average exchange rate for the conversion of foreign currency into Dollars, quoted for current transactions for both
buying and selling Dollars, as reported in The Wall Street Journal (U.S. Internet version at www.wsj.com) for the last Business Day of
each month of the calendar quarter to which such payment pertains.

         6.6       Withholding Taxes. If Law requires withholding of any taxes by the Party making payment (the "Payor") of any
amount hereunder imposed upon the Party receiving payment (the "Payee") on account of any payments paid or payable under this
Agreement, such taxes shall be deducted by Payor as required by Law from such payment and shall be paid by Payor to the proper
taxing authorities. Official receipts of payment of any such taxes shall be secured and promptly provided to Payee as evidence of such
payment together with other documentation reasonably requested by Payee in connection therewith. The Parties shall cooperate in
any lawful manner to reduce or eliminate any such taxes imposed to the extent possible under the provisions of any


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                  27
applicable tax treaty, and shall cooperate in filing any forms required for such reduction or elimination.

         6.7      Records; Inspection. Cephalon shall keep, and require its Affiliates and Marketing Partners to keep, complete, true
and accurate books of accounts and records for the purpose of determining the amounts payable to Angioblast pursuant to this
Agreement. Such books and records shall be kept for at least five (5) years following the end of the calendar year to which they
pertain. Such records will be open for inspection by an independent (i.e., having no prior or existing relationship with either Party)
auditor chosen by Angioblast and reasonably acceptable to Cephalon for the purpose of verifying the amounts payable by Cephalon
hereunder. Such inspections may be made [**], at reasonable times and on reasonable prior written notice. The records for any
particular calendar quarter shall be [**]. The auditor shall be obligated to execute a reasonable confidentiality agreement prior to
commencing any such inspection. Any inspection conducted under this Section 6.7 shall be at the expense of Angioblast, [**].

                                                       ARTICLE VII
                                                 MANUFACTURING AND SUPPLY
          7.1      Supply. Subject to the terms and conditions of this Agreement, Angioblast shall use commercially reasonable efforts
to supply or have supplied (by an Affiliate or Third Party) to Cephalon all requirements of (a) [**], (b) [**]and (c) [**], in each case
in the Territory, in accordance with this ARTICLE VII and in accordance with a separate written agreement to be negotiated between
the Parties pursuant to Section 7.2 (the "Supply Agreement"). Except as otherwise agreed by the Parties in the Supply Agreement, as
between the Parties: (i) Cephalon shall [**] purchase from Angioblast [**]; and (ii) Angioblast shall have the [**]to manufacture and
have manufactured the [**]. It is understood that Angioblast shall supply to Cephalon (or its designee) the [**] in accordance with the
Specifications therefor. For clarity, Cephalon shall be responsible for obtaining any import or export approvals required by
Regulatory Authorities in the Territory to import or export the [**] to any country or other jurisdiction within the Territory.

          7.2     Formulation / Specifications. Angioblast shall be responsible for determining the appropriate formulation for the
[**] and associated Specifications (which with respect to activities after the Effective Date shall be done in consultation with
Cephalon and subject to the oversight of the JSC); however, upon Cephalon's reasonable request and agreement to [**], Angioblast
shall use commercially reasonable efforts to accommodate any changes in formulation or the Specifications for the [**].

       7.3      Clinical Supply. Angioblast shall use commercially reasonable efforts to supply to Cephalon the[**] for use in
Development of Products for use in the Field in the Territory in accordance with this Section 7.2.


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    28
                  (a)      Angioblast shall supply Cephalon with such quantities of the [**] as are reasonably required by Cephalon
in order to conduct Development of the Products for use in the Field in the Territory in accordance with the then-current Development
Plan.

                    (b)       Such supply shall be at [**] to Cephalon; however, Cephalon shall be responsible for all costs of shipping,
handling, transit, taxes (including VAT), packaging, storage and the like in connection with the transport of [**] from the facilities
where Angioblast manufactures or has manufactured the same to the location designated by Cephalon. Accordingly, Cephalon shall
choose the carrier and be responsible for all payments thereto. It being understood that Angioblast shall not be responsible for any
loss or damage of [**] in carriage, use or otherwise not caused by Angioblast or a Person acting by or on behalf of Angioblast;
however, in the event of such loss or damage, the Parties shall promptly discuss how to address such situation, including Cephalon
reimbursing Angioblast's costs associated with replacing such lost or damaged [**] and any expedite fees associated therewith.

                   (c)        The Parties shall establish reasonable procedures for Cephalon to forecast and submit to Angioblast, and
for Angioblast to fill, orders for [**] for use for Development. Such procedures shall include reasonable schedules for delivery of [**]
ordered by Cephalon pursuant to this Section 7.2 consistent with the Development Plan then in effect. Notwithstanding the foregoing,
Angioblast shall not be obligated to supply any quantities of the Product in excess of the Product necessary for Cephalon to conduct
the Development activities assigned to it under the Development Plan. Cephalon agrees that [**] supplied pursuant to this Section 7.2
shall be used solely for purposes of performing Development of the Products for use in the Field in the Territory in accordance with
the Development Plan and, unless otherwise agreed by the Parties, for no other purpose. Accordingly, Cephalon acknowledges that
Angioblast shall have the right to package or otherwise mark such [**] in a manner that distinguishes them from those intended for
Commercialization.

                (d)      [**] supplied to Cephalon pursuant to this Section 7.2 shall be manufactured in compliance with all
applicable GMP and the Specifications therefor and other requirements therefor established by the applicable Regulatory Authorities.

          7.4      Commercial Supply. Upon the written request of Cephalon before a Product receives the first Marketing Approval
in the Territory, the Parties shall negotiate and execute a Supply Agreement for the supply by Angioblast to Cephalon of [**] for
Commercialization in the Territory, and such Supply Agreement shall include the terms and conditions set forth on Exhibit 7.4 and
shall not otherwise be inconsistent with the terms and conditions of this Agreement. The transfer price for all BMT MPCs,
Cardiovascular Products and CNS Products supplied for Commercialization in the Territory shall be as set forth in Section 6.3 above.


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                   29
         7.5      Quality Agreement. Angioblast and Cephalon shall execute a mutually acceptable quality agreement that allocates
roles and responsibilities to each Party with respect to quality control and regulatory compliance with respect to supply of Products to
Cephalon for the Development and Commercialization of the Products pursuant to Sections 7.2 and 7.4 above.

          7.6     Supply Protection. Angioblast and Cephalon shall cooperate to establish reasonable plans and procedures to avoid
any shortage of supply of [**]. Additionally, in order to mitigate the risk of shortage of supply the JSC may establish requirements for
safety stock inventories to be maintained by the Parties and plans to extend the shelf life of [**] including stability trials to be
performed by the Parties.

         7.7      Shortage of Supply. Angioblast shall promptly notify the JSC of any occurrence of which it becomes aware that it
expects will result in a likely shortage or prevent Angioblast from providing on-time delivery of quantities of the Products ordered by
Cephalon and accepted by Angioblast in accordance with the terms and conditions of this ARTICLE VII or the Supply Agreement. In
such event, the JSC shall immediately establish a joint manufacturing subcommittee with an equal number of senior manufacturing
personnel from each Party ("JMC") to address the issue, including locating one or more alternative suppliers or manufacturing sites to
increase production and identifying other actions necessary to resolve the issue. The JMC shall determine appropriate measures to
prevent any shortage of supply and shall promptly implement such measures. In any such event Angioblast shall allocate the
quantities of such Product that Angioblast has in inventory, and that Angioblast is able to produce, on a reasonable worldwide basis
(based upon sales history and realistic forecasted demand), so that Cephalon receives its portion. In any event, both Parties agree to
respond with the level of speed and diligence commensurate with the severity of the problem.

          7.8     Back-Up Manufacturing Right. If, despite the foregoing measures undertaken by the Parties pursuant to Sections 7.6
and 7.7 above, Angioblast, as a result of its failure to use commercially reasonable efforts, is unable to supply quantities of the [**], as
applicable, ordered by Cephalon and accepted by Angioblast for commercial sale in accordance with the terms and conditions of the
Supply Agreement (once executed) and such inability interrupts or is likely to interrupt Cephalon's ability to meet the market demand
for the applicable Products (a "Supply Failure"), then Cephalon shall have the right to qualify a Third Party back-up contractor
manufacturer, to which Angioblast has no reasonable objection (each, a "CMO") for such Product for commercial supply in the
Territory and to have its and its Affiliates' and Marketing Partners' requirements for such Product manufactured and supplied to
Cephalon for commercial sale in the Territory for the remaining Term of the Agreement. If Cephalon so elects to exercise its rights
under this Section 7.8, then Cephalon shall identify and qualify a CMO, and Angioblast shall have the right to participate in and
approve such qualification therefor, not to be unreasonably withheld, conditioned or delayed. Upon Angioblast's approval of such
CMO, Angioblast shall transfer (or


**      Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    30

cause its existing contract manufacturer to transfer) all relevant Data and other Know-How related to the manufacture and supply of
such Product to such CMO in accordance with the provisions set forth in Exhibit 7.8. Upon completion of such transfer of Data and
other Know-How, Angioblast shall no longer have the obligations to supply the requirements for such Product for commercial sale as
provided for under this ARTICLE VII and the Supply Agreement. This Section 7.8 shall be the sole obligation of Angioblast and the
sole remedy of Cephalon for a failure to supply any commercial requirements of the Products as set forth in this ARTICLE VII and
the Supply Agreement if such exercise is prior to the expiration of Angioblast's right to terminate pursuant to Section 13.3(a) or
13.3(b), as applicable. If Cephalon so elects to exercise its rights under this Section 7.8, Cephalon shall not [**]; provided, however,
that if Angioblast's right to terminate pursuant to Section 13.3(a) or 13.3(b), as applicable, has expired, then Cephalon shall [**]. For
clarity, such payments shall be made on calendar quarterly basis in arrears consistent with the reconciliation process as provide for
under Exhibit 6.3 and provide reports with respect to such sales as set forth under ARTICLE VI and otherwise in accordance with
ARTICLE VI.

                                                          ARTICLE VIII
                                                         CONFIDENTIALITY
         8.1        Confidential Information. Except to the extent expressly authorized by this Agreement or otherwise agreed in
writing by the Parties, each Party agrees that it shall keep confidential and shall not publish or otherwise disclose and shall not use for
any purpose other than as provided for in this Agreement any Confidential Information furnished to it by the other Party pursuant to
this Agreement. The confidentiality and non-use obligations set forth above shall terminate [**] except with respect to any
Confidential Information that constitutes a trade secret under applicable Law. In any event, the confidentiality and non-use
obligations set forth above shall not apply with respect to any portion of the other Party's Confidential Information that the receiving
Party can demonstrate by competent written proof:

                   (a)       was already known to the receiving Party or its Affiliate, other than under an obligation of confidentiality,
at the time of disclosure by the disclosing Party;

                  (b)       was generally available to the public or otherwise part of the public domain at the time of its disclosure by
the disclosing Party;
                   (c)      becomes generally available to the public or otherwise part of the public domain after its disclosure by the
disclosing Party, other than through any act or omission of the receiving Party in breach of this Agreement;


  **    Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                   31
                 (d)       is disclosed to the receiving Party or its Affiliate by a Third Party who has a legal right to make such
disclosure and who did not obtain such information directly or indirectly from the disclosing Party; or

                 (e)       is independently discovered or developed by employees or contractors of the receiving Party or its
Affiliate who have not actually received or have no actual knowledge of the other Party's Confidential Information.

         8.2       Authorized Disclosure. Each Party may disclose Confidential Information belonging to the other Party to the
extent such disclosure is reasonably necessary in the following situations:

                  (a)       Prosecuting and Maintaining Patents in accordance with Section 9.2;

                (b)      complying with the requirement of Regulatory Authorities with respect to filing for, obtaining and
maintaining Marketing Approval for the Products in accordance with this Agreement (including conducting Development of the
Products);

                  (c)       prosecuting or defending litigation as contemplated by, or arising out of, this Agreement;

                  (d)      complying with applicable Laws and regulations promulgated by security exchanges, court order or
administrative subpoenas or orders or otherwise submitting information to tax or other governmental authorities;

                     (e)        disclosure to its or its Affiliates' employees, agents, consultants, advisors (including financial advisors,
lawyers and accounts) and contractors (and Marketing Partners in the case Cephalon and other licensees or sublicensees in the case of
Angioblast), in each case only on a need-to-know basis for the sole purpose of performing its or its Affiliates' obligations or exercising
its or its Affiliates' rights under this Agreement, provided that in each case the recipient of such Confidential Information are bound by
written obligations of confidentiality and non-use at least as equivalent in scope as those set forth in this ARTICLE VIII prior to any
such disclosure; and

                   (f)       disclosure to existing and potential investors, merger partners or acquirors, including their respective
consultants and professional advisors (including financial advisors, lawyers and accounts), solely on a need-to-know basis in order to
evaluate an actual or potential investment, acquisition or similar business transactions; and provided that in connection with such
disclosure, the disclosing Party shall inform each disclosee of the confidential nature of such terms and cause each disclosee to treat
such information as confidential consistent with the nature of the Confidential Information so disclosed.


  **    Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    32
         Notwithstanding the foregoing, in the event a Party is required to make a disclosure of the other Party's Confidential
Information pursuant to clause (i), (ii) or (iv) of this Section 8.2, it shall promptly notify the other Party of such required disclosure
and shall use reasonable efforts to obtain, or to assist the other Party in obtaining, a protective order or confidential treatment limiting
or preventing the required disclosure, and disclose only the minimum information necessary for such disclosure; provided that such
Confidential Information disclosed accordingly shall only lose its confidentiality protection for purposes of such disclosure. In any
event, each Party agrees to take all reasonable action to avoid disclosure of Confidential Information of the other Party hereunder.

        8.3        Prior Non-Disclosure Agreements. Upon execution of this Agreement, the terms of this ARTICLE VIII shall
supersede the Prior Confidentiality Agreement in their entirety.

         8.4       Publicity; Terms of Agreement.

                   (a)      General. Each of the Parties agrees not to disclose to any Third Party the terms and conditions of this
Agreement without the prior approval of the other Party, except to advisors (including financial advisors, attorneys and accountants),
potential and existing investors, financial or commercial partners, merger partners and acquirers and others on a need-to-know basis,
in each case under circumstances that reasonably protect the confidentiality thereof, or as otherwise provided in the special authorized
disclosure provisions set forth below in this Section 8.4. The Parties shall make a joint public announcement of the execution of this
Agreement, such public announcement to be mutually agreed by the Parties within two (2) Business Days of the Effective Date and
released promptly thereafter by the Parties in a coordinated manner.

                   (b)       Future Releases. After release of such press release, if either Party desires to make a public announcement
concerning the material terms of this Agreement, such Party shall give reasonable prior advance notice of the proposed text of such
announcement to the other Party for its prior review and approval (except as otherwise provided herein), such approval not to be
unreasonably withheld or delayed. A Party commenting on such a proposed press release shall provide its comments, if any, within
two (2) Business Days after receiving the press release for review. To the extent required by applicable Laws, including regulations
promulgated by applicable securities exchange, each Party shall have the right to make a press release announcing the achievement of
each milestone under this Agreement as it is achieved, and the achievements of Marketing Approvals in the Territory as they occur,
subject only to the review procedure set forth in the preceding sentence. In relation to a Party's review of such an announcement, such
Party may make specific, reasonable comments on such proposed press release within the prescribed time for commentary, but shall
not withhold its consent to disclosure of the information that the relevant milestone has been achieved and triggered a payment
hereunder. Neither Party shall be required to seek the permission of the other Party to repeat any information regarding the terms of
this


  **    Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                     33
Agreement that has already been publicly disclosed by such Party, or by the other Party, in accordance with this Section 8.4, provided
that such information remains accurate as of such time.

                    (c)     Regulatory Disclosures. The Parties acknowledge that a Party may at some point in time be obligated to
file a copy of this Agreement with applicable governmental authorities having regulatory authority over such Party securities or the
exchange thereof. In such case, such Party shall be entitled to make such a required filing, provided that it requests confidential
treatment of the commercial terms and sensitive technical terms hereof to the extent such confidential treatment is reasonably
available to such Party and permitted by such governmental authority. In the event of any such filing, such Party will provide the
other Party with a copy of the Agreement marked to show provisions for which the filing Party intends to seek confidential treatment
and shall reasonably consider and incorporate the other Party's comments thereon to the extent consistent with the legal requirements
governing redaction of information from material agreements that must be publicly filed. The other Party will as promptly as practical
provide any such comments. The other Party recognizes that applicable Laws, including regulations promulgated by applicable
governmental authorities, to which the filing Party is and may become subject to may require the filing Party to publicly disclose
certain terms of this Agreement that the other Party may prefer not be disclosed, and that the filing Party is entitled hereunder to make
such required disclosures to the minimum extent necessary to comply with such Laws.

         8.5        Technical Publications. Neither Party may publish peer reviewed manuscripts, or give other forms of public
disclosure such as abstracts and presentations, of data or results of activities under this Agreement with respect to Products for use in
the Field in the Territory, without the opportunity for prior review by the other Party, except to the extent required by applicable
Laws. A Party seeking publications shall provide the other Party the opportunity to review and comment on any proposed
manuscripts or presentations which relate to any Product at least sixty (60) days prior to their intended submission for publication or
presentation. The other Party shall provide the Party seeking publication with its comments in writing, if any, within thirty (30)
Business Days after receipt of such proposed manuscripts or presentations. The Party seeking publication shall consider in good faith
such comments thereto provided by the other Party and shall remove from the proposed manuscripts or presentations any and all of the
other Party's Confidential Information at the request of such other Party. In addition, the Party seeking publication shall delay the
submission for a period up to ninety (90) days in the event that the other Party can demonstrate reasonable need for such delay,
including the preparation and filing of a Patent application. If the other Party fails to provide its comments to the Party seeking
publication within such thirty (30) Business Day period, such other Party shall be deemed not to have any comments, and the Party
seeking publication shall be free to publish in accordance with this Section 8.5 after the sixty (60) day period has elapsed. The Party
seeking publication shall provide the other Party a copy of the manuscript or presentation at the time of the submission. The Party
seeking publication shall not have the right to publish or present the other Party's Confidential Information without prior written
consent of the other Party,


  **    Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                   34
except as expressly permitted in this Agreement. The contribution of each Party shall be noted in all publications or presentations by
acknowledgment or co-authorship, whichever is appropriate.

          8.6       Equitable Relief. Each Party acknowledges that its breach of this ARTICLE VIII may cause irreparable harm to
the other Party, which cannot be reasonably or adequately compensated in damages in an action at law. By reasons thereof, each Party
agrees that the other Party shall have the right to seek, in addition to any other remedies it may have under this Agreement or
otherwise, preliminary or permanent injunctive and other equitable relief to prevent or curtail any actual breach of the obligations
relating to Confidential Information set forth in this ARTICLE VIII by such Party.

                                                        ARTICLE IX
                                                   INTELLECTUAL PROPERTY
         9.1       Ownership.

                   (a)       General. As between the Parties and subject to the terms and conditions of this Agreement, all right, title
and interest to inventions and other subject matter conceived or created or first reduced to practice in connection with this Agreement
(together with all intellectual property rights therein) ("Inventions") (i) by Persons acting on behalf of Angioblast, independently of
Persons acting by or on behalf of Cephalon, shall be owned by Angioblast, (ii) by Persons acting on behalf of Cephalon,
independently of Persons acting on behalf of Angioblast, shall be owned by Cephalon and (iii) by Persons acting on behalf of
Angioblast and Cephalon shall be jointly owned by Angioblast and Cephalon. Except as expressly provided in this Agreement, it is
understood that neither Party shall have any obligation to obtain any approval of nor pay a share of the proceeds to the other Party to
practice, enforce, license, assign or otherwise exploit such jointly-owned Inventions, and each Party hereby waives any right it may
have under the Laws of any country to require such approval or sharing. Notwithstanding anything to the contrary in this Agreement,
neither Party is obligated to assign any title or interest in inventions and other subject matter (together with all intellectual property
rights therein) conceived or created or first reduced to practice before the Effective Date.

                   (b)       Improvements. Notwithstanding Section 9.1(a), any and all Inventions that are conceived or created or
first reduced to practice by Persons acting on behalf of Cephalon or its Marketing Partners in connection with this Agreement
(i) comprising a modification or enhancement of or to a Product or the manufacture, use or formulation thereof; or (ii) enabled by use
of the Confidential Information of Angioblast and in each case, all intellectual property rights therein and thereto ("Improvements")
shall be owned solely by Angioblast. Cephalon agrees to assign and hereby assigns to Angioblast all its rights, title and interests in
and to such Improvements, and shall cause its Marketing Partners, as applicable, to do the same. Cephalon shall promptly notify


  **    Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    35
Angioblast of any such Improvements and disclose to Angioblast any Data or other Know-How related to such Improvements.

                   (c)      Further Assurances. Cephalon agrees to execute such documents, render such assistance, and take such
other action as Angioblast may reasonably request, to apply for, register, perfect, confirm, and protect Angioblast's rights in all such
Improvements. Cephalon agrees that if Angioblast is unable because of Cephalon's unavailability, dissolution or incapacity, or for any
other reason, to secure Cephalon's signature to apply for or to pursue any application for any Patents or copyright registrations
covering, in whole or in part, Improvements assigned to Angioblast under Section 9.1(b), then Cephalon hereby irrevocably designates
and appoints Angioblast and its duly authorized officers and agents as Cephalon's agent and attorney in fact, to act for, and in
Cephalon's behalf and stead, to execute and file any such applications and to do all other lawfully permitted acts to further the
prosecution and issuance of Patents and copyright registrations thereon with the same legal force and effect as if executed by
Cephalon.

         9.2       Prosecution and Maintenance of Patents.

                   (a)       Angioblast Patents. As between the Parties, Angioblast shall control, in its discretion, the Prosecution and
Maintenance of all Angioblast Patents within the Territory; provided that Angioblast agrees to: (i) keep Cephalon reasonably informed
with respect to such activities; (ii) consult in good faith with Cephalon regarding such matters and consider all Cephalon's comments
with respect thereto in good faith; and (iii) with respect to any Angioblast Patent that [**] a Product for use in the Field in the
Territory (a "Specific Angioblast Patent"), incorporate any reasonable comments provided by Cephalon to Angioblast in any filings or
responses made to any patent authority provided by Cephalon to Angioblast in a reasonable amount of time in advance of submitting
such filings or responses. If Angioblast determines not to file any Patent, or to abandon any Patent, within the Angioblast Patents
within the Territory, as applicable, Angioblast shall provide Cephalon with written notice at least sixty (60) days (or if less, as long as
reasonably practicable) prior to taking such action, or the date on which such abandonment would become effective. In such event,
Cephalon shall have the right, at its option, to control the Prosecution and Maintenance of such Angioblast Patent, [**] in Angioblast's
name within the Territory; provided that Cephalon shall have the right to [**] for the Prosecution and Maintenance of such Angioblast
Patent against any Transfer Payments. In such case, Cephalon shall keep Angioblast reasonably informed of its activities with respect
to such Prosecution and Maintenance.

                  (b)       Joint Patents. Without limiting any rights under this Section 9.2(b), prior to the filing of any Patent
claiming Inventions that are jointly owned pursuant to Section 9.1(a) above (any, a "Joint Patent"), the Parties shall agree on a strategy
for the Prosecution and Maintenance thereof, including the particular countries to file for a Patent and scope of the claims to be filed
and each Party agrees to take all reasonable action to cooperate fully in this regard. Each Party shall bear


  **    Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    36
[**] in connection with such activities as they are incurred, provided that if either Party provides the other Party with sixty-(60) days
written notice specifying that it no longer desires to bear such costs and expenses with respect to a particular Joint Patent, then upon
the other Party's receipt of such notice, such notifying Party shall not be responsible for any further costs or expenses under this
Section 9.2(b) related to any such Joint Patent; provided however that such notifying Party shall be responsible for any costs and
expenses incurred up to and as of the date the other Party receives such notice, and all right, title and interest in and to such Joint
Patent (together with any Patents issuing thereon or therefrom) shall be and is hereby assigned, without further consideration, to the
other Party (subject to the rights granted under Sections 2.1 and 2.2 above).

                    (c)       Cooperation. Each Party shall cooperate with the other Party in connection with all activities relating to
the Prosecution and Maintenance of the Angioblast Patents undertaken by such other Party pursuant to this Section 9.2, including:
(a) making available in a timely manner any documents or information such other Party reasonably requests to facilitate such other
Party's Prosecution and Maintenance of the applicable Patents pursuant to this Section 9.2; and (b) if and as appropriate, signing (or
causing to have signed) all documents relating to the Prosecution and Maintenance of any applicable Patents by such other Party.
Each Party shall also promptly provide to the other Party all information reasonably requested by such other Party with regard to such
Party's activities pursuant to this Section 9.2.

         9.3       Enforcement.

                  (a)      Notice. In the event that either Party reasonably believes that any Angioblast Patent within the Territory is
being infringed by a Third Party, or is subject to a declaratory judgment action arising from such infringement, such Party shall
promptly notify the other Party.

                     (b)      Initiating Enforcement Actions. Angioblast shall have the initial right (but not the obligation), at its own
expense, to enforce the Angioblast Patents against any infringement of any Angioblast Patents with respect to the manufacture, sale or
use within the Territory of a product for use in the Field (an "Infringing Product"), or to defend any declaratory judgment action
arising from such infringement, within the Territory (for purposes of this Section 9.3, an "Enforcement Action") provided, however,
that Cephalon may participate in such Enforcement Action at its own expense. In the event that Angioblast fails to initiate an
Enforcement Action under this Section 9.3(b) within [**] days in accordance with the Patient Protection and Affordable Care Act of a
request by Cephalon to initiate such Enforcement Action in other circumstances, Cephalon may initiate an Enforcement Action against
such infringement, at its own expense, with Angioblast's consent, not to be unreasonably withheld, conditioned or delayed. For
clarity, it will not be unreasonable for Angioblast to withhold such consent if such Enforcement Action could likely result in such
Angioblast Patent being held unpatentable or unenforceable. In such case, Angioblast shall cooperate in such Enforcement Action at
Cephalon's expense. In any event, each Party agrees to


  **    Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    37
keep the other Party hereto reasonably informed of all material developments in connection with any Enforcement Action and each
Party may provide input and comments related to the strategy for any Enforcement Action and the other Party shall consider such
input and comments in good faith. Each Party agrees not to settle any Enforcement Action, or make any admissions or assert any
position in any Enforcement Action, in a manner that would have a material adverse affect on the other Party's rights or interests in
any Angioblast Patent or Product for use in the Field in the Territory, without the prior written consent of the other Party, which shall
not be unreasonably withheld, conditioned or delayed.

                  (c)       Initiating Other Enforcement Actions. In addition to Section 9.3(b) above, Angioblast shall have the sole
and exclusive right (but not the obligation), at its own expense, to enforce the Angioblast Patents against any infringement of any
Angioblast Patents with respect to the manufacture, sale or use within the Territory of a product other than an Infringing Product
("Other Infringing Product"), or to defend any declaratory judgment action arising from such infringement, within the Territory (for
purposes of this Section 9.3(c), an "Other Enforcement Action"); provided that Cephalon may request that Angioblast initiate an Other
Enforcement Action to enforce the Angioblast Patents against an infringement by a Third Party in a country within the Territory that
has a commercially significant impact on the sales of the Products in such country within the Territory, and Angioblast upon such
request will reasonably consider initiating such Other Enforcement Action, or granting Cephalon the right to bring such Other
Enforcement Action, and will not unreasonably deny such request, taking into consideration the effect or likely effect of the sales of
such Other Infringing Product on the sales of such Products and Angioblast's obligations to Third Parties.

                  (d)        Cooperation. In addition to each Party's right to participate and provide input and comments on any
Enforcement Actions pursuant to Section 9.3(b), the Party initiating or defending any action pursuant to this Section 9.3 shall keep the
other Party reasonably informed of the progress of any such action. In addition, the Parties shall assist one another and cooperate in
any such action at the other's reasonable request and expense (including joining as a party plaintiff to the extent necessary to bring or
maintain such action).

                   (e)        Recoveries. Any damages or other monetary awards recovered from an Enforcement Action within the
Territory shall be allocated first to reimburse the costs and expenses of the Party who initiates the Enforcement Action and, if the other
Party joins as a party plaintiff, then the unreimbursed costs and expenses of the other Party. Any amounts remaining shall be [**].
For clarity, as between the Parties, all amounts received in connection with or allocated to an Other Enforcement Action shall inure to
the benefit and be retained by Angioblast.

         9.4       Third Party Infringement Claims.


  **    Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    38
                   (a)       Notice. If any Product manufactured, used or sold by or on behalf of a Party, becomes the subject of a
Third Party's claim or assertion of infringement of a Patent granted by a jurisdiction in the Licensed Territory (any such claim or
assertion, a "Defensive Action"), the Party first having notice of the Defensive Action shall promptly notify the other Party. Without
limiting the rights of the Parties in Section 9.4(b) below, the Parties shall promptly agree on and enter into a joint defense agreement
wherein such Parties agree to their shared, mutual interest in the outcome of such potential dispute (any, a "Joint Defense
Agreement"), and thereafter, the Parties shall promptly meet to consider the Defensive Action and the appropriate course of action.

                   (b)       Control. The Party subject to such Defensive Action shall have the right to direct and control the defense
thereof; provided, however, that the other Party may participate in the defense and/or settlement thereof at its own expense with
counsel of its choice. Notwithstanding the foregoing, the provisions of Section 9.3 shall govern the right of a Party subject to such
Defensive Action to assert a counterclaim of infringement of any Angioblast Patent or Joint Patent in connection with such Defensive
Action. In any event, each Party agrees to keep the other Party hereto reasonably informed of all material developments in connection
with any such Defensive Action. Each Party agrees not to settle any Defensive Action, or make any admissions or assert any position
in any Defensive Action, in a manner that would materially adversely affect the Products or the manufacture, use or sale of the
Products for the Field in the Territory, without the prior written consent of the other Party, which shall not be unreasonably withheld
or delayed; provided that any determination to acquire a license or other rights under any Patent asserted in such Defensive Action
shall be governed by Section 9.5 below. Without limiting the foregoing, each Party shall be responsible for [**] Costs incurred by a
Party as a result of such Defensive Action. As used herein, "Costs" shall mean out-of-pocket costs incurred by a Party, including
reasonable attorney's fees, damages and other liabilities that are part of any final judgment awarded against such Party, and any
amounts paid by such Party in a settlement of the action (except for any payments to a Third Party as a result of acquiring a license or
other rights under the Patent asserted in such Defensive Action pursuant to Section 9.5 below and either Party's exercise of such rights
under such Patents, which payments shall be shared by the Parties in accordance with Section 9.5 below).

         9.5       Third Party Technology.

                  (a)       Third Party Technology. If a Party identifies (or if a Third Party notifies a Party of) any Patent owned or
controlled by a Third Party that it reasonably believes Covers the Development, Commercialization, other use or manufacture
(including processing) of any Product for use in the Field in the Territory, then such Party (the "Noticing Party") shall provide notice
of such Third Party's Patent to the other Party (the "Noticed Party") through the Noticed Party's members on the JSC. In addition, the
Noticing Party shall disclose to the Noticed Party through its members on the JSC other relevant information with respect to such
Third Party Patent in the Noticing Party's control; provided that prior to the disclosure of such information, the Parties shall


  **    Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                   39
enter into a joint interest agreement in order to protect the attorney-client and other similar privileges and confidentiality with respect
to such matters on standard and customary terms and conditions (any, a "Joint Interest Agreement"). In such case, the JSC shall
promptly (and in no case later than thirty (30) days after the date of such notice) meet to determine the appropriate strategy(ies) with
respect to such Third Party Patent (including seeking appropriate licenses or other rights or developing appropriate work arounds with
respect thereto). In the event the JSC agrees to seek a license or other right under such Patent from the Third Party, Angioblast shall
take the lead with respect thereto; however, it shall keep Cephalon reasonably informed with respect to the negotiation of any such
license or right including notifying Cephalon in advance of meetings with such Third Party and allow Cephalon to reasonably
participate therein. Additionally, Angioblast shall provide Cephalon a copy of any proposed agreement with respect to such Patent
prior to its execution for its review and comment, and Angioblast will consider such comments in good faith. Angioblast shall ensure
that under any such agreement it will Control (in accordance with Section 1.19) such Patent so that such Patent shall be an Angioblast
Patent for purposes of this Agreement. Each Party shall be responsible[**] of all amounts payable to such Third Party as a result of
Angioblast's entering into such license agreement or either Party's exercise of any rights under such Patents (including any milestones
and royalties) in accordance with the terms and conditions of this Agreement.

                     (b)        Dispute. If the JSC disagrees as to whether any such Third Party Patent Covers the Development,
Commercialization, other use or manufacture (including processing) of any Product for use in the Field in the Territory or whether to
develop appropriate work arounds with respect thereto, then the Parties shall resolve any such dispute in accordance with this
Section 9.5(b) (notwithstanding ARTICLE XIV below). Accordingly, the Parties shall a promptly refer such dispute to an
independent patent attorney appointed by the JSC, which attorney has at least fifteen years of experience in pharmaceutical product
development. If the JSC cannot select such an attorney by consensus, then the Noticed Party shall promptly provide the Noticing
Party a list of at least five (5) such patent attorneys meeting such qualifications with their curriculum vitae describing their
qualifications, and the Noticing Party shall select one (1) from such list. Such selected patent attorney shall, after reasonable
investigation and review, render a written decision selecting one or the other Party's position on the matter, which decision shall be
binding upon the JSC in determining an appropriate strategy with respect to such Third Party Patent under Section 9.5(a) above.
Without limiting the foregoing, the Parties and the selected patent attorney shall use good faith efforts to complete the dispute
resolution process within thirty (30) days of the appointment of the patent attorney. Each Party shall pay its own expenses in
connection with the dispute resolution procedures set forth in this Section 9.5(b), provided, that the fees, costs, and expenses of the
selected patent attorney shall be borne by the Party against whom the decision is made.

                 (c)        For purposes of this Section 9.5, "Cover" means, with respect to particular claim of a Patent, that the
manufacture, use, sale, offer for sale or importation of particular subject


  **    Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    40

matter infringes (either direct or contributory) or induces the infringement of such claim. For clarity, Cover includes with respect to
pending claims, that the manufacture, use, sale, offer for sale or importation of particular subject matter would likely so infringe if
such claim were to issue.

          9.6       Patent Marking. The JSC shall establish, on a country-by-country basis, any requirements for marking patented
Products to be sold or distributed pursuant to this Agreement as the then-current Commercialization Plan contemplates launch of such
Product in such country within the Territory; provided that Cephalon agrees to mark, and have its Affiliates and Marketing Partners
mark, all patented Products they sell or distribute pursuant to this Agreement in the same manner as Cephalon marks, and has its
Affiliates and Third Party partners mark, its other products of similar nature and commercial potential in accordance with the
applicable patent statutes or regulations in the country or countries of sale thereof.

                                                            ARTICLE X
                                                            TRADEMARKS
          10.1       General. Cephalon shall have the sole right to determine the trademarks, trade dress, style of packaging, labeling
and the like with respect to the Commercialization of Products in the Field in the Territory (such trademarks used or intended for use
by Cephalon with the Products (except the Existing Mark), including representations thereof in any language, the "Product Marks").
Unless otherwise agreed, Cephalon shall have the sole right (but not the obligation) to register and enforce (and retain all recoveries
therefrom) the Product Marks, at its own expense, in the Territory. For clarity, Cephalon shall have the right in accordance with the
license set forth in Section 10.3 to use the Existing Mark in connection with its Commercialization of Cardiovascular Products in the
Cardiovascular Field in the Territory.

         10.2      Angioblast Logos. Cephalon hereby agrees (and shall cause its Affiliates and Marketing Partners) to the extent
allowable under applicable Law to include on all labels of and package inserts and marketing materials for Products sold by or under
authority of Cephalon to include Angioblast's trade name and logo, collectively, the "Angioblast Logos"). It is understood that the
size and placement of the Angioblast Marks shall be consistent with Cephalon's practices with respect thereto, or, if Cephalon is not
then including Third Party logos, current pharmaceutical industry practices for similarly situated Third Party logos. Unless otherwise
agreed, Angioblast shall have the sole right (but not the obligation) to register and enforce the Angioblast Logos, at its own expense.
         10.3       Grant of License. Subject to the terms and conditions of this Agreement, Angioblast hereby grants to Cephalon
(a) an exclusive license to use the Existing Mark in each country of the


  **   Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
       filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
       amended.

                                                                 41
Territory for the packaging, marketing, distributing, sale and promotion of the Cardiovascular Products for use in the Cardiovascular
Field and (b) a non-exclusive license to use the Angioblast Logos in each country of the Territory for the packaging, marketing,
distributing, sale and promotion of the Products for use in the Field, in each case accordance with this Agreement. The ownership and
all goodwill from the use of the Existing Mark and Angioblast Logos shall vest in and inure to the benefit of Angioblast. Cephalon
shall ensure that use of the Existing Mark and Angioblast Logos is consistent with high levels of business professionalism, product
standards and Cephalon's use of its own trademarks. Notwithstanding anything herein to the contrary, upon Angioblast's written
request, Cephalon, its Affiliates and Marketing Partners agree to cease the use of the Angioblast Logos; provided that (i) Cephalon, its
Affiliates and Marketing Partners may continue to use any labels, package inserts and marketing materials in existence or on order as
of the receipt of such notice and (ii) in such case, Cephalon's obligation to include the Angioblast Logos on labels, package inserts and
marketing materials for Product(s) shall terminate.

           10.4       Registration of Trade Marks. Angioblast shall have the right (but not the obligation) to file, register and maintain,
for the Term, at Angioblast's expense, appropriate registrations for the Existing Mark in each country of the Territory, as requested by
Cephalon, in which Products are or will be sold. Such registrations for the Existing Mark shall be obtained in Angioblast's name, to
the extent permitted by applicable Law in each country within the Territory. In the event Angioblast elects not to file, register or
maintain appropriate registrations for the Existing Mark in a country within the Territory in which Products are or will be sold,
Angioblast shall provide Cephalon with written notice of such election within such reasonable time period necessary to preserve such
right to file, register or maintain such registrations for the Existing Mark, and Cephalon shall have the right, at its option and expense,
to file, register or maintain such registrations for the Existing Mark in such country on behalf of Angioblast, in Angioblast's name, to
the extent permitted by applicable Law in such country.

           10.5       Ownership. As between the Parties, Angioblast shall own, and is hereby assigned, all right, title and interest in and
to (a) the Existing Mark and the Angioblast Logos throughout the Territory and (b) Cephalon shall own, and is hereby assigned all
right, title and interest in and to the Product Marks throughout the Territory.

         10.6       Recordation of Licenses. In those countries where a trademark license must be recorded, Angioblast will provide
to Cephalon, on Cephalon's written request, a separate trademark license for the Existing Mark and Angioblast Logos and Cephalon
will arrange for the recordation of such trade mark license with the appropriate governmental agency, at Cephalon's expense, promptly
following receipt of such license from Angioblast. Cephalon shall cooperate in the preparation and execution of such documents.


  **    Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                    42
         10.7      Approval of Packaging and Promotional Materials. Cephalon shall submit representative promotional materials,
packaging and Products displaying the Product Marks and/or Angioblast's trade name to Angioblast for Angioblast's review and
approval (which approval shall not be unreasonably withheld, conditioned or delayed) prior to the first use of such promotional
materials, packaging or Products and prior to any subsequent change or addition to such promotional materials, packaging or Product;
provided that if Angioblast has not responded within thirty (30) days after the submission of such promotional materials, packaging or
Product, Angioblast's approval will be deemed to have been received.

                                                  ARTICLE XI
                                    REPRESENTATIONS, WARRANTIES AND COVENANTS
           11.1    General Representations. Each Party hereby represents and warrants to the other Party as of the Effective Date as
follows:

                   (a)       Duly Organized. Such Party is a corporation duly organized, validly existing and is in good standing
under the laws of the jurisdiction of its incorporation, is qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the conduct of its business or the ownership of its properties requires such qualification and failure to have
such would prevent such Party from performing its obligations under this Agreement; and

                    (b)       Due Execution; Binding Agreement. This Agreement is a legal and valid obligation binding upon such
Party and enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by such Party have
been duly authorized by all necessary corporate action and do not and will not: (i) require any consent or approval of its stockholders;
(ii) to such Party's actual knowledge, violate any Law, order, writ, judgment, decree, determination or award of any court,
governmental body or administrative or other agency having jurisdiction over such Party; nor (iii) conflict with, or constitute a default
under, any agreement, instrument or understanding, oral or written, to which such Party is a party or by which it is bound. It has the
full right and authority to grant the rights as provided herein and not previously granted any right, license or interest that is in conflict
with the rights granted to the other Party under this Agreement.

           11.2    Representations and Warranties of Angioblast. Angioblast represents, warrants to Cephalon that, as of the Effective
Date:

                 (a)       it has not received any written notice of any threatened claims of litigation seeking to invalidate or
otherwise challenge the [**] or its rights therein;


  **    Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                     43
                 (b)       to its Knowledge, there is no actual, pending, alleged or threatened (in writing) infringement,
misappropriation or other unauthorized use by a Third Party of any of the [**] or the [**];

                  (c)        to its Knowledge, the issued [**] are valid and subsisting, and, to its Knowledge, there are no pending or
threatened (in writing) interference, re-examination, opposition or cancellation proceedings involving the [**];

                   (d)      [**], Angioblast owns all right, title and interest in or licenses to each of the [**] identified in Exhibit 1.5
and of the [**] including the Patents [**]. By way of example and not by way of limitation, Angioblast represents and warrants that
[**];

                  (e)        Angioblast owns all right, title and interest in and to [**] as of the Effective Date to select for MPCs;.

                   (f)       Angioblast has not received any formal or informal notice (in writing) of any claim that making, using,
selling or importing (or having a Third Party conduct those activities) a [**] infringes, misappropriates or otherwise use without
authorization any intellectual property right, including Patents, of any Third Party and, to the Knowledge of Angioblast, there is no
basis for any such claim;

                   (g)      To its Knowledge, there are no written contracts, agreements, assignments and indemnities that affect
Angioblast's ownership of or ability to license (according to the terms herein), prosecute and/or enforce, any [**] to Cephalon in
accordance with the terms and conditions hereof. By way of example and not by way of limitation, Angioblast represents and
warrants that to its Knowledge, [**] and also to its Knowledge that [**];

                  (h)        All registrations for [**] are in force, all applications to register Angioblast Patents are pending and all
associated fees therefor are current;

                 (i)        To its Knowledge, Angioblast has the sole and exclusive right to bring actions for infringement or
unauthorized use of the [**];

                    (j)      To its Knowledge, Angioblast is not in breach of any agreement affecting Angioblast's ownership of or
ability to license (according to the terms herein), prosecute and/or enforce, as applicable, the [**];

                  (k)       To its Knowledge, the subject matter of [**] have not been developed or otherwise invented using any
funding or other resources provided by any governmental or regulatory authority or institution of higher education that would prevent
Angioblast from granting to Cephalon the rights under the [**] according to the terms herein;


  **    Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment
        filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
        amended.

                                                                     44
                  (l)       [**];

                   (m)       Angioblast has entered into agreements with employees, agents and other Third Parties sufficient to
maintain the confidentiality of the [**] consistent with customs in the biopharmaceutical industry. There is no breach or violation by
Angioblast under, and, to the Knowledge of An