e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
|
|
|
(Mark One)
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|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the quarterly period ended
March 31, 2010
|
OR
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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|
|
For the transition period
from to
|
Commission file
number: 1-11397
Valeant Pharmaceuticals
International
(Exact name of registrant as
specified in its charter)
|
|
|
Delaware
|
|
33-0628076
|
(State or other jurisdiction
of
|
|
(I.R.S. Employer
|
incorporation or
organization)
|
|
Identification No.)
|
One Enterprise Aliso Viejo, California
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|
92656
|
(Address of principal executive
offices)
|
|
(Zip Code)
|
(Registrants telephone number, including area code)
(949) 461-6000
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No 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. (Check one):
|
|
|
|
Large
accelerated
filer þ
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting
company o
|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The number of shares outstanding of the registrants Common
Stock, $0.01 par value, as of April 30, 2010 was
75,694,787.
VALEANT
PHARMACEUTICALS INTERNATIONAL
INDEX
1
PART I
FINANCIAL INFORMATION
|
|
Item 1.
|
Financial
Statements
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited, in thousands)
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
147,303
|
|
|
$
|
68,080
|
|
Marketable securities
|
|
|
7,979
|
|
|
|
13,785
|
|
Accounts receivable, net
|
|
|
163,707
|
|
|
|
171,008
|
|
Inventories, net
|
|
|
111,719
|
|
|
|
105,900
|
|
Prepaid expenses
|
|
|
18,620
|
|
|
|
16,589
|
|
Current deferred tax assets, net
|
|
|
75,342
|
|
|
|
77,268
|
|
Income taxes receivable
|
|
|
2,515
|
|
|
|
3,584
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
527,185
|
|
|
|
456,214
|
|
Property, plant and equipment, net
|
|
|
128,527
|
|
|
|
126,811
|
|
Deferred tax assets, net
|
|
|
35,944
|
|
|
|
37,637
|
|
Goodwill
|
|
|
196,938
|
|
|
|
195,350
|
|
Intangible assets, net
|
|
|
467,058
|
|
|
|
470,346
|
|
Other assets
|
|
|
17,302
|
|
|
|
19,121
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
845,769
|
|
|
|
849,265
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,372,954
|
|
|
$
|
1,305,479
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$
|
39,258
|
|
|
$
|
37,405
|
|
Accrued liabilities
|
|
|
214,695
|
|
|
|
215,932
|
|
Notes payable and current portion of long-term debt
|
|
|
49,075
|
|
|
|
48,462
|
|
Deferred revenue
|
|
|
17,861
|
|
|
|
21,612
|
|
Income taxes payable
|
|
|
10,284
|
|
|
|
6,720
|
|
Current deferred tax liabilities, net
|
|
|
554
|
|
|
|
358
|
|
Current liabilities for uncertain tax positions
|
|
|
646
|
|
|
|
646
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
332,373
|
|
|
|
331,135
|
|
Long-term debt, less current portion
|
|
|
553,858
|
|
|
|
552,127
|
|
Deferred tax liabilities, net
|
|
|
12,387
|
|
|
|
7,728
|
|
Liabilities for uncertain tax positions
|
|
|
13,303
|
|
|
|
13,115
|
|
Other liabilities
|
|
|
18,075
|
|
|
|
30,195
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
597,623
|
|
|
|
603,165
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
929,996
|
|
|
|
934,300
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
783
|
|
|
|
774
|
|
Additional capital
|
|
|
1,015,098
|
|
|
|
986,393
|
|
Accumulated deficit
|
|
|
(606,027
|
)
|
|
|
(642,043
|
)
|
Accumulated other comprehensive income
|
|
|
33,083
|
|
|
|
26,035
|
|
|
|
|
|
|
|
|
|
|
Total Valeant stockholders equity
|
|
|
442,937
|
|
|
|
371,159
|
|
Noncontrolling interest
|
|
|
21
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
442,958
|
|
|
|
371,179
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,372,954
|
|
|
$
|
1,305,479
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated condensed financial statements.
2
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited, in thousands, except per share)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
204,507
|
|
|
$
|
152,833
|
|
Service revenue
|
|
|
4,960
|
|
|
|
6,738
|
|
Alliance revenue
|
|
|
22,524
|
|
|
|
18,352
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
231,991
|
|
|
|
177,923
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization)
|
|
|
54,203
|
|
|
|
39,697
|
|
Cost of services
|
|
|
3,166
|
|
|
|
4,326
|
|
Selling, general and administrative
|
|
|
70,541
|
|
|
|
64,216
|
|
Research and development costs, net
|
|
|
10,402
|
|
|
|
8,735
|
|
Special charges and credits
|
|
|
538
|
|
|
|
|
|
Restructuring and acquisition-related costs
|
|
|
1,024
|
|
|
|
1,211
|
|
Amortization expense
|
|
|
19,330
|
|
|
|
17,004
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
159,204
|
|
|
|
135,189
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
72,787
|
|
|
|
42,734
|
|
Other income (expense), net including translation and exchange
|
|
|
(524
|
)
|
|
|
1,212
|
|
Gain on early extinguishment of debt
|
|
|
|
|
|
|
4,599
|
|
Interest income
|
|
|
459
|
|
|
|
1,835
|
|
Interest expense
|
|
|
(13,090
|
)
|
|
|
(8,013
|
)
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
59,632
|
|
|
|
42,367
|
|
Provision for income taxes
|
|
|
24,030
|
|
|
|
11,569
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
35,602
|
|
|
|
30,798
|
|
Income from discontinued operations, net of tax
|
|
|
415
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
36,017
|
|
|
|
31,196
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Valeant
|
|
$
|
36,016
|
|
|
$
|
31,195
|
|
|
|
|
|
|
|
|
|
|
Basic income per share attributable to Valeant:
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Valeant
|
|
$
|
0.45
|
|
|
$
|
0.37
|
|
Income from discontinued operations attributable to Valeant
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Valeant
|
|
$
|
0.46
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share attributable to Valeant:
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Valeant
|
|
$
|
0.43
|
|
|
$
|
0.37
|
|
Income from discontinued operations attributable to Valeant
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Valeant
|
|
$
|
0.44
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share computation Basic
|
|
|
78,465
|
|
|
|
82,548
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share computation Diluted
|
|
|
82,332
|
|
|
|
83,402
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated condensed financial statements.
3
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited, in thousands)
|
|
|
Net income
|
|
$
|
36,017
|
|
|
$
|
31,196
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
7,072
|
|
|
|
(29,485
|
)
|
Unrealized gain on hedges
|
|
|
|
|
|
|
211
|
|
Pension liability adjustment
|
|
|
(24
|
)
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
43,065
|
|
|
$
|
1,991
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated condensed financial statements.
4
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited, in thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
36,017
|
|
|
$
|
31,196
|
|
Income from discontinued operations
|
|
|
415
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
35,602
|
|
|
|
30,798
|
|
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities in continuing
operations:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
23,996
|
|
|
|
20,764
|
|
Provision for losses on accounts receivable and inventory
|
|
|
502
|
|
|
|
536
|
|
Stock compensation expense
|
|
|
4,946
|
|
|
|
4,322
|
|
Excess tax deduction from stock options exercised
|
|
|
(1,599
|
)
|
|
|
|
|
Translation and exchange (gains) losses, net
|
|
|
106
|
|
|
|
(1,181
|
)
|
Impairment charges and other non-cash items
|
|
|
2,644
|
|
|
|
5,508
|
|
Payments of accreted interest on long-term debt
|
|
|
|
|
|
|
(13,277
|
)
|
Deferred income taxes
|
|
|
4,693
|
|
|
|
(2,201
|
)
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
(4,599
|
)
|
Change in assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
6,122
|
|
|
|
15,093
|
|
Inventories
|
|
|
(4,136
|
)
|
|
|
(2,918
|
)
|
Prepaid expenses and other assets
|
|
|
(102
|
)
|
|
|
3,461
|
|
Trade payables and accrued liabilities
|
|
|
(3,536
|
)
|
|
|
4,431
|
|
Income taxes
|
|
|
8,593
|
|
|
|
(9,960
|
)
|
Other liabilities
|
|
|
(9,641
|
)
|
|
|
(12,955
|
)
|
|
|
|
|
|
|
|
|
|
Cash flow from operating activities in continuing operations
|
|
|
68,190
|
|
|
|
37,822
|
|
Cash flow from operating activities in discontinued operations
|
|
|
(41
|
)
|
|
|
(2,149
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
68,149
|
|
|
|
35,673
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(3,889
|
)
|
|
|
(7,076
|
)
|
Proceeds from sale of assets
|
|
|
280
|
|
|
|
255
|
|
Proceeds from investments
|
|
|
5,674
|
|
|
|
13,541
|
|
Purchase of investments
|
|
|
|
|
|
|
(802
|
)
|
Acquisition of businesses, license rights and product lines
|
|
|
(15,107
|
)
|
|
|
(32,211
|
)
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities in continuing operations
|
|
|
(13,042
|
)
|
|
|
(26,293
|
)
|
Cash flow from investing activities in discontinued operations
|
|
|
814
|
|
|
|
(10,273
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(12,228
|
)
|
|
|
(36,566
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments on long-term debt and notes payable
|
|
|
(179
|
)
|
|
|
(52,779
|
)
|
Proceeds from issuance of long-term debt and notes payable
|
|
|
|
|
|
|
2,006
|
|
Stock option exercises and employee stock purchases
|
|
|
21,792
|
|
|
|
7,036
|
|
Payments of employee withholding taxes related to equity awards
|
|
|
(1,165
|
)
|
|
|
|
|
Excess tax deduction from stock options exercised
|
|
|
1,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities in continuing operations
|
|
|
22,047
|
|
|
|
(43,737
|
)
|
Cash flow from financing activities in discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
22,047
|
|
|
|
(43,737
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
1,255
|
|
|
|
(15,043
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
79,223
|
|
|
|
(59,673
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
68,080
|
|
|
|
199,582
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
147,303
|
|
|
$
|
139,909
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated condensed financial statements.
5
|
|
1.
|
Organization
and Summary of Significant Accounting Policies
|
Organization: We are a multinational specialty
pharmaceutical company that develops, manufactures and markets a
broad range of pharmaceutical products. Additionally, we
generate alliance revenue, including royalties from the sale of
ribavirin by Merck & Co., Inc. (Merck)
(formerly Schering-Plough), revenue from our Dow Pharmaceutical
Sciences, Inc. (Dow) subsidiarys agreement
with Mylan Pharmaceuticals Inc. (Mylan), and
revenues associated with the Collaboration and License Agreement
with GSK (as defined in Note 4 below). We also generate
alliance revenue and service revenue from the development of
dermatological products by Dow.
Basis of Presentation: The accompanying
unaudited condensed consolidated financial statements have been
prepared by us in accordance with U.S. generally accepted
accounting principles (U.S. GAAP) for interim
financial information and with the rules and regulations of the
Securities and Exchange Commission (the SEC).
Certain information and footnote disclosures normally included
in financial statements prepared on the basis of U.S. GAAP
have been condensed or omitted pursuant to such rules and
regulations. The results of operations presented herein are not
necessarily indicative of the results to be expected for a full
year. Although we believe that all adjustments (consisting only
of normal, recurring adjustments) necessary for a fair
presentation of the interim periods presented are included and
that the disclosures are adequate to make the information
presented not misleading, these condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto included in our Annual
Report on
Form 10-K
for the year ended December 31, 2009. The year-end
condensed balance sheet data presented herein was derived from
audited financial statements, but does not include all
disclosures required by U.S. GAAP.
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 amount 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
periods. Actual results could differ materially from those
estimates.
Recent
Accounting Standards:
In June 2009, the Financial Accounting Standards Board
(FASB) issued authoritative guidance that changes
the consolidation guidance applicable to a variable interest
entity (VIE). It also amends the guidance governing
the determination of whether an enterprise is the primary
beneficiary of a VIE, and is, therefore, required to consolidate
an entity, by requiring a qualitative analysis rather than a
quantitative analysis. The qualitative analysis will include,
among other things, consideration of who has the power to direct
the activities of the entity that most significantly impact the
entitys economic performance and who has the obligation to
absorb losses or the right to receive benefits of the VIE that
could potentially be significant to the VIE. We adopted this
guidance on January 1, 2010. The adoption of this guidance
did not have a material impact on our consolidated financial
statements.
In October 2009, the FASB issued an accounting standards update
that requires entities to allocate revenue in an arrangement
using estimated selling prices of the delivered goods and
services based on a selling price hierarchy. This guidance
eliminates the residual method of revenue allocation and
requires revenue to be allocated using the relative selling
price method. This guidance is effective for fiscal years ending
after June 15, 2010, and may be applied prospectively for
revenue arrangements entered into or materially modified after
the date of adoption or retrospectively for all revenue
arrangements for all periods presented. We are currently
evaluating the impact this standard update may have on our
consolidated financial statements.
6
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In March 2008, we initiated a program (the 2008
Restructuring), to reduce our geographic footprint and
product focus by restructuring our business in order to focus on
the pharmaceutical markets in our core geographies of the United
States, Canada and Australia and on the branded generics markets
in Europe and Latin America. The 2008 Restructuring plan
included actions to divest our operations in markets outside of
these core geographic areas through sales of subsidiaries or
assets and other strategic alternatives. In December 2008, as
part of our efforts to align our infrastructure to the scale of
our operations, we exercised our option to terminate the lease
of our Aliso Viejo, California corporate headquarters as of
December 2011 and as a result recorded a lease termination
penalty of $3.2 million, which will be payable in October
2011.
The following table summarizes the restructuring costs, all of
which are included in the Specialty pharmaceuticals segment,
recorded in the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Employee severances (0 and 22 employees, respectively)
|
|
$
|
(10
|
)
|
|
$
|
928
|
|
Contract cancellation and other costs
|
|
|
108
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
Subtotal: cash charges
|
|
|
98
|
|
|
|
1,183
|
|
Non-cash charges
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Total restructuring costs
|
|
$
|
98
|
|
|
$
|
1,211
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010, the restructuring accrual was
$5.0 million and relates primarily to lease termination
penalty and severance costs expected to be paid primarily during
2010, except for the lease termination penalty which will be
paid in 2011. A summary of accruals and expenditures of
restructuring costs which will be paid in cash is as follows:
|
|
|
|
|
Reconciliation of Cash Payments
and Accruals
|
|
|
|
|
Restructuring accrual, December 31, 2009
|
|
$
|
6,444
|
|
Charges to earnings
|
|
|
98
|
|
Cash paid
|
|
|
(1,493
|
)
|
|
|
|
|
|
Restructuring accrual, March 31, 2010
|
|
$
|
5,049
|
|
|
|
|
|
|
The 2008 restructuring initiatives were substantially completed
in 2009. We expect to continue to recognize costs through 2011
related to the accretion of lease termination penalty costs.
|
|
3.
|
Acquisition-Related
Costs
|
In the three months ended March 31, 2010, we incurred the
following acquisition-related costs:
|
|
|
|
|
Transaction costs
|
|
$
|
548
|
|
Integration costs and other
|
|
|
378
|
|
|
|
|
|
|
Total acquisition-related costs
|
|
$
|
926
|
|
|
|
|
|
|
Transaction costs include legal, accounting and other costs
directly related to our business acquisitions. Integration costs
and other primarily consists of severance for employees related
to acquired businesses. These expenses are included in
restructuring and acquisition-related costs in the statements of
operations.
7
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Collaborative
Arrangements
|
Collaboration
Agreement with GSK
In October 2008, we closed the worldwide License and
Collaboration Agreement (the Collaboration
Agreement) with Glaxo Group Limited, a wholly-owned
subsidiary of GlaxoSmithKline plc (GSK) to develop
and commercialize retigabine, a
first-in-class
neuronal potassium channel opener for the treatment of adult
epilepsy patients with refractory partial onset seizures, and
its backup compounds and received $125.0 million in upfront
fees from GSK upon the closing.
We agreed to share equally with GSK the development and
pre-commercialization expenses of retigabine in the United
States, Australia, New Zealand, Canada and Puerto Rico (the
Collaboration Territory) and GSK will develop and
commercialize retigabine in the rest of the world. Our share of
such expenses in the Collaboration Territory is limited to
$100.0 million, provided that GSK will be entitled to
credit our share of any such expenses in excess of such amount
against future payments owed to us under the Collaboration
Agreement. The difference between the upfront payment of
$125.0 million and our expected development and
pre-commercialization expenses under the Collaboration Agreement
is being recognized as alliance revenue over the period prior to
the launch of a retigabine product (the Pre-Launch
Period). We recognize alliance revenue during the
Pre-Launch Period as we complete our performance obligations
using the proportional performance model, which requires us to
determine and measure the completion of our expected development
and pre-commercialization costs during the Pre-Launch Period, in
addition to our participation in the joint steering committee.
We expect to complete our research and development and
pre-commercialization obligations in effect during the
Pre-Launch Period by the first quarter of 2011.
GSK has the right to terminate the Collaboration Agreement at
any time prior to the receipt of the approval by the
U.S. Food and Drug Administration (FDA) of a
new drug application (NDA) for a retigabine product,
which right may be irrevocably waived at any time by GSK. The
period of time prior to such termination or waiver is referred
to as the Review Period. If GSK terminates the
Collaboration Agreement prior to December 31, 2010, we
would be required to refund to GSK a portion of the upfront fee.
In February 2009, the Collaboration Agreement was amended to,
among other matters, reduce the maximum amount that we would be
required to refund to GSK to $30.0 million through
March 31, 2010, with additional ratable reductions in the
amount of the required refund during 2010 until reaching zero at
December 31, 2010.
During the three months ended March 31, 2010 and 2009, the
combined research and development expenses and
pre-commercialization expenses incurred under the Collaboration
Agreement by us and GSK were $11.3 million and
$13.4 million, respectively, as outlined in the table
below. We recorded a charge of $1.9 million and a credit of
$1.4 million in the three months ended March 31, 2010
and 2009, respectively, against our share of the expenses to
equalize our expenses with GSK, pursuant to the terms of the
Collaboration Agreement.
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Valeant research and development costs
|
|
$
|
3,691
|
|
|
$
|
7,947
|
|
Valeant selling, general and administrative
|
|
|
28
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,719
|
|
|
|
8,096
|
|
GSK expenses
|
|
|
7,556
|
|
|
|
5,303
|
|
|
|
|
|
|
|
|
|
|
Total spending for Collaboration Agreement
|
|
$
|
11,275
|
|
|
$
|
13,399
|
|
|
|
|
|
|
|
|
|
|
Equalization charge (credit)
|
|
$
|
1,919
|
|
|
$
|
(1,397
|
)
|
|
|
|
|
|
|
|
|
|
8
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below outlines the alliance revenue, expenses
incurred, associated credits against the expenses incurred, and
remaining upfront payment for the Collaboration Agreement during
the three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
|
|
|
Research
|
|
|
|
Balance
|
|
|
Alliance
|
|
|
General and
|
|
|
and
|
|
Collaboration Accounting Impact
|
|
Sheet
|
|
|
Revenue
|
|
|
Administrative
|
|
|
Development
|
|
|
Upfront payment from GSK
|
|
$
|
125,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Release from upfront payment in 2008/2009
|
|
|
(58,058
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred cost in 2010
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
3,691
|
|
Incurred cost offset in 2010
|
|
|
(5,638
|
)
|
|
|
|
|
|
|
(479
|
)
|
|
|
(5,159
|
)
|
Recognize alliance revenue
|
|
|
(4,139
|
)
|
|
|
(4,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release from upfront payment in 2010
|
|
|
(9,777
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining upfront payment from GSK
|
|
$
|
57,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equalization payable to GSK
|
|
$
|
(1,919
|
)
|
|
|
|
|
|
|
451
|
|
|
|
1,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense and revenue
|
|
|
|
|
|
$
|
(4,139
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
40,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue short-term
|
|
|
16,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining upfront payment from GSK
|
|
$
|
57,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total combined expenses by us and GSK for the Collaboration
Agreement through March 31, 2010 were $89.6 million.
Co-marketing
Agreement with Spear
In February 2010, we entered into a co-marketing agreement with
Spear Pharmaceuticals, Inc. and Spear Dermatology Products, Inc.
(collectively Spear) for rights to commercialize
Refissa®,
a prescription-based topical tretinoin cream used to diminish
fine wrinkles and fade irregular pigmentation due to sun damage.
We paid Spear a $12.0 million upfront fee and could pay up
to an additional $3.0 million in milestone payments if
certain sales targets are achieved. The upfront fee and a
$1.0 million milestone accrued as of March 31, 2010
are included in intangible assets in our condensed consolidated
balance sheet, and are being amortized on a straight-line basis
over the initial
10-year term
of the agreement.
We will record the sales of
Refissa®
and related expenses in our condensed consolidated statements of
operations. Under the agreement, we will pay Spear a percentage
of net profits from the sale of
Refissa®
in the U.S. and a royalty on net sales of
Refissa®
in the rest of the world, which we will record in cost of goods
sold.
|
|
5.
|
Special
Charges and Credits
|
Special charges and credits in the three months ended
March 31, 2010 primarily consists of legal fees related to
the Spear Pharmaceuticals, Inc. matters, for which settlement
was accrued in 2009. See Note 19 for additional information.
|
|
6.
|
Discontinued
Operations
|
In September 2008, we sold our business operation located in
Western and Eastern Europe, Middle East and Africa (the
WEEMEA business) to Meda AB, an international
specialty pharmaceutical company located in Stockholm, Sweden
(Meda). Meda acquired our operating subsidiaries in
those markets, and the rights to all products and licenses
marketed by us in those divested regions as of the divestiture
date.
9
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In January 2008, we sold our Infergen product rights to Three
Rivers Pharmaceuticals, LLC. As of December 31, 2009, we
received aggregate proceeds of $76.5 million for our
Infergen product rights. We received $3.3 million in the
three months ended March 31, 2010, with additional
aggregate payments due through March 2011 of $10.2 million.
As a result of these dispositions, the results of the WEEMEA
business and the Infergen operations have been reflected as
discontinued operations in our condensed consolidated statement
of operations for all periods. In addition, any cash flows
related to these discontinued operations are presented
separately in the condensed consolidated statements of cash
flows.
The following table sets forth the computation of basic and
diluted earnings per share for the three months ended
March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Income:
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted earnings per share attributable
to Valeant:
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Valeant
|
|
$
|
35,601
|
|
|
$
|
30,797
|
|
Income from discontinued operations attributable to Valeant
|
|
|
415
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Valeant
|
|
$
|
36,016
|
|
|
$
|
31,195
|
|
|
|
|
|
|
|
|
|
|
Shares:
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share attributable to Valeant:
|
|
|
|
|
|
|
|
|
Weighted shares outstanding
|
|
|
77,959
|
|
|
|
82,104
|
|
Vested stock equivalents (not issued)
|
|
|
506
|
|
|
|
444
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share attributable to Valeant
|
|
|
78,465
|
|
|
|
82,548
|
|
Denominator for diluted earnings per share attributable to
Valeant:
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
1,262
|
|
|
|
546
|
|
Convertible debt
|
|
|
882
|
|
|
|
|
|
Other dilutive securities
|
|
|
1,723
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
3,867
|
|
|
|
854
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share attributable to
Valeant
|
|
|
82,332
|
|
|
|
83,402
|
|
|
|
|
|
|
|
|
|
|
Basic income per share attributable to Valeant:
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Valeant
|
|
$
|
0.45
|
|
|
$
|
0.37
|
|
Income from discontinued operations attributable to Valeant
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Valeant
|
|
$
|
0.46
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share attributable to Valeant:
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Valeant
|
|
$
|
0.43
|
|
|
$
|
0.37
|
|
Income from discontinued operations attributable to Valeant
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Valeant
|
|
$
|
0.44
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
The 3.0% Notes and the 4.0% Notes, discussed in
Note 10, allow us to settle any conversion by remitting to
the note holder the principal amount of the note in cash, while
settling the conversion spread (the excess conversion value over
the accreted value) in shares of our common stock. Only the
conversion spread, which will be settled in
10
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
stock, results in potential dilution in our
earnings-per-share
computations as the accreted value of the notes will be settled
for cash upon the conversion. The calculation of diluted
earnings per share was not affected by the conversion spread in
the three months ended March 31, 2009.
The following table summarizes the shares excluded from the
calculation of diluted income per share as the inclusion of such
shares would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Weighted average shares excluded:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
842
|
|
|
|
2,060
|
|
Restricted stock units
|
|
|
1,010
|
|
|
|
962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,852
|
|
|
|
3,022
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Detail of
Certain Accounts
|
The following tables present the details of certain amounts
included in our consolidated balance sheet as of March 31,
2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Accounts receivable, net:
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
$
|
129,719
|
|
|
$
|
122,238
|
|
Royalties and profit share receivable
|
|
|
14,702
|
|
|
|
20,138
|
|
Other receivables
|
|
|
24,329
|
|
|
|
33,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,750
|
|
|
|
175,774
|
|
Allowance for doubtful accounts
|
|
|
(5,043
|
)
|
|
|
(4,766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
163,707
|
|
|
$
|
171,008
|
|
|
|
|
|
|
|
|
|
|
Inventories, net:
|
|
|
|
|
|
|
|
|
Raw materials and supplies
|
|
$
|
28,614
|
|
|
$
|
27,880
|
|
Work-in-process
|
|
|
11,816
|
|
|
|
11,013
|
|
Finished goods
|
|
|
82,480
|
|
|
|
78,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,910
|
|
|
|
117,328
|
|
Allowance for inventory obsolescence
|
|
|
(11,191
|
)
|
|
|
(11,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
111,719
|
|
|
$
|
105,900
|
|
|
|
|
|
|
|
|
|
|
11
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Intangible
Assets and Goodwill
|
Intangible assets: As of March 31, 2010
and December 31, 2009, the components of intangible assets
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Average
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Lives (years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Product intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neurology
|
|
|
13
|
|
|
$
|
279,086
|
|
|
$
|
(180,997
|
)
|
|
$
|
98,089
|
|
|
$
|
278,944
|
|
|
$
|
(174,744
|
)
|
|
$
|
104,200
|
|
Dermatology
|
|
|
15
|
|
|
|
329,839
|
|
|
|
(93,041
|
)
|
|
|
236,798
|
|
|
|
314,850
|
|
|
|
(85,033
|
)
|
|
|
229,817
|
|
Other
|
|
|
14
|
|
|
|
91,209
|
|
|
|
(49,828
|
)
|
|
|
41,381
|
|
|
|
90,547
|
|
|
|
(48,408
|
)
|
|
|
42,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product intangibles
|
|
|
14
|
|
|
|
700,134
|
|
|
|
(323,866
|
)
|
|
|
376,268
|
|
|
|
684,341
|
|
|
|
(308,185
|
)
|
|
|
376,156
|
|
Outlicensed technology
|
|
|
10
|
|
|
|
70,000
|
|
|
|
(10,027
|
)
|
|
|
59,973
|
|
|
|
70,000
|
|
|
|
(7,854
|
)
|
|
|
62,146
|
|
Customer relationships
|
|
|
8
|
|
|
|
26,429
|
|
|
|
(3,427
|
)
|
|
|
23,002
|
|
|
|
27,159
|
|
|
|
(2,764
|
)
|
|
|
24,395
|
|
Trade names
|
|
|
Indefinite
|
|
|
|
7,815
|
|
|
|
|
|
|
|
7,815
|
|
|
|
7,649
|
|
|
|
|
|
|
|
7,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
804,378
|
|
|
$
|
(337,320
|
)
|
|
$
|
467,058
|
|
|
$
|
789,149
|
|
|
$
|
(318,803
|
)
|
|
$
|
470,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future amortization of intangible assets at March 31, 2010
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled Future Amortization Expense
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
Product intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neurology
|
|
$
|
18,281
|
|
|
$
|
19,055
|
|
|
$
|
17,954
|
|
|
$
|
16,902
|
|
|
$
|
16,360
|
|
|
$
|
9,537
|
|
|
$
|
98,089
|
|
Dermatology
|
|
|
24,566
|
|
|
|
33,184
|
|
|
|
33,184
|
|
|
|
31,562
|
|
|
|
29,755
|
|
|
|
84,547
|
|
|
|
236,798
|
|
Other
|
|
|
4,482
|
|
|
|
6,420
|
|
|
|
6,381
|
|
|
|
6,195
|
|
|
|
5,934
|
|
|
|
11,969
|
|
|
|
41,381
|
|
Outlicensed technology
|
|
|
6,519
|
|
|
|
8,693
|
|
|
|
7,513
|
|
|
|
7,513
|
|
|
|
6,134
|
|
|
|
23,601
|
|
|
|
59,973
|
|
Customer relationships
|
|
|
3,800
|
|
|
|
4,314
|
|
|
|
3,608
|
|
|
|
2,905
|
|
|
|
2,062
|
|
|
|
6,313
|
|
|
|
23,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
57,648
|
|
|
$
|
71,666
|
|
|
$
|
68,640
|
|
|
$
|
65,077
|
|
|
$
|
60,245
|
|
|
$
|
135,967
|
|
|
$
|
459,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the three months ended March 31,
2010 and 2009, was $19.3 million and $17.0 million,
respectively, of which $16.8 million and
$14.7 million, respectively, related to amortization of
acquired product intangibles.
In the three months ended March 31, 2010, we acquired
product intangibles in the U.S. and Canada, including
Refissa®
(see Note 4), for $14.8 million in cash consideration,
of which $13.8 million was paid in the three months ended
March 31, 2010. In the three months ended March 31,
2009, we acquired product intangibles in Poland for cash
consideration of $1.0 million, of which $0.4 million
was paid in the three months ended March 31, 2009.
12
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill: The changes in the carrying amount
of goodwill by segment for the three months ended March 31,
2010, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty
|
|
|
Branded Generics
|
|
|
Branded Generics
|
|
|
|
|
|
|
Pharmaceuticals
|
|
|
Europe
|
|
|
Latin America
|
|
|
Total
|
|
|
Balance, December 31, 2009
|
|
$
|
175,605
|
|
|
$
|
10,408
|
|
|
$
|
9,337
|
|
|
$
|
195,350
|
|
Additions(a)
|
|
|
362
|
|
|
|
|
|
|
|
26
|
|
|
|
388
|
|
Other(b)
|
|
|
631
|
|
|
|
19
|
|
|
|
550
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010
|
|
$
|
176,598
|
|
|
$
|
10,427
|
|
|
$
|
9,913
|
|
|
$
|
196,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Additions due to finalization of allocation of fair value of
assets acquired and liabilities assumed. |
|
(b) |
|
Primarily related to the effect of changes in foreign currency
exchange rates. |
8.375% Senior
Notes
In June 2009, we issued $365.0 million aggregate principal
amount of senior notes (the 8.375% Senior
Notes), which bear a coupon interest rate of 8.375% and
are due June 15, 2016. The 8.375% Senior Notes were
issued at a discounted price of 96.797%, resulting in an
effective annual yield of 9.0%. Interest is payable in arrears
semi-annually on each June 15 and December 15. The
8.375% Senior Notes are guaranteed on a senior unsecured
basis by certain of our subsidiaries. If we experience a change
of control, we may be required to offer to purchase the
8.375% Senior Notes at a purchase price equal to 101% of
the principal amount, plus accrued and unpaid interest, plus
liquidated damages, if any, to the redemption date. The
indenture governing the 8.375% Senior Notes contains
covenants that will limit our ability and the ability of our
restricted subsidiaries to, among other things: incur additional
debt; pay dividends or make other distributions; repurchase
capital stock; repurchase subordinated debt and make certain
investments; create liens; create restrictions on the payment of
dividends and other amounts to us from restricted subsidiaries;
sell assets or merge or consolidate with or into other
companies; and engage in transactions with affiliates. As of
March 31, 2010, we were in compliance with these covenants.
The 8.375% Senior Notes were sold in accordance with
Rule 144A of the Securities Act and Regulation S of
the Securities Act, and we were obligated (i) to file a
registration statement with the SEC that would enable the
holders of the 8.375% Senior Notes to exchange them for
publicly registered notes having substantially the same terms
and (ii) to complete such exchange offer within
365 days after June 9, 2009. On March 5, 2010, we
filed a registration statement on
Form S-4,
which was declared effective on March 29, 2010. The
exchange offer for the 8.375% Senior Notes commenced on
March 30, 2010 and expired on April 28, 2010.
3.0%
and 4.0% Convertible Subordinated Notes
In November 2003, we issued $240.0 million aggregate
principal amount of 3.0% Convertible Subordinated Notes due
August 2010 (the 3.0% Notes) and
$240.0 million aggregate principal amount of
4.0% Convertible Subordinated Notes due 2013 (the
4.0% Notes), which were issued as two series of
notes under a single indenture. Interest on the 3.0% Notes
is payable semi-annually on February 16 and August 16 of each
year. Interest on the 4.0% Notes is payable semi-annually
on May 15 and November 15 of each year. We have the right to
redeem the 4.0% Notes, in whole or in part, at their
principal amount on or after May 20, 2011. The
3.0% Notes and 4.0% Notes are convertible into our
common stock at an initial conversion rate of
31.6336 shares per $1,000 principal amount of notes,
subject to adjustment. Upon conversion, we will have the right
to satisfy the conversion obligations by delivery, at our option
in shares of our common stock, in cash or in a combination
thereof. It is our intent to settle the principal amount of the
3.0% Notes and 4.0% Notes in cash. The 3.0% Notes
and 4.0% Notes are subordinated unsecured obligations,
ranking in right of payment behind our senior debt, if any. As
of March 31, 2010,
13
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$48.9 million aggregate principal amount of 3.0% Notes
and $225.0 million aggregate principal amount of
4.0% Notes were outstanding.
During the three months ended March 31, 2009, we purchased
an aggregate of $65.7 million principal amount of the
3.0% Notes at a purchase price of $64.3 million. The
carrying amount of the 3.0% Notes purchased was
$61.6 million and the estimated fair value of the Notes
exclusive of the conversion feature was $57.0 million. The
difference between the carrying amount and the estimated fair
value was recognized as a gain of $4.6 million upon early
extinguishment of debt. The difference between the estimated
fair value of $57.0 million and the purchase price of
$64.3 million was $7.3 million and was charged to
additional capital. A portion of the purchase price was
attributable to accreted interest on the debt discount and
deferred loan costs and is presented in the statement of cash
flows for the three months ended March 31, 2009 as payments
of accreted interest on long-term debt in cash flow from
operating activities in continuing operations.
In connection with the offering of the 3.0% Notes and the
4.0% Notes, we entered into convertible note hedge and
written call option transactions with respect to our common
stock (the Convertible Note Hedge). The Convertible
Note Hedge consisted of our purchasing a call option on
12,653,440 shares of our common stock at a strike price of
$31.61 and selling a written call option on the identical number
of shares at $39.52. The number of shares covered by the
Convertible Note Hedge is the same number of shares underlying
the conversion of $200.0 million principal amount of the
3.0% Notes and $200.0 million principal amount of the
4.0% Notes. The Convertible Note Hedge is expected to
reduce the potential dilution from conversion of the
3.0% Notes and the 4.0% Notes. The written call option
sold offset, to some extent, the cost of the written call
purchased. As a result of the cessation of Valeants common
dividend, the strike price on the Convertible Note Hedge was
adjusted during 2007, with the new strike prices becoming $34.61
and $35.36 for the 3.0% Notes and the 4.0% Notes,
respectively.
During the year ended December 31, 2009, corresponding to
the partial redemption of the 3.0% Notes, we also effected
a proportionate partial termination of the Convertible Note
Hedge, reducing the number of shares covered by the Convertible
Note Hedge by 4,780,913 shares. As of March 31, 2010
and December 31, 2009, the number of shares covered by the
Convertible Note Hedge was 7,872,527, the same number of shares
underlying the conversion of the remaining balance of
$48.9 million principal amount of the 3.0% Notes and
$200.0 million principal amount of the 4.0% Notes.
The estimated fair value of our 3.0% Notes, 4.0% Notes
and the 8.375% Senior Notes, based on quoted market prices
or on current interest rates for similar obligations with like
maturities, was approximately $760.0 million and
$697.8 million at March 31, 2010 and December 31,
2009, respectively, compared to its carrying value of
$601.0 million and $598.6 million, respectively, and
principal amount of $638.8 million.
The income tax provision for the three months ended
March 31, 2010 consists of $13.6 million related to
the expected taxes on earnings in tax jurisdictions outside the
U.S. and $10.4 million related to U.S. federal
and state income taxes. Our effective tax rate at March 31,
2010 of 40.3% differs from the statutory U.S. federal rate
primarily due to state income taxes. The effective tax rate for
the three months ended March 31, 2010 of 40.3% as compared
to 27.3% for the three months ended March 31, 2009, was
higher due to the release of the valuation allowance on
U.S. net deferred tax assets during the fourth quarter of
2009.
We record a valuation allowance against our deferred tax assets
to reduce the net carrying value to an amount that we believe is
more likely than not to be realized. When we establish or reduce
the valuation allowance against our deferred tax assets, the
provision for income taxes will increase or decrease,
respectively, in the period such determination is made. The
valuation allowance against deferred tax assets was
$4.4 million as of March 31, 2010 and
December 31, 2009.
14
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of March 31, 2010, we had $19.2 million of
unrecognized tax benefits, which included $4.5 million
relating to interest and penalties. Of the total unrecognized
tax benefits, $15.6 million would reduce our effective tax
rate, if recognized.
The Internal Revenue Service is currently auditing our
U.S. consolidated income tax returns for the 2007 and 2008
tax years. During the first quarter of 2010, several states have
initiated tax audits for the years 2002 through 2007.
Additionally, one of our Mexican subsidiaries is under
examination for the 2004 tax year.
Our continuing practice is to recognize interest and penalties
related to income tax matters in income tax expense. As of
March 31, 2010, we had accrued $3.5 million for
interest and $1.0 million for penalties. We accrued
additional interest and penalties of $0.2 million during
the three months ended March 31, 2010.
|
|
12.
|
Derivative
Financial Instruments
|
Our business and financial results are affected by fluctuations
in world financial markets. We evaluate our exposure to such
risks on an ongoing basis, and seek ways to manage these risks
to an acceptable level, based on managements judgment of
the appropriate trade-off between risk, opportunity and cost. We
do not hold any significant amount of market risk sensitive
instruments whose value is subject to market price risk. We use
derivative financial instruments to hedge foreign currency
exposures. We do not speculate in derivative instruments in
order to profit from foreign currency exchange fluctuations; nor
do we enter into trades for which there is no underlying
exposure.
Our significant foreign currency exposure relates to the Polish
Zloty, the Mexican Peso, the Australian Dollar, and the Canadian
Dollar. We utilize cash flow and net investment hedges to reduce
our exposure to foreign currency risk. We have chosen not to
seek hedge accounting treatment for certain undesignated cash
flow hedges as these contracts are short term (typically less
than 30 days in duration) and offset matching intercompany
exposures in selected Valeant subsidiaries.
The table below summarizes the fair value and balance sheet
location of our outstanding derivatives at March 31, 2010
and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
|
Balance
|
|
|
|
Balance
|
|
|
|
|
Notional
|
|
Sheet
|
|
Fair
|
|
Sheet
|
|
Fair
|
Description
|
|
Amount
|
|
Location
|
|
Value
|
|
Location
|
|
Value
|
|
Undesignated hedges
|
|
$
|
30,529
|
|
|
Other assets
|
|
$
|
97
|
|
|
Accrued liabilities
|
|
$
|
(237
|
)
|
Net investment derivative contracts
|
|
|
24,550
|
|
|
Other assets
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
|
Balance
|
|
|
|
Balance
|
|
|
|
|
Notional
|
|
Sheet
|
|
Fair
|
|
Sheet
|
|
Fair
|
Description
|
|
Amount
|
|
Location
|
|
Value
|
|
Location
|
|
Value
|
|
Undesignated hedges
|
|
$
|
29,721
|
|
|
Other assets
|
|
$
|
330
|
|
|
Accrued liabilities
|
|
$
|
(334
|
)
|
Net investment derivative contracts
|
|
|
24,640
|
|
|
Other assets
|
|
|
231
|
|
|
|
|
|
|
|
15
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below summarizes the information related to changes in
the fair value of our derivative instruments for the three
months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010
|
|
|
|
|
Net
|
|
Cash
|
|
|
|
|
Investment
|
|
Flow
|
|
|
Undesignated
|
|
Derivative
|
|
Derivative
|
Description
|
|
Hedges
|
|
Contracts
|
|
Contracts
|
|
Loss recognized in currency translation adjustment in other
comprehensive income
|
|
$
|
|
|
|
$
|
(256
|
)
|
|
$
|
|
|
Loss recognized in exchange gain / loss
|
|
|
(761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
|
|
|
Net
|
|
|
Cash
|
|
|
|
|
|
|
Investment
|
|
|
Flow
|
|
|
|
Undesignated
|
|
|
Derivative
|
|
|
Derivative
|
|
Description
|
|
Hedges
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Gain recognized in currency translation adjustment in other
comprehensive income
|
|
$
|
|
|
|
$
|
2,673
|
|
|
$
|
|
|
Gain recognized in other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
211
|
|
Loss recognized in exchange gain / loss
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
See Note 13 for additional information about the fair value
of our derivative instruments.
|
|
13.
|
Fair
Value Measurements
|
Fair value measurements are based on a three-tier hierarchy that
prioritizes inputs used to measure fair value. These tiers
include: Level 1, defined as observable inputs such as
quoted prices in active markets; Level 2, defined as inputs
other than quoted prices in active markets that are either
directly or indirectly observable; and Level 3, defined as
unobservable inputs for which little or no market data exists.
The following table provides the assets and liabilities carried
at fair value measured on a recurring basis as of March 31,
2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (Liabilities)
|
|
|
March 31, 2010
|
|
December 31, 2009
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Undesignated hedges
|
|
$
|
|
|
|
$
|
(140
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(4
|
)
|
|
$
|
|
|
Net investment derivative contracts
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
231
|
|
|
|
|
|
Derivative contracts used as hedges are valued based on
observable inputs such as changes in interest rates and currency
fluctuations and are classified within Level 2 of the
valuation hierarchy. For a derivative instrument in an asset
position, we analyze the credit standing of the counterparty and
factor it into the fair value measurement. The fair value
measurement of a liability must reflect the nonperformance risk
of the reporting entity. Therefore, the impact of our
creditworthiness has also been factored into the fair value
measurement of the derivative instruments in a liability
position.
|
|
14.
|
Stock and
Stock Incentive Programs
|
Common Stock: We are authorized to issue
200 million shares of $0.01 par value common stock.
The number of shares outstanding as of March 31, 2010 and
December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
Shares outstanding
|
|
|
78,304
|
|
|
|
77,350
|
|
Shares held in treasury
|
|
|
25,465
|
|
|
|
25,466
|
|
16
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock and Securities Repurchase Programs: In
October 2008, our board of directors authorized us to repurchase
up to $200.0 million of our outstanding securities in a
24-month
period ending October 2010, unless earlier terminated or
completed. In May 2009, our board of directors increased the
authorization to $500.0 million, over a period ending in
May 2011. In March 2010, our board of directors further
increased the authorization to $1.0 billion over a period
ending in March 2013. Under the program, purchases of
outstanding senior notes, convertible subordinated notes or
common stock may be made from time to time on the open market,
in privately negotiated transactions, pursuant to tender offers
or otherwise, including pursuant to one or more trading plans,
at times and in amounts as we see appropriate. The amount of
securities to be purchased and the timing of such purchases are
subject to various factors, which may include the price of the
securities, general market conditions, corporate and regulatory
requirements and alternate investment opportunities. The
securities repurchase program may be modified or discontinued at
any time. We did not repurchase any securities during the three
months ended March 31, 2010.
Stock-based compensation: During the three
months ended March 31, 2010, we granted an aggregate of
134,084 time-vested restricted stock units, which vest based
upon service conditions, to certain executives and employees of
the Company. During the three months ended March 31, 2010,
we granted certain executives of the Company an aggregate of
374,201 performance-based restricted stock units, which vest
based upon both service and certain stock price appreciation
conditions. During the three months ended March 31, 2010 we
granted an aggregate of 1,061,000 stock options to certain
employees at a weighted-average exercise price of $38.48.
A summary of stock compensation expense in continuing operations
for our stock incentive plans for the three months ended
March 31, 2010 and 2009 is presented below:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Phantom and restricted stock units
|
|
$
|
4,298
|
|
|
$
|
2,828
|
|
Employee stock options
|
|
|
648
|
|
|
|
1,494
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
$
|
4,946
|
|
|
$
|
4,322
|
|
|
|
|
|
|
|
|
|
|
Future stock compensation expense for restricted stock units and
stock option incentive awards outstanding as of March 31,
2010 is as follows:
|
|
|
|
|
Remainder of 2010
|
|
$
|
19,149
|
|
2011
|
|
|
18,931
|
|
2012
|
|
|
12,996
|
|
2013
|
|
|
8,032
|
|
2014
|
|
|
1,576
|
|
2015
|
|
|
72
|
|
|
|
|
|
|
|
|
$
|
60,756
|
|
|
|
|
|
|
Our products are sold through three segments comprising
Specialty pharmaceuticals, Branded generics Europe
and Branded generics Latin America. The Specialty
pharmaceuticals segment revenues include product revenues
primarily from the U.S., Canada, Australia and New Zealand. The
Branded generics Europe segment revenues include
product revenues from branded generic pharmaceutical products
primarily in Poland, Hungary, the Czech Republic and Slovakia.
The Branded generics Latin America segment revenues
include product
17
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
revenues from branded generic pharmaceutical products and over
the counter products primarily in Mexico and Brazil.
Additionally, we generate alliance revenue, including royalties
from the sale of ribavirin by Merck, revenue from Mylan pursuant
to an agreement with Dow, royalty payments on net sales of
Cesamet in the U.S. through license agreements entered into
with Meda in September 2009 and revenues associated with the
Collaboration Agreement with GSK. We also generate alliance
revenue and service revenue from the development of
dermatological products from our Dow subsidiary, as well as
payments received from licensing of certain other products (see
Note 16).
The following table sets forth the amounts of our segment
revenues and operating income for the three months ended
March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals product sales
|
|
$
|
120,742
|
|
|
$
|
86,313
|
|
Specialty pharmaceuticals service and alliance revenue(1)
|
|
|
22,523
|
|
|
|
11,905
|
|
Branded generics Europe product sales
|
|
|
41,708
|
|
|
|
35,338
|
|
Branded generics Latin America product sales
|
|
|
42,057
|
|
|
|
31,182
|
|
Alliances (ribavirin royalties only)
|
|
|
4,961
|
|
|
|
13,185
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues
|
|
$
|
231,991
|
|
|
$
|
177,923
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals
|
|
$
|
61,191
|
|
|
$
|
28,250
|
|
Branded generics Europe
|
|
|
10,879
|
|
|
|
8,864
|
|
Branded generics Latin America
|
|
|
13,498
|
|
|
|
12,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,568
|
|
|
|
49,322
|
|
Alliances
|
|
|
4,961
|
|
|
|
13,185
|
|
Corporate
|
|
|
(16,180
|
)
|
|
|
(18,562
|
)
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
74,349
|
|
|
|
43,945
|
|
Special charges and credits
|
|
|
(538
|
)
|
|
|
|
|
Restructuring and acquisition-related costs
|
|
|
(1,024
|
)
|
|
|
(1,211
|
)
|
|
|
|
|
|
|
|
|
|
Consolidated segment operating income
|
|
|
72,787
|
|
|
|
42,734
|
|
Interest income
|
|
|
459
|
|
|
|
1,835
|
|
Interest expense
|
|
|
(13,090
|
)
|
|
|
(8,013
|
)
|
Gain on early extinguishment of debt
|
|
|
|
|
|
|
4,599
|
|
Other income (expense), net including translation and exchange
|
|
|
(524
|
)
|
|
|
1,212
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
$
|
59,632
|
|
|
$
|
42,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Specialty pharmaceuticals service and alliance revenue consists
of: |
18
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Service revenue
|
|
$
|
4,960
|
|
|
$
|
6,738
|
|
1% clindamycin and 5% benzoyl peroxide gel (IDP-111) profit share
|
|
|
9,298
|
|
|
|
|
|
Other royalties
|
|
|
3,425
|
|
|
|
1,849
|
|
License payments
|
|
|
701
|
|
|
|
|
|
GSK Collaboration
|
|
|
4,139
|
|
|
|
3,318
|
|
|
|
|
|
|
|
|
|
|
Total specialty pharmaceuticals services and alliance revenue
|
|
$
|
22,523
|
|
|
$
|
11,905
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges, acquisition-related costs and special
charges and credits are not included in the applicable segments
as management excludes these items in assessing the financial
performance of these segments, primarily due to their
non-operational nature. Stock-based compensation expense is
considered a corporate cost since the amount of such charges
depends on corporate-wide performance rather than the operating
performance of any single segment.
The following table sets forth net revenues by geographic area
for the three months ended March 31, 2010 and 2009.
Revenues are classified based on geographic location of the
customers, or for certain exported products and license revenue,
by county of domicile.
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
106,067
|
|
|
$
|
74,496
|
|
Poland
|
|
|
33,182
|
|
|
|
27,754
|
|
Mexico
|
|
|
32,575
|
|
|
|
24,587
|
|
Other
|
|
|
60,167
|
|
|
|
51,086
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
231,991
|
|
|
$
|
177,923
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth our total assets by segment as of
March 31, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals
|
|
$
|
693,978
|
|
|
$
|
699,354
|
|
Branded generics Europe
|
|
|
188,833
|
|
|
|
184,862
|
|
Branded generics Latin America
|
|
|
243,324
|
|
|
|
161,372
|
|
Alliances
|
|
|
5,062
|
|
|
|
8,905
|
|
Corporate
|
|
|
241,757
|
|
|
|
250,986
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,372,954
|
|
|
$
|
1,305,479
|
|
|
|
|
|
|
|
|
|
|
19
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the three months ended March 31, 2010 and 2009, two
customers each accounted for more than 10% of consolidated
product sales. Sales to McKesson Corporation and its affiliates
and to Cardinal Health in the United States, Canada and Mexico
are detailed in the following table:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2010
|
|
2009
|
|
Sales:
|
|
|
|
|
|
|
|
|
McKesson
|
|
$
|
40,905
|
|
|
$
|
33,259
|
|
Cardinal
|
|
|
26,767
|
|
|
|
21,246
|
|
Percentage of total product sales:
|
|
|
|
|
|
|
|
|
McKesson
|
|
|
20
|
%
|
|
|
22
|
%
|
Cardinal
|
|
|
13
|
%
|
|
|
14
|
%
|
Alliance revenue includes the royalties received from the sale
of ribavirin and from patent protected formulations developed by
Dow and licensed to third parties, licensing payments received
and revenues associated with the Collaboration Agreement with
GSK. In addition, beginning in the third quarter of 2009, we
receive profit sharing payments equal to a majority portion of
the net profits on the sale of 1% clindamycin and 5% benzoyl
peroxide gel by Mylan and royalty payments on net sales of
Cesamet in the U.S. through a license agreement entered
into with Meda in September 2009. We will also receive future
royalty payments on Medas net sales of two dermatology
products in Europe pursuant to license agreements entered into
with Meda. The following table provides the details of our
alliance revenue in the three months ended March 31, 2010
and 2009:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Ribavirin royalty
|
|
$
|
4,961
|
|
|
$
|
13,185
|
|
1% clindamycin and 5% benzoyl peroxide gel (IDP-111) profit share
|
|
|
9,298
|
|
|
|
|
|
Other royalties
|
|
|
3,425
|
|
|
|
1,849
|
|
License payments
|
|
|
701
|
|
|
|
|
|
GSK Collaboration
|
|
|
4,139
|
|
|
|
3,318
|
|
|
|
|
|
|
|
|
|
|
Total alliance revenue
|
|
$
|
22,524
|
|
|
$
|
18,352
|
|
|
|
|
|
|
|
|
|
|
Robert A. Ingram was Vice Chairman Pharmaceuticals of GSK from
January 2008 through December 2009, and serves as a strategic
advisor to the Chief Executive Officer of GSK since January
2010. Mr. Ingram has been elected to our board of directors
since 2003. In 2008, Mr. Ingram became our boards
lead director. Stephen F. Stefano was Senior Vice President of
GSKs Payor Markets Division from January 2001 through
November 2009. Effective March 25, 2009, Mr. Stefano
was elected by our board of directors to fill an open board
position in the class expiring in 2010. See Note 4 for
discussion of the Collaboration Agreement with GSK.
Anders Lönner has been the Group President and Chief
Executive Officer of Meda since 1999, and serves on Medas
board of directors. Effective January 7, 2009,
Mr. Lönner was elected by our board of directors to
fill an open board position in the class expiring in 2011. See
Notes 6 and 16 for discussion of transactions with Meda.
|
|
18.
|
Condensed
Consolidating Financial Information
|
In June 2009, we issued the 8.375% Senior Notes that are
fully, unconditionally and jointly and severally guaranteed by
certain of our 100% owned subsidiaries. We are required to
present condensed consolidating financial information in
accordance with the criteria established for parent companies in
the SECs
Regulation S-X,
Rule 3-10.
The following condensed consolidating financial information
presents the results of operations, financial
20
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
position and cash flows of Valeant Pharmaceuticals International
(VPI), its Guarantor subsidiaries, its non-Guarantor
subsidiaries and the eliminations necessary to arrive at the
information on a consolidated basis as of March 31, 2010
and December 31, 2009 and for the three-month periods ended
March 31, 2010 and 2009:
Condensed
Consolidating Balance Sheet
March 31, 2010
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
32,143
|
|
|
$
|
115,160
|
|
|
$
|
|
|
|
$
|
147,303
|
|
Marketable securities
|
|
|
|
|
|
|
7,979
|
|
|
|
|
|
|
|
|
|
|
|
7,979
|
|
Accounts receivable, net
|
|
|
|
|
|
|
67,074
|
|
|
|
96,776
|
|
|
|
(143
|
)
|
|
|
163,707
|
|
Intercompany receivables
|
|
|
|
|
|
|
150,907
|
|
|
|
25,496
|
|
|
|
(176,403
|
)
|
|
|
|
|
Inventories, net
|
|
|
|
|
|
|
19,673
|
|
|
|
93,133
|
|
|
|
(1,087
|
)
|
|
|
111,719
|
|
Prepaid expenses
|
|
|
70
|
|
|
|
14,402
|
|
|
|
4,148
|
|
|
|
|
|
|
|
18,620
|
|
Current deferred tax assets, net
|
|
|
|
|
|
|
61,192
|
|
|
|
14,150
|
|
|
|
|
|
|
|
75,342
|
|
Income taxes receivable
|
|
|
|
|
|
|
|
|
|
|
2,515
|
|
|
|
|
|
|
|
2,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
70
|
|
|
|
353,370
|
|
|
|
351,378
|
|
|
|
(177,633
|
)
|
|
|
527,185
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
9,574
|
|
|
|
118,953
|
|
|
|
|
|
|
|
128,527
|
|
Deferred tax assets, net
|
|
|
|
|
|
|
30,857
|
|
|
|
5,087
|
|
|
|
|
|
|
|
35,944
|
|
Goodwill
|
|
|
|
|
|
|
118,706
|
|
|
|
78,232
|
|
|
|
|
|
|
|
196,938
|
|
Intangible assets, net
|
|
|
|
|
|
|
368,134
|
|
|
|
98,924
|
|
|
|
|
|
|
|
467,058
|
|
Investment in subsidiaries
|
|
|
613,351
|
|
|
|
10,274
|
|
|
|
|
|
|
|
(623,625
|
)
|
|
|
|
|
Intercompany receivables
|
|
|
423,859
|
|
|
|
150,000
|
|
|
|
100,910
|
|
|
|
(674,769
|
)
|
|
|
|
|
Other assets
|
|
|
8,130
|
|
|
|
3,182
|
|
|
|
5,990
|
|
|
|
|
|
|
|
17,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
1,045,340
|
|
|
|
690,727
|
|
|
|
408,096
|
|
|
|
(1,298,394
|
)
|
|
|
845,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,045,410
|
|
|
$
|
1,044,097
|
|
|
$
|
759,474
|
|
|
$
|
(1,476,027
|
)
|
|
$
|
1,372,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$
|
|
|
|
$
|
14,771
|
|
|
$
|
24,487
|
|
|
$
|
|
|
|
$
|
39,258
|
|
Intercompany payables
|
|
|
|
|
|
|
25,496
|
|
|
|
150,907
|
|
|
|
(176,403
|
)
|
|
|
|
|
Accrued liabilities
|
|
|
237
|
|
|
|
169,121
|
|
|
|
45,500
|
|
|
|
(163
|
)
|
|
|
214,695
|
|
Notes payable and current portion of long-term debt
|
|
|
48,111
|
|
|
|
11
|
|
|
|
953
|
|
|
|
|
|
|
|
49,075
|
|
Deferred revenue
|
|
|
|
|
|
|
17,576
|
|
|
|
285
|
|
|
|
|
|
|
|
17,861
|
|
Income taxes payable
|
|
|
|
|
|
|
1,416
|
|
|
|
8,868
|
|
|
|
|
|
|
|
10,284
|
|
Current deferred tax liabilities, net
|
|
|
|
|
|
|
|
|
|
|
554
|
|
|
|
|
|
|
|
554
|
|
Current liabilities for uncertain tax positions
|
|
|
|
|
|
|
646
|
|
|
|
|
|
|
|
|
|
|
|
646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
48,348
|
|
|
|
229,037
|
|
|
|
231,554
|
|
|
|
(176,566
|
)
|
|
|
332,373
|
|
Long-term debt, less current portion
|
|
|
552,892
|
|
|
|
|
|
|
|
966
|
|
|
|
|
|
|
|
553,858
|
|
Deferred tax liabilities, net
|
|
|
1,233
|
|
|
|
|
|
|
|
11,154
|
|
|
|
|
|
|
|
12,387
|
|
Liabilities for uncertain tax positions
|
|
|
|
|
|
|
12,538
|
|
|
|
765
|
|
|
|
|
|
|
|
13,303
|
|
Intercompany payables
|
|
|
|
|
|
|
524,769
|
|
|
|
150,000
|
|
|
|
(674,769
|
)
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
11,210
|
|
|
|
6,865
|
|
|
|
|
|
|
|
18,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
554,125
|
|
|
|
548,517
|
|
|
|
169,750
|
|
|
|
(674,769
|
)
|
|
|
597,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
602,473
|
|
|
|
777,554
|
|
|
|
401,304
|
|
|
|
(851,335
|
)
|
|
|
929,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Valeant stockholders equity
|
|
|
442,937
|
|
|
|
266,543
|
|
|
|
358,149
|
|
|
|
(624,692
|
)
|
|
|
442,937
|
|
Noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
442,937
|
|
|
|
266,543
|
|
|
|
358,170
|
|
|
|
(624,692
|
)
|
|
|
442,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,045,410
|
|
|
$
|
1,044,097
|
|
|
$
|
759,474
|
|
|
$
|
(1,476,027
|
)
|
|
$
|
1,372,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Balance Sheet
December 31, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
26,182
|
|
|
$
|
41,898
|
|
|
$
|
|
|
|
$
|
68,080
|
|
Marketable securities
|
|
|
|
|
|
|
13,781
|
|
|
|
4
|
|
|
|
|
|
|
|
13,785
|
|
Accounts receivable, net
|
|
|
|
|
|
|
80,443
|
|
|
|
90,706
|
|
|
|
(141
|
)
|
|
|
171,008
|
|
Intercompany receivables
|
|
|
|
|
|
|
93,488
|
|
|
|
32,128
|
|
|
|
(125,616
|
)
|
|
|
|
|
Inventories, net
|
|
|
|
|
|
|
21,159
|
|
|
|
85,086
|
|
|
|
(345
|
)
|
|
|
105,900
|
|
Prepaid expenses
|
|
|
116
|
|
|
|
12,700
|
|
|
|
3,773
|
|
|
|
|
|
|
|
16,589
|
|
Current deferred tax assets, net
|
|
|
|
|
|
|
69,917
|
|
|
|
7,351
|
|
|
|
|
|
|
|
77,268
|
|
Income taxes receivable
|
|
|
|
|
|
|
1,630
|
|
|
|
1,954
|
|
|
|
|
|
|
|
3,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
116
|
|
|
|
319,300
|
|
|
|
262,900
|
|
|
|
(126,102
|
)
|
|
|
456,214
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
10,437
|
|
|
|
116,374
|
|
|
|
|
|
|
|
126,811
|
|
Deferred tax assets, net
|
|
|
9,575
|
|
|
|
23,406
|
|
|
|
4,656
|
|
|
|
|
|
|
|
37,637
|
|
Goodwill
|
|
|
|
|
|
|
118,706
|
|
|
|
76,644
|
|
|
|
|
|
|
|
195,350
|
|
Intangible assets, net
|
|
|
|
|
|
|
370,988
|
|
|
|
99,358
|
|
|
|
|
|
|
|
470,346
|
|
Investment in subsidiaries
|
|
|
524,457
|
|
|
|
12,613
|
|
|
|
|
|
|
|
(537,070
|
)
|
|
|
|
|
Intercompany receivables
|
|
|
426,124
|
|
|
|
150,000
|
|
|
|
100,905
|
|
|
|
(677,029
|
)
|
|
|
|
|
Other assets
|
|
|
9,510
|
|
|
|
3,384
|
|
|
|
6,227
|
|
|
|
|
|
|
|
19,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
969,666
|
|
|
|
689,534
|
|
|
|
404,164
|
|
|
|
(1,214,099
|
)
|
|
|
849,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
969,782
|
|
|
$
|
1,008,834
|
|
|
$
|
667,064
|
|
|
$
|
(1,340,201
|
)
|
|
$
|
1,305,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$
|
|
|
|
$
|
9,426
|
|
|
$
|
27,979
|
|
|
$
|
|
|
|
$
|
37,405
|
|
Intercompany payables
|
|
|
|
|
|
|
32,127
|
|
|
|
93,489
|
|
|
|
(125,616
|
)
|
|
|
|
|
Accrued liabilities
|
|
|
|
|
|
|
165,681
|
|
|
|
50,415
|
|
|
|
(164
|
)
|
|
|
215,932
|
|
Notes payable and current portion of long-term debt
|
|
|
47,618
|
|
|
|
14
|
|
|
|
830
|
|
|
|
|
|
|
|
48,462
|
|
Deferred revenue
|
|
|
|
|
|
|
21,330
|
|
|
|
282
|
|
|
|
|
|
|
|
21,612
|
|
Income taxes payable
|
|
|
|
|
|
|
1,995
|
|
|
|
4,725
|
|
|
|
|
|
|
|
6,720
|
|
Current deferred tax liabilities, net
|
|
|
|
|
|
|
|
|
|
|
358
|
|
|
|
|
|
|
|
358
|
|
Current liabilities for uncertain tax positions
|
|
|
|
|
|
|
646
|
|
|
|
|
|
|
|
|
|
|
|
646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
47,618
|
|
|
|
231,219
|
|
|
|
178,078
|
|
|
|
(125,780
|
)
|
|
|
331,135
|
|
Long-term debt, less current portion
|
|
|
551,005
|
|
|
|
|
|
|
|
1,122
|
|
|
|
|
|
|
|
552,127
|
|
Deferred tax liabilities, net
|
|
|
|
|
|
|
|
|
|
|
7,728
|
|
|
|
|
|
|
|
7,728
|
|
Liabilities for uncertain tax positions
|
|
|
|
|
|
|
12,391
|
|
|
|
724
|
|
|
|
|
|
|
|
13,115
|
|
Intercompany payables
|
|
|
|
|
|
|
527,029
|
|
|
|
150,000
|
|
|
|
(677,029
|
)
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
23,740
|
|
|
|
6,455
|
|
|
|
|
|
|
|
30,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
551,005
|
|
|
|
563,160
|
|
|
|
166,029
|
|
|
|
(677,029
|
)
|
|
|
603,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
598,623
|
|
|
|
794,379
|
|
|
|
344,107
|
|
|
|
(802,809
|
)
|
|
|
934,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Valeant stockholders equity
|
|
|
371,159
|
|
|
|
214,455
|
|
|
|
322,937
|
|
|
|
(537,392
|
)
|
|
|
371,159
|
|
Noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
371,159
|
|
|
|
214,455
|
|
|
|
322,957
|
|
|
|
(537,392
|
)
|
|
|
371,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
969,782
|
|
|
$
|
1,008,834
|
|
|
$
|
667,064
|
|
|
$
|
(1,340,201
|
)
|
|
$
|
1,305,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statements of Operations
For the Three Months Ended March 31, 2010
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
|
|
|
$
|
87,040
|
|
|
$
|
118,984
|
|
|
$
|
(1,517
|
)
|
|
$
|
204,507
|
|
Service revenue
|
|
|
|
|
|
|
3,388
|
|
|
|
1,570
|
|
|
|
2
|
|
|
|
4,960
|
|
Alliance revenue
|
|
|
|
|
|
|
22,524
|
|
|
|
|
|
|
|
|
|
|
|
22,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
112,952
|
|
|
|
120,554
|
|
|
|
(1,515
|
)
|
|
|
231,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization)
|
|
|
|
|
|
|
12,985
|
|
|
|
42,289
|
|
|
|
(1,071
|
)
|
|
|
54,203
|
|
Cost of services
|
|
|
|
|
|
|
1,856
|
|
|
|
1,310
|
|
|
|
|
|
|
|
3,166
|
|
Selling, general and administrative
|
|
|
|
|
|
|
34,220
|
|
|
|
36,321
|
|
|
|
|
|
|
|
70,541
|
|
Research and development costs, net
|
|
|
|
|
|
|
8,239
|
|
|
|
2,163
|
|
|
|
|
|
|
|
10,402
|
|
Special charges and credits
|
|
|
|
|
|
|
538
|
|
|
|
|
|
|
|
|
|
|
|
538
|
|
Restructuring and acquisition-related costs
|
|
|
|
|
|
|
128
|
|
|
|
896
|
|
|
|
|
|
|
|
1,024
|
|
Amortization expense
|
|
|
|
|
|
|
15,853
|
|
|
|
3,477
|
|
|
|
|
|
|
|
19,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
|
|
|
|
73,819
|
|
|
|
86,456
|
|
|
|
(1,071
|
)
|
|
|
159,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
39,133
|
|
|
|
34,098
|
|
|
|
(444
|
)
|
|
|
72,787
|
|
Other income (expense), net including translation and exchange
|
|
|
42,747
|
|
|
|
299
|
|
|
|
(823
|
)
|
|
|
(42,747
|
)
|
|
|
(524
|
)
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
873
|
|
|
|
369
|
|
|
|
(783
|
)
|
|
|
459
|
|
Interest expense
|
|
|
(12,991
|
)
|
|
|
(124
|
)
|
|
|
(758
|
)
|
|
|
783
|
|
|
|
(13,090
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
29,756
|
|
|
|
40,181
|
|
|
|
32,886
|
|
|
|
(43,191
|
)
|
|
|
59,632
|
|
Provision (benefit) for income taxes
|
|
|
(6,260
|
)
|
|
|
17,224
|
|
|
|
13,066
|
|
|
|
|
|
|
|
24,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
36,016
|
|
|
|
22,957
|
|
|
|
19,820
|
|
|
|
(43,191
|
)
|
|
|
35,602
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
|
|
|
|
(4
|
)
|
|
|
419
|
|
|
|
|
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
36,016
|
|
|
|
22,953
|
|
|
|
20,239
|
|
|
|
(43,191
|
)
|
|
|
36,017
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Valeant
|
|
$
|
36,016
|
|
|
$
|
22,953
|
|
|
$
|
20,238
|
|
|
$
|
(43,191
|
)
|
|
$
|
36,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statements of Operations
For the Three Months Ended March 31, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
|
|
|
$
|
67,888
|
|
|
$
|
86,239
|
|
|
$
|
(1,294
|
)
|
|
$
|
152,833
|
|
Service revenue
|
|
|
|
|
|
|
5,200
|
|
|
|
1,610
|
|
|
|
(72
|
)
|
|
|
6,738
|
|
Alliance revenue
|
|
|
|
|
|
|
18,352
|
|
|
|
|
|
|
|
|
|
|
|
18,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
91,440
|
|
|
|
87,849
|
|
|
|
(1,366
|
)
|
|
|
177,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization)
|
|
|
|
|
|
|
11,589
|
|
|
|
30,097
|
|
|
|
(1,989
|
)
|
|
|
39,697
|
|
Cost of services
|
|
|
|
|
|
|
3,247
|
|
|
|
1,079
|
|
|
|
|
|
|
|
4,326
|
|
Selling, general and administrative
|
|
|
|
|
|
|
35,730
|
|
|
|
28,486
|
|
|
|
|
|
|
|
64,216
|
|
Research and development costs, net
|
|
|
|
|
|
|
8,064
|
|
|
|
681
|
|
|
|
(10
|
)
|
|
|
8,735
|
|
Restructuring and acquisition-related costs
|
|
|
|
|
|
|
1,211
|
|
|
|
|
|
|
|
|
|
|
|
1,211
|
|
Amortization expense
|
|
|
|
|
|
|
15,720
|
|
|
|
1,284
|
|
|
|
|
|
|
|
17,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
|
|
|
|
75,561
|
|
|
|
61,627
|
|
|
|
(1,999
|
)
|
|
|
135,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
15,879
|
|
|
|
26,222
|
|
|
|
633
|
|
|
|
42,734
|
|
Other income, net including translation and exchange
|
|
|
35,839
|
|
|
|
56
|
|
|
|
1,156
|
|
|
|
(35,839
|
)
|
|
|
1,212
|
|
Gain on early extinguishment of debt
|
|
|
4,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,599
|
|
Interest income
|
|
|
|
|
|
|
357
|
|
|
|
1,484
|
|
|
|
(6
|
)
|
|
|
1,835
|
|
Interest expense
|
|
|
(7,733
|
)
|
|
|
(229
|
)
|
|
|
(57
|
)
|
|
|
6
|
|
|
|
(8,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
32,705
|
|
|
|
16,063
|
|
|
|
28,805
|
|
|
|
(35,206
|
)
|
|
|
42,367
|
|
Provision for income taxes
|
|
|
1,510
|
|
|
|
836
|
|
|
|
9,223
|
|
|
|
|
|
|
|
11,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
31,195
|
|
|
|
15,227
|
|
|
|
19,582
|
|
|
|
(35,206
|
)
|
|
|
30,798
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
|
|
|
|
(121
|
)
|
|
|
519
|
|
|
|
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
31,195
|
|
|
|
15,106
|
|
|
|
20,101
|
|
|
|
(35,206
|
)
|
|
|
31,196
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Valeant
|
|
$
|
31,195
|
|
|
$
|
15,106
|
|
|
$
|
20,100
|
|
|
$
|
(35,206
|
)
|
|
$
|
31,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statements of Cash Flows
For the Three Months Ended March 31, 2010
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
9,662
|
|
|
$
|
49,077
|
|
|
$
|
9,410
|
|
|
$
|
|
|
|
$
|
68,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(309
|
)
|
|
|
(3,580
|
)
|
|
|
|
|
|
|
(3,889
|
)
|
Proceeds from sale of assets
|
|
|
|
|
|
|
|
|
|
|
280
|
|
|
|
|
|
|
|
280
|
|
Proceeds from investments
|
|
|
|
|
|
|
5,670
|
|
|
|
4
|
|
|
|
|
|
|
|
5,674
|
|
Acquisition of businesses, license rights and product lines
|
|
|
|
|
|
|
(12,000
|
)
|
|
|
(3,107
|
)
|
|
|
|
|
|
|
(15,107
|
)
|
Cash flow from investing activities in continuing operations
|
|
|
|
|
|
|
(6,639
|
)
|
|
|
(6,403
|
)
|
|
|
|
|
|
|
(13,042
|
)
|
Cash flow from investing activities in discontinued operations
|
|
|
|
|
|
|
3,308
|
|
|
|
(2,494
|
)
|
|
|
|
|
|
|
814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
|
|
|
(3,331
|
)
|
|
|
(8,897
|
)
|
|
|
|
|
|
|
(12,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt and notes payable
|
|
|
|
|
|
|
(3
|
)
|
|
|
(176
|
)
|
|
|
|
|
|
|
(179
|
)
|
Proceeds from issuance of long-term debt and notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercises and employee stock purchases
|
|
|
21,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,792
|
|
Payments of employee withholding taxes related to equity awards
|
|
|
(1,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,165
|
)
|
Excess tax deduction from stock options exercised
|
|
|
1,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,599
|
|
Intercompany
|
|
|
(31,888
|
)
|
|
|
(39,782
|
)
|
|
|
71,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities in continuing operations
|
|
|
(9,662
|
)
|
|
|
(39,785
|
)
|
|
|
71,494
|
|
|
|
|
|
|
|
22,047
|
|
Cash flow from financing activities in discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(9,662
|
)
|
|
|
(39,785
|
)
|
|
|
71,494
|
|
|
|
|
|
|
|
22,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
1,255
|
|
|
|
|
|
|
|
1,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
|
|
|
|
5,961
|
|
|
|
73,262
|
|
|
|
|
|
|
|
79,223
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
26,182
|
|
|
|
41,898
|
|
|
|
|
|
|
|
68,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
32,143
|
|
|
$
|
115,160
|
|
|
$
|
|
|
|
$
|
147,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statements of Cash Flows
For the Three Months Ended March 31, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(8,384
|
)
|
|
$
|
40,644
|
|
|
$
|
14,913
|
|
|
$
|
(11,500
|
)
|
|
$
|
35,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(2,619
|
)
|
|
|
(4,457
|
)
|
|
|
|
|
|
|
(7,076
|
)
|
Proceeds from sale of assets
|
|
|
|
|
|
|
|
|
|
|
255
|
|
|
|
|
|
|
|
255
|
|
Proceeds from investments
|
|
|
|
|
|
|
13,349
|
|
|
|
192
|
|
|
|
|
|
|
|
13,541
|
|
Purchase of investments
|
|
|
|
|
|
|
|
|
|
|
(802
|
)
|
|
|
|
|
|
|
(802
|
)
|
Acquisition of businesses, license rights and product lines
|
|
|
|
|
|
|
(30,991
|
)
|
|
|
(1,220
|
)
|
|
|
|
|
|
|
(32,211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities in continuing operations
|
|
|
|
|
|
|
(20,261
|
)
|
|
|
(6,032
|
)
|
|
|
|
|
|
|
(26,293
|
)
|
Cash flow from investing activities in discontinued operations
|
|
|
|
|
|
|
(12,634
|
)
|
|
|
2,361
|
|
|
|
|
|
|
|
(10,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
|
|
|
(32,895
|
)
|
|
|
(3,671
|
)
|
|
|
|
|
|
|
(36,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt and notes payable
|
|
|
(50,937
|
)
|
|
|
(84
|
)
|
|
|
(1,758
|
)
|
|
|
|
|
|
|
(52,779
|
)
|
Proceeds from issuance of long-term debt and notes payable
|
|
|
|
|
|
|
|
|
|
|
2,006
|
|
|
|
|
|
|
|
2,006
|
|
Stock option exercises and employee stock purchases
|
|
|
7,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,036
|
|
Intercompany and dividends
|
|
|
52,285
|
|
|
|
(51,711
|
)
|
|
|
(12,074
|
)
|
|
|
11,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities in continuing operations
|
|
|
8,384
|
|
|
|
(51,795
|
)
|
|
|
(11,826
|
)
|
|
|
11,500
|
|
|
|
(43,737
|
)
|
Cash flow from financing activities in discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
8,384
|
|
|
|
(51,795
|
)
|
|
|
(11,826
|
)
|
|
|
11,500
|
|
|
|
(43,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(15,043
|
)
|
|
|
|
|
|
|
(15,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
|
|
|
|
(44,046
|
)
|
|
|
(15,627
|
)
|
|
|
|
|
|
|
(59,673
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
56,280
|
|
|
|
143,302
|
|
|
|
|
|
|
|
199,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
12,234
|
|
|
$
|
127,675
|
|
|
$
|
|
|
|
$
|
139,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Commitments
and Contingencies
|
We are involved in several legal proceedings, including the
following matters:
SEC Investigation: We are the subject of a
Formal Order of Investigation with respect to events and
circumstances surrounding trading in our common stock, the
public release of data from our first pivotal Phase III
trial for taribavirin in March 2006, statements made in
connection with the public release of data and matters regarding
our stock option grants since January 1, 2000 and our
restatement of certain historical financial statements announced
in March 2008. In September 2006, our board of directors
established a Special Committee to review our historical stock
option practices and related accounting, and informed the SEC of
these efforts. We have cooperated fully and will continue to
cooperate with the SEC in its investigation. We cannot predict
the outcome of the investigation.
Permax Product Liability Cases: On
August 27, 2008, we were served complaints in six separate
cases by plaintiffs Prentiss and Carol Harvey; Robert and
Barbara Branson; Dan and Mary Ellen Leach; Eugene and Bertha
Nelson; Beverly Polin; and Ira and Michael Price against Eli
Lilly and Company and Valeant Pharmaceuticals International in
Superior Court, Orange County, California (the California
Permax Actions). The California Permax Actions were
consolidated under the heading of Branson v. Eli Lilly and
Company, et al. On September 15, 2008, we were served a
complaint in a case captioned Linda R. OBrien v. Eli
Lilly and Company, Valeant Pharmaceuticals International, Amarin
Corporation, plc, Amarin Pharmaceuticals Inc., Elan
Pharmaceuticals, Inc., Athena Neurosciences, Inc., Teva
Pharmaceutical Industries, Ltd., Par Pharmaceutical Companies,
Inc., and Ivax Corporation in the Circuit Court of the
11th Judicial Circuit, Miami-Dade County, Florida. On
March 24, 2009, we were named as a defendant in the
following cases: Richard Andrew Baker v. Eli Lilly and
Company, Valeant Pharmaceuticals International, Amarin
Corporation, plc, Amarin Pharmaceuticals Inc., Elan
Pharmaceuticals, Inc., Athena Neurosciences, Inc., Par
Pharmaceutical Companies, Inc., Pfizer, Inc. and Pharmacia
Corporation in the United States District Court for the Northern
District of Ohio, Eastern Division; Edwin Elling v. Eli
Lilly and Company, Valeant Pharmaceuticals International,
Amarin Corporation, plc, Amarin Pharmaceuticals Inc., Elan
Pharmaceuticals, Inc. and Athena Neurosciences, Inc. in the
United Stated District Court for the Northern District of Texas,
Ft. Worth Division; and Judith LaVois v. Eli Lilly and
Company, Valeant Pharmaceuticals International, Amarin
Corporation, plc, Amarin Pharmaceuticals Inc., Elan
Pharmaceuticals, Inc., Athena Neurosciences, Inc. and Teva
Pharmaceuticals USA, Inc. in the United States District Court
for the Southern District of Texas, Houston Division. On
March 25, 2009, we were named as a defendant in a case
captioned Penny M. Hagerman v. Eli Lilly and Company,
Valeant Pharmaceuticals International, Amarin Corporation, plc,
Amarin Pharmaceuticals Inc., Elan Pharmaceuticals, Inc., and
Athena Neurosciences, Inc. in the United States District Court
for the District of Colorado. Eli Lilly, initial holder of the
right granted by the FDA to market and sell Permax in the United
States, which right was licensed to Amarin Pharmaceuticals Inc.
and assigned to Valeant, and the source of the manufactured
product, has also been named in the suits. On January 15,
2010, we reached an agreement in principle with plaintiffs to
settle the OBrien, Baker, Elling, LaVois and Hagerman
matters, for which documentation is being finalized. Settlement
amounts were accrued in 2009 and were not material to our
financial results. We are in the process of defending the
California Permax Actions. In addition to the lawsuits described
above, we have received, and from time to time receive,
communications from third parties relating to potential claims
that may be asserted with respect to Permax.
Eli Lilly: On January 12, 2009, we were
served a complaint in an action captioned Eli Lilly and
Company v. Valeant Pharmaceuticals International, Case
No. 1:08-cv-1720-SEB-TAB
in the U.S. District Court for the Southern District of
Indiana, Indianapolis Division (the Lilly Action).
In the Lilly Action, Lilly brought a claim against us for breach
of contract and seeks a declaratory judgment arising out of a
February 25, 2004 letter agreement between and among Lilly,
Valeant and Amarin Corporation, plc related to cost-sharing for
product liability claims related to the pharmaceutical Permax.
On March 2, 2009, we filed counterclaims against Lilly
seeking a declaratory judgment and indemnification under the
letter agreement. On August 24, 2009, Lilly filed a motion
for partial summary judgment. The Court has ordered that Valeant
is entitled to take additional discovery
27
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
related to Lillys motion for partial summary judgment
prior to responding. We are in the process of defending the
Lilly Action, and discovery is ongoing.
Spear Pharmaceuticals, Inc.: On
December 17, 2007, Spear Pharmaceuticals, Inc. and Spear
Dermatology Products, Inc. (collectively Spear)
filed a complaint in federal court for the District of Delaware,
Case
No. 07-821
(the Delaware Action), against Valeant and
investment firm William Blair & Company, LLC.
Plaintiffs allege that while William Blair was engaged in
connection with the possible sale of plaintiffs generic
tretinoin business, plaintiffs disclosed to William Blair the
development of generic Efudex in their product pipeline.
Plaintiffs further allege that William Blair, while under
confidentiality obligations to plaintiffs, shared such
information with Valeant and that Valeant then filed a Citizen
Petition with the FDA requesting that any abbreviated new drug
application for generic Efudex include a study on superficial
basal cell carcinoma. Arguing that Valeants Citizen
Petition caused the FDA to delay approval of their generic
Efudex, plaintiffs sought damages for Valeants alleged
breach of contract, trade secret misappropriation and unjust
enrichment, in addition to other causes of action against
William Blair.
On April 11, 2008, the FDA approved an Abbreviated New Drug
Application (ANDA) for a 5% fluorouracil cream
sponsored by Spear Pharmaceuticals, Inc. (Spear
Pharmaceuticals). On April 11, 2008, the FDA also
responded to our Citizen Petition that was filed on
December 21, 2004 and denied our request that the FDA
refrain from approving any ANDA for a generic version of Efudex
unless the application contains data from an adequately designed
comparative clinical study conducted in patients with
superficial basal cell carcinoma. On April 25, 2008,
Valeant filed a Complaint and an application for a temporary
restraining order (TRO) against Michael O. Leavitt
and Andrew C. Von Eschenbach, in their official capacities at
the FDA, in the United States District Court for the Central
District of California (the California Action),
seeking to suspend the FDAs approval of Spear
Pharmaceuticals ANDA. On September 23, 2008,
following a stay of the proceedings and various pre-trial
motions, we filed an Amended Complaint under the Administrative
Procedure Act challenging the FDAs initial decision to
approve Spear Pharmaceuticals ANDA, the FDAs
re-affirmance of the decision to approve Spear
Pharmaceuticals ANDA and the FDAs denial of
Valeants Citizens Petition. On September 14,
2009, the Court ruled in favor of Spear and the FDA. On
October 19, 2009, we filed a notice to appeal.
On January 7, 2010, we reached an agreement with Spear to
settle both the Delaware Action and the California Action. On
February 10, 2010, we voluntarily dismissed our appeal
relating to the California Action. On February 12, 2010, the
Delaware Action was dismissed with prejudice. All disputes
between Spear and Valeant have now been resolved.
Tolmar Matter: On or around January 19,
2009, Tolmar, Inc. (Tolmar) notified Galderma
Laboratories, L.P. and us that it had submitted an ANDA,
No. 090-903,
with the FDA seeking approval for the commercial manufacture,
use and sale of its Metronidazole Topical Gel, 1% (the
Tolmar Product) prior to the expiration of
U.S. Patent Nos. 6,881,726 (the 726
patent) and 7,348,317 (the 317 patent). The
726 and 317 patents are owned by Dow, and licensed
to Galderma. The ANDA contains a Paragraph IV certification
alleging that the claims of the 726 and 317 patents
will not be infringed by the manufacture, use, importation, sale
or offer for sale of the Tolmar Product. On March 3, 2009,
Galderma Laboratories, L.P., Galderma S.A., and Dow filed a
complaint against Tolmar for the patent infringement of the
726 and 317 patents, pending in the United States
District Court for the Northern District of Texas, Dallas
Division. On April 20, 2009, Tolmar filed an answer and
counterclaims that included declaratory judgment actions for
non-infringement and invalidity. No trial date has been set.
This lawsuit was filed within forty-five days of Tolmars
Paragraph IV certification. As a result, The Hatch-Waxman
Act provides an automatic stay on the FDAs final approval
of Tolmars ANDA for thirty months, which will expire in
July 2011, or until a decision by the district, whichever is
earlier.
Other: We are a party to other pending
lawsuits and subject to a number of threatened lawsuits. While
the ultimate outcome of pending and threatened lawsuits or
pending violations cannot be predicted with certainty, and an
unfavorable outcome could have a negative impact on us, at this
time in the opinion of management, the ultimate
28
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
resolution of these matters will not have a material effect on
our consolidated financial position, results of operations or
liquidity.
There can be no assurance that defending against any of the
above claims or any future similar claims and any resulting
settlements or judgments will not, individually or in the
aggregate, have a material adverse effect on our consolidated
financial position, results of operation or liquidity.
On April 7, 2010, we acquired all of the outstanding stock
of Instituto Terapeutico Delta Ltda (Delta), a
privately-held company located in Brazil, and additionally
acquired a manufacturing facility in Brazil for aggregate
consideration of approximately $56.0 million. The purchase
price is subject to certain closing adjustments. Delta is a
dermatology company whose product portfolio is primarily branded
generics and over the counter (OTC) products. Due to
the limited time since the acquisition date, the initial
accounting for the business combination is incomplete at this
time. As a result, we are unable to provide the acquisition date
fair value of the assets acquired and liabilities assumed.
On April 9, 2010, we issued $400.0 million aggregate
principal amount of senior notes, at par, which bear a coupon
interest rate of 7.625% and are due March 15, 2020 (the
7.625% Senior Notes). The 7.625% Notes are
guaranteed on a senior unsecured basis by certain of our
subsidiaries, which are initially the same subsidiaries that
guarantee our 8.375% Senior Notes, and rank equally in
right of payment with all of our existing and future unsecured
and unsubordinated indebtedness and senior to our existing and
future indebtedness that expressly provides for subordination to
the 7.625% Senior Notes. The 7.625% Senior Notes are
effectively junior in right of payment to our existing and
future secured indebtedness, to the extent of the assets
securing such indebtedness. The 7.625% Senior Notes were
sold in accordance with Rule 144A and Regulation S of
the Securities Act and we are obligated (i) to file a
registration statement with the SEC that would enable the
holders of the 7.625% Senior Notes to exchange them for
publicly registered notes having substantially the same terms
and (ii) to complete such exchange offer within
365 days of April 9, 2010.
On April 19, 2010, we completed the acquisition of rights
to certain dermatology products in Poland for a purchase price
of approximately $18.0 million. The products have
approximately $8.0 million in annual sales. A portion of
the purchase price was paid upon signing of the agreement in the
fourth quarter of 2009 with the remaining balance paid at the
closing.
On April 20, 2010, we acquired all of the outstanding stock
of a privately-held pharmaceutical company located in Brazil for
approximately $56.0 million. The company primarily focuses
on branded generics and OTC dermatological products. Due to the
limited time since the acquisition date, the initial accounting
for the business combination is incomplete at this time. As a
result, we are unable to provide the acquisition date fair value
of the assets acquired and liabilities assumed.
On April 28, 2010, we signed a binding agreement to acquire
all of the outstanding stock of VitalScience Corp., a
privately-held OTC dermatology company located in Canada, for
approximately $10.5 million. The acquisition is expected to
close in the second quarter of 2010.
On April 30, 2010, we repurchased 2,637,545 shares of
our common stock for an aggregate purchase price of
$106.7 million from ValueAct Capital Master Fund, L.P.
On May 3, 2010, we signed an agreement to acquire all of
the outstanding stock of privately-held Princeton Pharma
Holdings LLC, and its wholly owned operating subsidiary, Aton
Pharma, Inc. (Aton), a
U.S.-based
specialty pharmaceutical company, for approximately
$318.0 million, subject to certain closing adjustments.
Additionally, we agreed to pay future milestone payments,
predominantly upon the achievement of approval and commercial
targets for certain pipeline products in development. Aton is
focused on ophthalmology and certain orphan drug indications.
The acquisition is expected to close in the second or third
quarter of 2010.
29
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This discussion of our results of operations should be read in
conjunction with our condensed consolidated financial statements
included elsewhere in this Quarterly Report on
Form 10-Q
(the Quarterly Report).
Company
Overview
Introduction
We are a multinational specialty pharmaceutical company that
develops, manufactures and markets a broad range of
pharmaceutical products. Our specialty pharmaceutical and OTC
products are marketed under brand names and are sold in the
United States, Canada, Australia and New Zealand, where we focus
most of our efforts on the dermatology and neurology therapeutic
classes. We also have branded generic and OTC operations in
Europe and Latin America which focus on pharmaceutical products
that are bioequivalent to original products and are marketed
under company brand names.
Business
Strategy
Our strategy is to focus the business on core geographies and
therapeutic classes, maximize pipeline assets through strategic
partnerships with other pharmaceutical companies and deploy cash
with an appropriate mix of selective acquisitions, share
buybacks and debt repurchases, while highlighting key
opportunities for growth.
Since 2008, we have reduced our focus to two therapeutic
classes, dermatology and neurology, and to five geographic
areas, U.S., Canada, Australia/New Zealand, Mexico/Brazil and
Central Europe.
Our leveraged research and development (R&D)
model is a key element to our business strategy. It allows us to
progress development programs to drive future commercial growth,
while minimizing our R&D expense. This is achieved in four
ways: (1) we structure partnerships and collaborations so
that our partner partially funds development work, e.g.,
collaboration on retigabine with Glaxo Group Limited
(GSK), a wholly-owned subsidiary of GlaxoSmithKline
plc, (2) we bring products already developed for other
markets to our territories, e.g., our joint venture relationship
in Canada, Australia and Mexico with Meda AB (Meda),
an international specialty pharmaceutical company located in
Stockholm, Sweden, (3) we acquire dossiers and
registrations for branded generic products, which require
limited and low risk manufacturing
start-up and
development activities and (4) we have a dermatology
service business that works with external customers as well as
progressing our internal development programs. This service
business model allows higher utilization and infrastructure cost
absorption.
In February, 2010, we obtained rights from Spear
Pharmaceuticals, Inc. and Spear Dermatology Products, Inc.
(collectively, Spear) to commercialize
Refissa®,
a prescription based topical tretinoin cream used to diminish
fine lines and wrinkles and fade irregular pigmentation due to
sun damage.
In April 2010, we acquired Instituto Terapeutico Delta Ltda
(Delta), a privately-held company located in Brazil,
whose portfolio consists of primarily branded generics and over
the counter dermatological products. We also acquired a new
manufacturing plant in Brazil approved to produce solids,
semisolids and liquids.
In April 2010, we acquired an additional privately-held
pharmaceutical company located in Brazil, which primarily
focuses on branded generics and OTC dermatological products.
Also in April 2010, we signed a binding agreement to acquire
VitalScience Corp., a privately-held OTC dermatology company
located in Canada.
Segment
Information
Our products are sold through three segments comprising
Specialty pharmaceuticals, Branded generics Europe
and Branded generics Latin America. The Specialty
pharmaceuticals segment generates product revenues primarily
from the United States, Canada, Australia and New Zealand. The
Branded generics Europe segment generates product
revenues from branded generic pharmaceutical products primarily
in Poland, Hungary, the Czech Republic and Slovakia. The Branded
generics Latin America segment generates product
revenues from branded generic pharmaceutical products and OTC
products primarily in Mexico and Brazil.
30
Additionally, within our Specialty pharmaceuticals segment, we
generate alliance revenue and service revenue from the licensing
of dermatological products and from contract services in the
areas of dermatology and topical medication. Alliance revenue
within our Specialty pharmaceuticals segment currently includes
profit sharing payments from the sale of a 1% clindamycin and 5%
benzoyl peroxide gel product (IDP-111) by Mylan
Pharmaceuticals Inc. (Mylan), royalty payments on
net sales of Cesamet in the U.S. through a license
agreement entered into with Meda in September 2009 and royalties
from patent-protected formulations developed by our subsidiary,
Dow Pharmaceutical Sciences, Inc. (Dow), and
licensed to third parties. In addition, we will receive future
royalties on net sales of two dermatology products in Europe
pursuant to license agreements entered into with Meda. Contract
services are primarily focused on contract research for external
development and clinical research in areas such as formulations
development, in vitro drug penetration studies,
analytical sciences and consulting in the areas of labeling and
regulatory affairs. We also generate revenues associated with
the Collaboration Agreement with GSK (as defined below).
Alliance
Revenue (Ribavirin Royalties only)
Royalties are derived from sales of ribavirin by
Merck & Co., Inc. (Merck) (formerly
Schering-Plough Ltd. (Schering-Plough)). Ribavirin
is a nucleoside analog that we discovered. In 1995,
Schering-Plough licensed from us all oral forms of ribavirin for
the treatment of chronic hepatitis C. Ribavirin royalties
will be discontinued for sales in European countries after the
ten-year anniversary of the launch of the product, which varied
by European country and started in May 1999. We expect ribavirin
royalties to continue to decline in 2010 predominantly due to
discontinued royalty payments for European countries and to be
an insignificant portion of our revenues after 2010.
Research
and Development
Our research and development organization focuses on the
development of products through clinical trials. We currently
have a number of compounds in clinical development, including,
but not limited to: retigabine, IDP-107, IDP-108, IDP-113 and
IDP-115. See the Products in Development section
below for further discussion of these products.
Collaboration
Agreement with GSK
In October 2008, we closed the worldwide License and
Collaboration Agreement (the Collaboration
Agreement) with GSK to develop and commercialize
retigabine, a
first-in-class
neuronal potassium channel opener for the treatment of adult
epilepsy patients with refractory partial onset seizures, and
its backup compounds and received $125.0 million in upfront
fees from GSK upon the closing.
We agreed to share equally with GSK the development and
pre-commercialization expenses of retigabine in the United
States, Australia, New Zealand, Canada and Puerto Rico (the
Collaboration Territory) and GSK will develop and
commercialize retigabine in the rest of the world. Our share of
such expenses in the Collaboration Territory is limited to
$100.0 million, provided that GSK will be entitled to
credit our share of any such expenses in excess of such amount
against future payments owed to us under the Collaboration
Agreement. The difference between the upfront payment of
$125.0 million and our expected development and
pre-commercialization expenses under the Collaboration Agreement
is being recognized as alliance revenue over the period prior to
the launch of a retigabine product (the Pre-Launch
Period). We recognize alliance revenue during the
Pre-Launch Period as we complete our performance obligations
using the proportional performance model, which requires us to
determine and measure the completion of our expected development
and pre-commercialization costs during the Pre-Launch Period, in
addition to our participation in the joint steering committee.
We expect to complete our research and development and
pre-commercialization obligations in effect during the
Pre-Launch Period by the first quarter of 2011.
GSK has the right to terminate the Collaboration Agreement at
any time prior to the receipt of the approval by the
U.S. Food and Drug Administration (FDA) of a
new drug application (NDA) for a retigabine product,
which right may be irrevocably waived at any time by GSK. The
period of time prior to such termination or waiver is referred
to as the Review Period. If GSK terminates the
Collaboration Agreement prior to December 31, 2010, we
would be required to refund to GSK a portion of the upfront fee.
In February 2009, the Collaboration Agreement was amended to,
among other matters, reduce the maximum amount that we would be
required to refund to GSK to $30.0 million through
March 31, 2010, with additional ratable reductions in the
amount of the required refund during 2010 until reaching zero at
December 31, 2010.
31
During the three months ended March 31, 2010 and 2009, the
combined research and development expenses and
pre-commercialization expenses incurred under the Collaboration
Agreement by us and GSK were $11.3 million and
$13.4 million, respectively. Total combined expenses by us
and GSK for the Collaboration Agreement through March 31,
2010 were $89.6 million. For further information regarding
the Collaboration Agreement see Note 4 of notes to
condensed consolidated financial statements included elsewhere
in this Quarterly Report.
Pharmaceutical
Products
Product sales from our pharmaceutical segments accounted for 88%
of our total revenues from continuing operations for the three
months ended March 31, 2010, compared to 86% for the
corresponding period in 2009. Product sales increased
$51.7 million (34%) to $204.5 million for the three
months ended March 31, 2010 from $152.8 million in the
three months ended March 31, 2009. The 34% increase in
pharmaceutical product sales for the three months ended
March 31, 2010 was due to a 16% increase in volume, a 13%
increase due to currency fluctuations and a 5% increase in price.
On March 23, 2010, the new healthcare legislation was
signed into law by President Obama. The law includes an increase
in the basic Medicaid rebate rate from 15.1% to 23.1% and the
requirement to pay rebates on all Medicaid Managed Care. These
changes resulted in a $2.7 million reduction in our
consolidated revenues in the three months ended March 31,
2010.
We have experienced generic challenges and other competition to
our products, as well as price and currency challenges, and
expect these challenges to continue in 2010 and beyond.
Results
of Operations
Certain financial information for our business segments is set
forth below. This discussion of our results of operations should
be read in conjunction with the condensed consolidated financial
statements included elsewhere in this Quarterly Report. For
additional financial information by business segment, see
Note 15 of notes to condensed consolidated financial
statements included elsewhere in this Quarterly Report.
The following table summarizes revenues by reportable segments
and operating expenses for the three months ended March 31,
2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals product sales
|
|
$
|
120,742
|
|
|
$
|
86,313
|
|
Specialty pharmaceuticals service and alliance revenue
|
|
|
22,523
|
|
|
|
11,905
|
|
Branded generics Europe product sales
|
|
|
41,708
|
|
|
|
35,338
|
|
Branded generics Latin America product sales
|
|
|
42,057
|
|
|
|
31,182
|
|
Alliances (ribavirin royalties only)
|
|
|
4,961
|
|
|
|
13,185
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues
|
|
|
231,991
|
|
|
|
177,923
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization)
|
|
|
54,203
|
|
|
|
39,697
|
|
Cost of services
|
|
|
3,166
|
|
|
|
4,326
|
|
Selling, general and administrative
|
|
|
70,541
|
|
|
|
64,216
|
|
Research and development costs, net
|
|
|
10,402
|
|
|
|
8,735
|
|
Special charges and credits
|
|
|
538
|
|
|
|
|
|
Restructuring and acquisition-related costs
|
|
|
1,024
|
|
|
|
1,211
|
|
Amortization expense
|
|
|
19,330
|
|
|
|
17,004
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
72,787
|
|
|
$
|
42,734
|
|
|
|
|
|
|
|
|
|
|
32
Computations of percentage change period over period are based
upon our results, as rounded and presented herein.
Product Sales Revenues: In the Specialty
pharmaceuticals segment, revenues from product sales for the
three months ended March 31, 2010 were $120.7 million,
compared to $86.3 million for the corresponding period in
2009, representing an increase of $34.4 million (40%). The
increase in product sales in the three months ended
March 31, 2010 was driven primarily by net growth of
$20.2 million in existing products, including Acanya which
was launched in March 2009, as well as from sales of products
acquired in late 2009 as part of the acquisitions of Private
Formula International Holdings Pty Limited and Laboratoire
Dr. Renaud, which contributed $7.3 million in the
three months ended March 31, 2010. In the three months
ended March 31, 2010, the appreciation of the Canadian
Dollar and Australian Dollar relative to the U.S. Dollar
resulted in additional increases of $5.3 million.
In the Branded generics Europe segment, revenues for
the three months ended March 31, 2010 were
$41.7 million, compared to $35.3 million for the
corresponding period in 2009, representing an increase of
$6.4 million (18%). The appreciation of foreign currencies,
particularly the Polish Zloty, relative to the U.S. Dollar
resulted in increases of $6.5 million in product sales
revenue in the three months ended March 31, 2010, in
addition to revenues of $2.7 million in the three months
ended March 31, 2010 from the April 2009 acquisition of
EMO-FARM sp. z o.o. These increases were partly offset by
decreases in sales volume of existing products and decreased
revenue from distribution contracts.
In the Branded generics Latin America segment,
revenues for the three months ended March 31, 2010 were
$42.1 million, compared to $31.2 million for the
corresponding period in 2009, representing an increase of
$10.9 million (35%). Product sales revenue increased
$5.0 million due to the appreciation of foreign currencies,
particularly the Mexican Peso, relative to the U.S. Dollar
in the three months ended March 31, 2010. Revenues
attributable to the third quarter 2009 acquisition of Tecnofarma
S.A. de C.V. (Tecnofarma) contributed an additional
$4.7 million.
Specialty Pharmaceuticals Service and Alliance
Revenue: Service and alliance revenue in the
Specialty pharmaceuticals segment consists of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Service revenue
|
|
$
|
4,960
|
|
|
$
|
6,738
|
|
Specialty pharmaceuticals alliance revenue:
|
|
|
|
|
|
|
|
|
Royalties
|
|
|
3,425
|
|
|
|
1,849
|
|
1% clindamycin and 5% benzoyl peroxide gel profit share
|
|
|
9,298
|
|
|
|
|
|
License payments
|
|
|
701
|
|
|
|
|
|
GSK Collaboration
|
|
|
4,139
|
|
|
|
3,318
|
|
|
|
|
|
|
|
|
|
|
Total specialty pharmaceuticals alliance revenue
|
|
|
17,563
|
|
|
|
5,167
|
|
|
|
|
|
|
|
|
|
|
Total specialty pharmaceuticals service and alliance revenue
|
|
$
|
22,523
|
|
|
$
|
11,905
|
|
|
|
|
|
|
|
|
|
|
We receive revenue from contract research services performed by
Dow in the areas of dermatology and topical medication. The
services are primarily focused on contract research for external
development and clinical research in areas such as formulations
development, in vitro drug penetration studies,
analytical sciences and consulting in the areas of labeling, and
regulatory affairs.
We receive royalties from patent protected formulations
developed by Dow and licensed to third parties. These royalties
were $3.4 million and $1.9 million for the three
months ended March 31, 2010 and 2009, respectively.
Beginning in the third quarter of 2009, we receive profit
sharing payments equal to a majority portion of the net profits
on the sale of 1% clindamycin and 5% benzoyl peroxide gel by
Mylan, which totaled $9.3 million in the three months ended
March 31, 2010. In the three months ended March 31,
2010, we received $0.7 million in initial fees pursuant to
licensing agreements for various products.
We also earned $4.1 million and $3.3 million under the
GSK Collaboration Agreement for the three months ended
March 31, 2010 and 2009, respectively.
33
Alliance Revenue (Ribavirin Royalties
only): Ribavirin royalty revenue was
$5.0 million and $13.2 million for the three months
ended March 31, 2010 and 2009, respectively, representing a
decrease of $8.2 million (62%). We expect ribavirin
royalties to continue to decline in 2010 as royalty payments
from Merck will continue for European sales only until the
ten-year anniversary of the launch of the product, which varied
by European country and started in May 1999.
Gross Profit Margin: Gross profit margin on
product sales, net of product-related intangible amortization,
was 65% for the three months ended March 31, 2010 compared
to 64% for the corresponding period in 2009. Product
amortization expense was $16.8 million and
$14.7 million in the three months ended March 31, 2010
and 2009, respectively. The increase in product amortization
expense is primarily attributable to products acquired in the
second through fourth quarters of 2009.
Gross profit margin on product sales (excluding product-related
intangible amortization) was 73% for the three months ended
March 31, 2010 compared to 74% in the corresponding period
in 2009. The gross profit margin in the Specialty
pharmaceuticals segment was relatively flat in the three months
ended March 31, 2010, compared to the corresponding period
in 2009, reflecting a 1% decrease. The gross profit margin in
the Branded generics Latin America segment in the
three months ended March 31, 2010 decreased due to the
inclusion of lower margin sales attributable to the July 2009
Tecnofarma acquisition. The increase in the gross profit margin
in the Branded generics Europe segment in the three
months ended March 31, 2010 is primarily due to lower sales
from low-margin distribution contracts, favorable manufacturing
variances and favorable purchase price variances attributable to
the strengthening of the Polish Zloty against the Euro.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Increase
|
|
|
Percentage
|
|
|
|
2010
|
|
|
2009
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Gross Profit (excluding amortization)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals
|
|
$
|
97,739
|
|
|
$
|
70,949
|
|
|
$
|
26,790
|
|
|
|
38
|
%
|
% of product sales
|
|
|
81
|
%
|
|
|
82
|
%
|
|
|
|
|
|
|
|
|
Branded generics Europe
|
|
|
23,576
|
|
|
|
18,921
|
|
|
|
4,655
|
|
|
|
25
|
%
|
% of product sales
|
|
|
57
|
%
|
|
|
54
|
%
|
|
|
|
|
|
|
|
|
Branded generics Latin America
|
|
|
29,092
|
|
|
|
23,285
|
|
|
|
5,807
|
|
|
|
25
|
%
|
% of product sales
|
|
|
69
|
%
|
|
|
75
|
%
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
(103
|
)
|
|
|
(19
|
)
|
|
|
(84
|
)
|
|
|
NM
|
|
% of product sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated gross profit
|
|
$
|
150,304
|
|
|
$
|
113,136
|
|
|
$
|
37,168
|
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of product sales
|
|
|
73
|
%
|
|
|
74
|
%
|
|
|
|
|
|
|
|
|
Amortization product related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals
|
|
$
|
14,992
|
|
|
$
|
13,671
|
|
|
$
|
1,321
|
|
|
|
10
|
%
|
Branded generics Europe
|
|
|
822
|
|
|
|
234
|
|
|
|
588
|
|
|
|
251
|
%
|
Branded generics Latin America
|
|
|
1,029
|
|
|
|
779
|
|
|
|
250
|
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization product related
|
|
$
|
16,843
|
|
|
$
|
14,684
|
|
|
$
|
2,159
|
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit (including amortization)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals
|
|
$
|
82,747
|
|
|
$
|
57,278
|
|
|
$
|
25,469
|
|
|
|
44
|
%
|
% of product sales
|
|
|
69
|
%
|
|
|
66
|
%
|
|
|
|
|
|
|
|
|
Branded generics Europe
|
|
|
22,754
|
|
|
|
18,687
|
|
|
|
4,067
|
|
|
|
22
|
%
|
% of product sales
|
|
|
55
|
%
|
|
|
53
|
%
|
|
|
|
|
|
|
|
|
Branded generics Latin America
|
|
|
28,063
|
|
|
|
22,506
|
|
|
|
5,557
|
|
|
|
25
|
%
|
% of product sales
|
|
|
67
|
%
|
|
|
72
|
%
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
(103
|
)
|
|
|
(19
|
)
|
|
|
(84
|
)
|
|
|
NM
|
|
% of product sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated gross profit
|
|
$
|
133,461
|
|
|
$
|
98,452
|
|
|
$
|
35,009
|
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of product sales
|
|
|
65
|
%
|
|
|
64
|
%
|
|
|
|
|
|
|
|
|
NM Not meaningful.
34
Selling, General and Administrative
Expenses: Selling, general and administrative
(SG&A) expenses were $70.5 million and
$64.2 million in the three months ended March 31, 2010
and 2009, respectively, representing an increase of
$6.3 million (10%). As a percent of product sales and
service revenue, SG&A expenses were 34% and 40% for the
three months ended March 31, 2010 and 2009, respectively.
The increase in SG&A expenses for the three months ended
March 31, 2010 was primarily due to $5.9 million of
unfavorable currency impact and increased costs aggregating
$4.9 million attributable to 2009 acquisitions that
occurred between April and December, offset in part by other
expense decreases. SG&A expenses in the three months ended
March 31, 2009 included $1.6 million of transfer taxes
on an intercompany return of capital.
Research and Development Costs: R&D
expenses were $10.4 million and $8.7 million in the
three months ended March 31, 2010 and 2009, respectively,
representing an increase of $1.7 million (20%). The
increase in R&D expenses was primarily related to R&D
activities at Tecnofarma, which was acquired in July 2009, in
addition to unfavorable currency impact of $0.3 million.
Special Charges and Credits: Special charges
and credits of $0.5 million in the three months ended
March 31, 2010 primarily consist of legal fees related to
settlement of the Spear matters. See Note 19 of notes to
condensed consolidated financial statements included elsewhere
in this Quarterly Report for additional information.
Restructuring Costs: Restructuring costs
related to our 2008 restructuring were $0.1 million and
$1.2 million in the three months ended March 31, 2010
and 2009, respectively. These costs primarily consist of
contract cancellation costs and severance costs for employees
who have or are expected to be terminated as a result of the
2008 restructuring. For additional information, see Note 2
of notes to condensed consolidated financial statements included
elsewhere in this Quarterly Report.
Acquisition-Related Costs: Acquisition-related
costs of $0.9 million in the three months ended
March 31, 2010, consist of legal, accounting and other
costs directly related to our business acquisitions and
integration and other costs including severance for employees
related to acquired businesses.
Amortization: Amortization expense was
$19.3 million and $17.0 million for the three months
ended March 31, 2010 and 2009, respectively. Amortization
increased by $2.3 million in the three months ended
March 31, 2010, related to the intangible assets obtained
in our 2009 acquisitions, which occurred between April and
December.
Interest Expense and Income: Interest income
decreased $1.4 million for the three months ended
March 31, 2010 compared to the corresponding period in
2009. The decrease was due to lower invested cash balances and
lower average investment interest rates. Interest expense
increased $5.1 million for the three months ended
March 31, 2010 compared to the corresponding period in
2009, due primarily to interest expense on our
$365.0 million Senior Notes issued in June 2009, offset in
part by a decrease in interest expense due to the purchase of a
portion of our 3.0% Notes during 2009.
Gain on Early Extinguishment of Debt: During
the three months ended March 31, 2009, we purchased an
aggregate of $65.7 million principal amount of the
3.0% Notes at a purchase price of $64.3 million. The
carrying amount, net of unamortized debt issuance costs, of the
3.0% Notes purchased was $61.6 million and the
estimated fair value of the Notes exclusive of the conversion
feature was $57.0 million. The difference between the
carrying amount and the estimated fair value was recognized as a
gain of $4.6 million upon early extinguishment of debt.
Other Income/Expense, Net, Including Translation and
Exchange: Other income (expense), net including
translation and exchange was expense of $0.5 million for
the three months ended March 31, 2010 compared to income of
$1.2 million in the corresponding period in 2009. The
expense in 2010 related primarily to losses related to our joint
venture with Meda in Canada. In 2009, the income resulted
primarily from the weakening of the Polish Zloty against the
U.S. Dollar denominated cash and receivables balances.
Income Taxes: The income tax provisions in the
three months ended March 31, 2010 is determined using an
estimated annual effective tax rate. Our effective tax rate may
be subject to fluctuations during the year as new information is
obtained, which may affect the assumptions used to estimate the
annual effective tax rate, including factors such as the mix of
pre-tax earnings in the various tax jurisdictions in which we
operate, valuation allowances
35
against deferred tax assets, the recognition or derecognition of
tax benefits related to uncertain tax positions, utilization of
R&D tax credits and changes in or the interpretation of tax
laws in jurisdictions where we conduct business. We recognize
deferred tax assets and liabilities for temporary differences
between the financial reporting basis and the tax basis of our
assets and liabilities along with net operating loss and tax
credit carryovers.
We continue to provide residual U.S. tax on the unremitted
earnings of our foreign subsidiaries including applicable
withholding taxes due upon repatriation.
The income tax provisions in the three months ended
March 31, 2009 relate to the profits of our foreign
operations, foreign withholding taxes, the income tax effects on
interest paid on our integrated debt, penalties and interest
associated with the settlement of U.S. tax audits, and
state and local taxes in the U.S. Because of our losses in
prior periods, we were required to maintain a valuation
allowance offsetting our net U.S. deferred tax assets
of approximately $109.5 million as of March 31, 2009.
See Note 11 of notes to condensed consolidated financial
statements included elsewhere in this Quarterly Report for a
discussion of this valuation allowance. The valuation allowance
is reviewed quarterly and is maintained until sufficient
positive evidence exists to support the reversal. We released
this valuation allowance in the fourth quarter of 2009 when
management determined that it was more likely than not that our
deferred tax assets will be realized.
Income from Discontinued Operations, Net: The
results from discontinued operations were income of
$0.4 million for the three months ended March 31, 2010
and 2009, and relate primarily to our business operations
located in Western and Eastern Europe, Middle East and Africa
(the WEEMEA business).
Sources
and Uses of Cash
Cash and cash equivalents and marketable securities totaled
$155.3 million at March 31, 2010 compared to
$81.9 million at December 31, 2009. The increase of
$73.4 million primarily resulted from the following:
Sources
of Cash:
|
|
|
|
|
$68.1 million of cash from operations;
|
|
|
|
$21.8 million of proceeds from stock option exercises and
employee stock purchases; and
|
|
|
|
$3.3 million of proceeds related to the sale of our
Infergen product rights, sold to Three Rivers Pharmaceuticals,
LLC in January 2008.
|
Uses
of Cash:
|
|
|
|
|
$12.0 million related to a co-marketing agreement with
Spear;
|
|
|
|
$3.9 million of payments made for capital
expenditures; and
|
|
|
|
$2.5 million of payments made for liabilities related to
the sale of the WEEMEA business.
|
Working capital was $194.8 million at March 31, 2010,
compared to $125.1 million at December 31, 2009. The
increase in working capital of $69.7 million primarily
resulted from the increase in cash and cash equivalents and
marketable securities.
Cash provided by operating activities in continuing operations
is expected to be our primary source of funds for operations in
2010. During the three months ended March 31, 2010, cash
provided by operating activities in continuing operations
totaled $68.2 million, compared to $37.8 million in
2009. The cash provided by operating activities in continuing
operations for 2010 was primarily a result of net income
adjusted for non-cash charges. The cash provided by operating
activities in continuing operations for 2009 was primarily a
result of net income adjusted for non-cash charges and a
reduction in accounts receivable, offset by a reduction in other
liabilities and income taxes.
Cash used in investing activities in continuing operations was
$13.0 million for the three months ended March 31,
2010, compared to cash used in investing activities in
continuing operations of $26.3 million in 2009. In 2010,
cash used in investing activities consisted primarily of
$15.1 million paid for the acquisition of product
36
intangibles, primarily the $12.0 million upfront payment
related to the co-marketing agreement with Spear, and capital
expenditures of $3.9 million, offset by proceeds from
investments of $5.7 million. In 2009, cash used in
investing activities in continuing operations consisted
primarily of $29.7 million paid for liabilities for the
acquisition of Dow and capital expenditures of
$7.1 million, offset by net proceeds from investments of
$12.7 million. Cash provided by investing activities in
discontinued operations in 2010 of $0.8 million consisted
of proceeds of $3.3 million from the sale of our Infergen
product rights, sold to Three Rivers Pharmaceuticals, LLC in
January 2008, offset by $2.5 million of payments made for
liabilities related to the sale of the WEEMEA business. Cash
used in investing activities in discontinued operations in 2009
of $10.3 million consisted primarily of $13.3 million
paid for liabilities related to the sale of the WEEMEA business,
offset by $2.8 million received from Meda for proceeds from
a legal settlement.
Cash provided by financing activities in continuing operations
was $22.0 million in the three months ended March 31,
2010, and primarily consisted of proceeds from stock option
exercises and employee stock purchases of $21.8 million.
Cash used in financing activities in continuing operations in
2009 was $43.7 million and primarily consisted of payments
on long-term debt and notes payable of $52.8 million,
offset in part by proceeds from stock option exercises and
employee stock purchases of $7.0 million.
Liquidity
and Capital Resources
Historically, our primary sources of liquidity have been our
cash flow from operations and issuances of long-term debt
securities. We believe that cash generated from operations,
along with our existing cash, will be sufficient to meet our
operating requirements at least through March 31, 2011, to
fund capital expenditures and our clinical development program.
Our short-term debt maturities relate to the $48.9 million
outstanding principal amount of our 3.0% Subordinated
Convertible Notes due August 2010 (the
3.0% Notes). Our cash on hand is sufficient to
cover this short-term debt maturity. However, since part of our
business strategy is to expand through strategic acquisitions,
we may seek additional debt financing or issue additional equity
securities or sell assets to finance future acquisitions or for
other purposes.
On April 9, 2010, we issued $400.0 million of
7.625% Senior Unsecured Notes due March 15, 2020.
These notes are jointly and severally guaranteed by certain of
our subsidiaries, which are initially the same subsidiaries that
guarantee our outstanding 8.375% senior notes due 2016. We
intend to use the net proceeds from this offering to repurchase
3.0% Notes and other securities of the Company, to finance
various acquisitions and for other general corporate purposes.
If GSK terminates the Collaboration Agreement prior to
December 31, 2010, we would be required to refund to GSK up
to $30.0 million of the upfront fee through March 31,
2010; however, the refundable portion will be reduced ratably
throughout 2010 until it reaches zero at December 31, 2010.
We did not pay dividends for either the three months ended
March 31, 2010 or the twelve months ended December 31,
2009.
Off-Balance
Sheet Arrangements
We do not use special purpose entities or other off-balance
sheet financing techniques except for operating leases disclosed
in our Annual Report on
Form 10-K
for the year ended December 31, 2009 (the 2009
Form 10-K).
Our 3.0% and 4.0% Convertible Subordinated Notes include
conversion features that are considered off-balance sheet
arrangements under SEC requirements. For further discussion of
the 3.0% Notes and 4.0% Notes, please refer to the
preceding section Liquidity and Capital Resources
and to Note 10 of notes to condensed consolidated financial
statements included elsewhere in this Quarterly Report.
Products
in Development
Retigabine
Subject to the terms of the Collaboration Agreement with GSK, we
are developing retigabine as an adjunctive treatment for
partial-onset seizures in patients with epilepsy. Retigabine
stabilizes hyper-excited neurons primarily by opening neuronal
potassium channels. On October 30, 2009, the NDA was filed
for retigabine for the treatment
37
of refractory partial onset seizures. The FDA accepted the NDA
for review on December 29, 2009 and established a
Prescription Drug User Fee Act (PDUFA) date of
August 30, 2010. In addition, the European Medicines
Evaluation Agency (EMEA) confirmed on
November 17, 2009 that the Marketing Authorization
Application (MAA) filed on October 30, 2009 was
successfully validated, thus enabling the MAA review to
commence. Retigabine has been in development by us since our
acquisition of Xcel Pharmaceuticals, Inc. in 2005.
In September 2009, a Phase I clinical study was initiated for
three additional retigabine modified release technologies, the
purpose of which is to identify a lead modified release
formulation that will be advanced in further research intended
to support a product with either a once or twice daily dosing
regimen for epilepsy patients.
As discussed in more detail in the subsection
Collaboration Agreement with GSK, in October 2008,
we closed the worldwide Collaboration Agreement with GSK to
develop and commercialize retigabine and its backup compounds
and received $125.0 million in upfront fees from GSK upon
the closing.
External research and development expenses for retigabine were
$2.6 million ($3.7 million total research and
development expenses) and $6.1 million ($7.9 million
total research and development expenses) prior to the credit
from the GSK Collaboration Agreement for the three months ended
March 31, 2010 and 2009, respectively.
Taribavirin
Taribavirin (formerly referred to as viramidine) is a nucleoside
(guanosine) analog that is converted into ribavirin by adenosine
deaminase in the liver and intestine. Taribavirin was in
development in oral form for the treatment of hepatitis C.
During 2009, we ceased any further independent development work
on taribavirin and we are seeking potential partners for the
taribavirin program.
Dermatology
Products
A number of dermatology product candidates in development were
acquired as part of the acquisition of Dow in December 2008.
These include, but are not limited to:
IDP-107 is an oral treatment for moderate to severe acne
vulgaris. Acne is a disorder of the pilosebaceous unit
characterized by the presence of inflammatory (pimples) and
non-inflammatory (whiteheads and blackheads) lesions,
predominately on the face. Acne vulgaris is a common skin
disorder that affects about 85% of people at some point in their
lives.
IDP-108, a novel triazole compound, is an antifungal targeted to
treat onychomycosis, a fungal infection of the fingernails and
toenails primarily in older adults. The mechanism of antifungal
activity appears similar to other antifungal triazoles, i.e.
ergosterol synthesis inhibition. IDP-108 is a non-lacquer
formulation designed for topical delivery into the nail. We are
currently enrolling patients in a Phase III clinical trial
to evaluate the safety and efficacy of IDP-108.
IDP-113 has the same active pharmaceutical ingredient as
IDP-108. IDP-113 is a topical therapy for the treatment of tinea
capitis, which is a fungal infection of the scalp characterized
by redness, scaling and bald patches, particularly in children.
There are currently no approved topical treatments for this
scalp condition.
IDP-115 combines an established anti-rosacea active ingredient
with sunscreen agents to provide sun protection in the same
topical treatment for rosacea patients. Rosacea is a common
condition treated by dermatologists and characterized by
multiple signs and symptoms including papules, pustules and
erythema, most commonly on the central area of the face.
Foreign
Operations
Approximately 54% and 58% of our consolidated revenues, for the
three months ended March 31, 2010 and 2009, respectively,
were generated from operations or otherwise earned outside the
United States. All of our foreign operations are subject to
risks inherent in conducting business abroad, including price
and currency exchange controls, fluctuations in the relative
values of currencies, political instability and restrictive
governmental actions including possible nationalization or
expropriation. Changes in the relative values of currencies may,
in some instances, materially affect our results of operations.
The effect of these risks remains difficult to predict.
38
Critical
Accounting Policies and Estimates
The condensed consolidated financial statements appearing
elsewhere in this Quarterly Report have been prepared in
conformity with accounting principles generally accepted in the
United States. The preparation of these statements requires us
to 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 periods. On an on-going basis, we evaluate our
estimates, including those related to product returns, alliance
revenue and expense offsets recognized under the GSK
Collaboration Agreement, collectibility of receivables,
inventories, intangible assets, income taxes and contingencies
and litigation. The actual results could differ materially from
those estimates. See Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, in our 2009
Form 10-K
for a discussion of our critical accounting estimates.
Our significant accounting policies are described in Note 1
to the consolidated financial statements included in our 2009
Form 10-K.
There were no new significant accounting estimates in the first
quarter of 2010, nor were there any material changes to the
critical accounting estimates discussed in our 2009
Form 10-K.
Recent
Accounting Standards
Information regarding recent accounting pronouncements is
contained in Note 1 to condensed consolidated financial
statements included elsewhere in this Quarterly Report.
Other
Financial Information
With respect to the unaudited condensed consolidated financial
information of Valeant Pharmaceuticals International for the
three months ended March 31, 2010 and 2009 included in this
Quarterly Report, PricewaterhouseCoopers LLP reported that they
have applied limited procedures in accordance with professional
standards for a review of such information. However, their
separate report dated May 3, 2010, appearing herein states
that they did not audit and they do not express an opinion on
that unaudited condensed consolidated financial information.
Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature
of the review procedures applied. PricewaterhouseCoopers LLP is
not subject to the liability provisions of Section 11 of
the Securities Act of 1933, as amended (the Securities
Act) for their report on the unaudited condensed
consolidated financial information because that report is not a
report or a part of a registration
statement prepared or certified by PricewaterhouseCoopers LLP
within the meaning of Sections 7 and 11 of the Securities
Act.
Forward-Looking
Statements
Except for the historical information contained herein, the
matters addressed in Managements Discussion and
Analysis of Financial Condition and Results of Operations
and elsewhere in this Quarterly Report constitute
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 (the Exchange Act). Forward-looking
statements may be identified by the use of the words
anticipates, expects,
intends, plans, should,
could, would, may,
will, believes, estimates,
potential or continue and variations or
similar expressions. These forward-looking statements are
subject to a variety of risks and uncertainties that could cause
actual results to differ materially from those anticipated by
our management. Factors that might cause or contribute to these
differences include the factors discussed in Part I,
Item 1A, Risk Factors, in our 2009
Form 10-K
for the year ended December 31, 2009, as updated by
Part II, Item 1A, Risk Factors, of our
Quarterly Reports. Readers are cautioned not to place undue
reliance on any of these forward-looking statements, which speak
only as of the date of this report. We undertake no obligation
to update any of these forward-looking statements to reflect
events or circumstances after the date of this report or to
reflect actual outcomes.
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|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Our business and financial results are affected by fluctuations
in world financial markets. We evaluate our exposure to such
risks on an ongoing basis, and seek ways to manage these risks
to an acceptable level, based on
39
managements judgment of the appropriate trade-off between
risk, opportunity and cost. We do not hold any significant
amount of market risk sensitive instruments whose value is
subject to market price risk. Our significant foreign currency
exposure relates to the Polish Zloty, the Mexican Peso, the
Australian Dollar, and the Canadian Dollar. During 2010 and
2009, we entered into various forward foreign currency contracts
to: a) hedge our net investment in our Polish and Brazilian
subsidiaries, b) reduce our exposure to various currencies
as a result of repetitive short-term intercompany investments
and obligations, and c) reduce our exposure to forecasted
Japanese Yen denominated royalty revenue. In the normal course
of business, we also face risks that are either non-financial or
non-quantifiable. Such risks principally include country risk,
credit risk and legal risk and are not discussed or quantified
in the following analysis. At March 31, 2010, the fair
value of our derivatives was (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional/
|
|
Assets (Liabilities)
|
|
|
Contract
|
|
Carrying
|
|
Fair
|
Description
|
|
Amount
|
|
Value
|
|
Value
|
|
Undesignated hedges
|
|
$
|
30,529
|
|
|
$
|
(140
|
)
|
|
$
|
(140
|
)
|
Net investment derivative contracts
|
|
$
|
24,550
|
|
|
$
|
29
|
|
|
$
|
29
|
|
We currently do not hold financial instruments for trading or
speculative purposes. Our financial assets are not subject to
significant interest rate risk due to their short duration. A
100 basis-point increase in interest rates affecting our
financial instruments would not have had a material effect on
our 2010 pretax earnings. In addition, we had
$638.8 million principal amount of fixed rate debt as of
March 31, 2010 that required U.S. Dollar repayment. To
the extent that we require, as a source of debt repayment,
earnings and cash flow from some of our subsidiaries located in
foreign countries, we are subject to risk of changes in the
value of certain currencies relative to the U.S. Dollar.
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|
Item 4.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to provide reasonable assurance that information required to be
disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms and that such information is
accumulated and communicated to our management, including the
chief executive officer and chief financial officer, as
appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls
and procedures, we recognize that any controls and procedures,
no matter how well designed and operated, cannot provide
absolute assurance of achieving the desired control objectives,
and that we necessarily are required to apply our judgment in
evaluating the cost-benefit relationship of possible controls
and procedures. In addition, no evaluation of controls can
provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected.
As of March 31, 2010, we conducted an evaluation of the
effectiveness of the design and operation of our disclosure
controls and procedures (as defined in
Rule 13a-15(e)
under the Exchange Act). This evaluation was carried out under
the supervision and with the participation of our management,
including the chief executive officer and chief financial
officer. Based on this evaluation, our chief executive officer
and chief financial officer have concluded that, as of the end
of the period covered by this report, our disclosure controls
and procedures were effective to provide reasonable assurance
that information we are required to disclose in the reports that
we file or submit under the Exchange Act, is recorded,
processed, summarized and reported within the time periods
specified in the SECs rules and forms relating to us,
including our consolidated subsidiaries, and was accumulated and
communicated to our management, including our chief executive
officer and chief financial officer, as appropriate, to allow
timely decisions regarding required disclosure.
Changes
in Internal Control over Financial Reporting
There has been no change in our internal controls over financial
reporting that occurred during the quarter ended March 31,
2010 that has materially affected, or is reasonably likely to
materially affect, the internal controls over financial
reporting.
40
PART II
OTHER INFORMATION
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|
Item 1.
|
Legal
Proceedings
|
See Note 19, Commitments and Contingencies, of notes to
condensed consolidated financial statements included elsewhere
in this Quarterly Report, which is incorporated herein by
reference.
In addition to the other information contained in this Quarterly
Report on
Form 10-Q,
you should carefully consider the factors discussed in
Part I, Item 1A Risk Factors in our 2009
Form 10-K
in evaluating our business, financial position, future results,
and prospects. The information presented below updates and
supplements those risk factors for events, changes and
developments since the filing of the 2009
Form 10-K
and should be read in conjunction with the risks and other
information contained in the 2009
Form 10-K.
The risks described in our 2009
Form 10-K,
as updated below, are not the only risks we face. Additional
risks that we do not presently know or that we currently believe
are not material could also materially adversely affect our
business, financial position, future results and prospects.
Legislative
or regulatory reform of the healthcare system may affect our
ability to sell our products profitably.
In both the United States and certain foreign jurisdictions,
there have been a number of legislative and regulatory proposals
to change the healthcare system in ways that could impact our
ability to sell our products profitably. On March 23, 2010,
President Obama signed into law the Patient Protection and
Affordable Care Act (PPACA), which includes a number of health
care reform provisions and requires most U.S. citizens to
have health insurance. Effective January 1, 2010, the new
law increases the minimum Medicaid drug rebates for
pharmaceutical companies, expands the 340B drug discount
program, and makes changes to affect the Medicare Part D
coverage gap, or donut hole. The law also revises
the definition of average manufacturer price for
reporting purposes (effective October 1, 2010), which could
increase the amount of our Medicaid drug rebates to states, once
the provision is effective. The new law also imposes a
significant annual fee on companies that manufacture or import
branded prescription drug products (beginning in 2011).
Substantial new provisions affecting compliance also have been
added, which may require us to modify our business practices
with health care practitioners.
The reforms imposed by the new law will significantly impact the
pharmaceutical industry; however, the full effects of PPACA
cannot be known until these provisions are implemented and the
Centers for Medicare & Medicaid Services and other
federal and state agencies issue applicable regulations or
guidance. Moreover, in the coming years, additional changes
could be made to governmental healthcare programs that could
significantly impact the success of our products.
The high cost of pharmaceuticals continues to generate
substantial governmental interest. We expect to experience
pricing pressures in connection with the sale of our products
due to the trend toward managed health care, the increasing
influence of managed care organizations and additional
legislative proposals. Our results of operations could be
adversely affected by current and future health care reforms.
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|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
In October 2008, our board of directors authorized us to
repurchase up to $200.0 million of our outstanding
securities in a
24-month
period ending October 2010, unless earlier terminated or
completed. In May 2009, our board of directors increased the
authorization to $500.0 million, over a period ending in
May 2011. In March 2010, our board of directors further
increased the authorization to $1.0 billion over a period
ending in March 2013. Under the program, purchases of
outstanding senior notes, convertible subordinated notes or
common stock may be made from time to time on the open market,
in privately negotiated transactions, pursuant to tender offers
or otherwise, including pursuant to one or more trading plans,
at times and in amounts as we see appropriate. The amount of
securities to be purchased and the timing of such purchases are
subject to various factors, which may include the price of the
securities, general market conditions, corporate and regulatory
requirements and alternate investment
41
opportunities. The securities repurchase program may be modified
or discontinued at any time. We did not repurchase any
securities during the three months ended March 31, 2010.
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|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation, as amended to date,
previously filed as Exhibit 3.1 to the Registrants
Quarterly Report on Form 10-Q for the quarter ended September
30, 2003 (No. 03995078), which is incorporated herein by
reference.
|
|
3
|
.2
|
|
Certificate of Designation, Preferences and Rights of Series A
Participating Preferred Stock, previously filed as Exhibit 3.1
to the Registrants Current Report on Form 8-K, filed
October 6, 2004 (No. 041068838), which is incorporated herein by
reference.
|
|
3
|
.3
|
|
Amended and Restated Bylaws of the Registrant, previously filed
as Exhibit 3.3 to the Registrants Annual Report on Form
10-K for the year ended December 31, 2009, which is incorporated
herein by reference.
|
|
4
|
.1
|
|
Form of Rights Agreement, dated as of November 2, 1994, between
the Registrant and American Stock Transfer & Trust Company,
as Trustee, previously filed as Exhibit 4.3 to the
Registrants Registration Statement on Form 8-A, filed
November 10, 1994 (No. 94558814), which is incorporated herein
by reference.
|
|
4
|
.2
|
|
Amendment No. 1 to Rights Agreement, dated as of October 5,
2004, previously filed as Exhibit 4.1 to the Registrants
Current Report on Form 8-K, filed October 6, 2004 (No.
041068838), which is incorporated herein by reference.
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|
4
|
.3
|
|
Amendment No. 2 to Rights Agreement, dated as of June 5, 2008,
by and between Valeant Pharmaceuticals International and
American Transfer & Trust Company as Rights Agent,
previously filed as Exhibit 4.3 to the Registrants
Amendment No. 4 to Form 8-A/A, filed June 6, 2008, which is
incorporated herein by reference.
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|
4
|
.4
|
|
Amendment No. 3 to Rights Agreement, dated as of May 15, 2009,
by and between Valeant Pharmaceuticals International and
American Transfer & Trust Company as Rights Agent,
previously filed as Exhibit 4.4 to the Registrants
Amendment No. 5 to Form 8-A/A, filed May 15, 2009, which is
incorporated herein by reference.
|
|
10
|
.1
|
|
Description of Registrants annual incentive plan for
fiscal year 2010, previously described in Item 5.02 of the
Registrants Current Report on Form 8-K, filed January 11,
2010, which is incorporated herein by reference.
|
|
10
|
.2
|
|
Employment Agreement, dated as of March 23, 2010, between J.
Michael Pearson and Valeant Pharmaceuticals International,
previously filed as Exhibit 10.1 to the Registrants
Current Report on Form 8-K, filed March 29, 2010, which is
incorporated herein by reference.
|
|
10
|
.3
|
|
Amendment to Employment Offer Letter, dated as of March 31,
2010, between Bhaskar Chaudhuri and Valeant Pharmaceuticals
International, previously filed as Exhibit 10.1 to the
Registrants Current Report on Form 8-K, filed April 5,
2010, which is incorporated herein by reference.
|
|
10
|
.4
|
|
Amendment to Employment Offer Letter, dated as of March 30,
2010, between Rajiv De Silva and Valeant Pharmaceuticals
International, previously filed as Exhibit 10.2 to the
Registrants Current Report on Form 8-K, filed April 5,
2010, which is incorporated herein by reference.
|
|
10
|
.5
|
|
Amendment to Employment Offer Letter, dated as of March 30,
2010, between Elisa Karlson and Valeant Pharmaceuticals
International, previously filed as Exhibit 10.3 to the
Registrants Current Report on Form 8-K, filed April 5,
2010, which is incorporated herein by reference.
|
|
10
|
.6
|
|
Amendment to Employment Offer Letter, dated as of March 30,
2010, between Steve T. Min and Valeant Pharmaceuticals
International, previously filed as Exhibit 10.4 to the
Registrants Current Report on Form 8-K, filed April 5,
2010, which is incorporated herein by reference.
|
|
10
|
.7
|
|
Exchange and Registration Rights Agreement, dated as of April 9,
2010, by and among the Company, Goldman, Sachs & Co. as
Representative of the several Initial Purchasers named therein
and the Guarantors (as defined therein), relating to the
7.625% Senior Notes due 2020, previously filed as Exhibit
99.1 to the Registrants Current Report on Form 8-K, filed
April 12, 2010, which is incorporated herein by reference.
|
42
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.8
|
|
Indenture, dated as of April 9, 2010, by and among the Company,
the Guarantors named therein and The Bank of New York Mellon
Trust Company, N.A., as Trustee, relating to the
7.625% Senior Notes due 2020, previously filed as Exhibit
99.2 to the Registrants Current Report on Form 8-K, filed
April 12, 2010, which is incorporated herein by reference.
|
|
10
|
.9
|
|
Purchase Agreement, dated as of April 6, 2010, by and among the
Company, the Purchasers named in Schedule I thereto and the
Guarantors (as defined therein), relating to the
7.625% Senior Notes due 2020, previously filed as Exhibit
99.3 to the Registrants Current Report on Form 8-K, filed
April 12, 2010, which is incorporated herein by reference.
|
|
15
|
.1
|
|
Review Report of Independent Registered Public Accounting Firm.
|
|
15
|
.2
|
|
Awareness Letter of Independent Registered Public Accounting
Firm.
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to Rule
13a-14(a) under the Exchange Act and Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to Rule
13a-14(a) under the Exchange Act and Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
|
|
Certification of Chief Executive Officer and Chief Financial
Officer of Periodic Financial Reports pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350.
|
|
|
|
|
|
Management contract or compensatory plan or arrangement. |
43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this Quarterly Report on
Form 10-Q
to be signed on its behalf by the undersigned thereunto duly
authorized.
Valeant Pharmaceuticals
International
Registrant
J. Michael Pearson
Chairman and Chief Executive Officer
Date: May 3, 2010
Peter J. Blott
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 3, 2010
44
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation, as amended to date,
previously filed as Exhibit 3.1 to the Registrants
Quarterly Report on Form 10-Q for the quarter ended September
30, 2003 (No. 03995078), which is incorporated herein by
reference.
|
|
3
|
.2
|
|
Certificate of Designation, Preferences and Rights of Series A
Participating Preferred Stock, previously filed as Exhibit 3.1
to the Registrants Current Report on Form 8-K, filed
October 6, 2004 (No. 041068838), which is incorporated
herein by reference.
|
|
3
|
.3
|
|
Amended and Restated Bylaws of the Registrant, previously filed
as Exhibit 3.3 to the Registrants Annual Report on Form
10-K for the year ended December 31, 2009, which is incorporated
herein by reference.
|
|
4
|
.1
|
|
Form of Rights Agreement, dated as of November 2, 1994, between
the Registrant and American Stock Transfer & Trust Company,
as Trustee, previously filed as Exhibit 4.3 to the
Registrants Registration Statement on Form 8-A, filed
November 10, 1994 (No. 94558814), which is incorporated herein
by reference.
|
|
4
|
.2
|
|
Amendment No. 1 to Rights Agreement, dated as of October 5,
2004, previously filed as Exhibit 4.1 to the Registrants
Current Report on Form 8-K, filed October 6, 2004 (No.
041068838), which is incorporated herein by reference.
|
|
4
|
.3
|
|
Amendment No. 2 to Rights Agreement, dated as of June 5, 2008,
by and between Valeant Pharmaceuticals International and
American Transfer & Trust Company as Rights Agent,
previously filed as Exhibit 4.3 to the Registrants
Amendment No. 4 to Form 8-A/A, filed June 6, 2008, which is
incorporated herein by reference.
|
|
4
|
.4
|
|
Amendment No. 3 to Rights Agreement, dated as of May 15, 2009,
by and between Valeant Pharmaceuticals International and
American Transfer & Trust Company as Rights Agent,
previously filed as Exhibit 4.4 to the Registrants
Amendment No. 5 to Form 8-A/A, filed May 15, 2009, which is
incorporated herein by reference.
|
|
10
|
.1
|
|
Description of Registrants annual incentive plan for
fiscal year 2010, previously described in Item 5.02 of the
Registrants Current Report on Form 8-K, filed January 11,
2010, which is incorporated herein by reference.
|
|
10
|
.2
|
|
Employment Agreement, dated as of March 23, 2010, between J.
Michael Pearson and Valeant Pharmaceuticals International,
previously filed as Exhibit 10.1 to the Registrants
Current Report on Form 8-K, filed March 29, 2010, which is
incorporated herein by reference.
|
|
10
|
.3
|
|
Amendment to Employment Offer Letter, dated as of March 31,
2010, between Bhaskar Chaudhuri and Valeant Pharmaceuticals
International, previously filed as Exhibit 10.1 to the
Registrants Current Report on Form 8-K, filed April 5,
2010, which is incorporated herein by reference.
|
|
10
|
.4
|
|
Amendment to Employment Offer Letter, dated as of March 30,
2010, between Rajiv De Silva and Valeant Pharmaceuticals
International, previously filed as Exhibit 10.2 to the
Registrants Current Report on Form 8-K, filed April 5,
2010, which is incorporated herein by reference.
|
|
10
|
.5
|
|
Amendment to Employment Offer Letter, dated as of March 30,
2010, between Elisa Karlson and Valeant Pharmaceuticals
International, previously filed as Exhibit 10.3 to the
Registrants Current Report on Form 8-K, filed April 5,
2010, which is incorporated herein by reference.
|
|
10
|
.6
|
|
Amendment to Employment Offer Letter, dated as of March 30,
2010, between Steve T. Min and Valeant Pharmaceuticals
International, previously filed as Exhibit 10.4 to the
Registrants Current Report on Form 8-K, filed April 5,
2010, which is incorporated herein by reference.
|
|
10
|
.7
|
|
Exchange and Registration Rights Agreement, dated as of April 9,
2010, by and among the Company, Goldman, Sachs & Co. as
Representative of the several Initial Purchasers named therein
and the Guarantors (as defined therein), relating to the
7.625% Senior Notes due 2020, previously filed as Exhibit
99.1 to the Registrants Current Report on Form 8-K, filed
April 12, 2010, which is incorporated herein by reference.
|
|
10
|
.8
|
|
Indenture, dated as of April 9, 2010, by and among the Company,
the Guarantors named therein and The Bank of New York Mellon
Trust Company, N.A., as Trustee, relating to the
7.625% Senior Notes due 2020, previously filed as Exhibit
99.2 to the Registrants Current Report on Form 8-K, filed
April 12, 2010, which is incorporated herein by reference.
|
45
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.9
|
|
Purchase Agreement, dated as of April 6, 2010, by and among the
Company, the Purchasers named in Schedule I thereto and the
Guarantors (as defined therein), relating to the
7.625% Senior Notes due 2020, previously filed as Exhibit
99.3 to the Registrants Current Report on Form 8-K, filed
April 12, 2010, which is incorporated herein by reference.
|
|
15
|
.1
|
|
Review Report of Independent Registered Public Accounting Firm.
|
|
15
|
.2
|
|
Awareness Letter of Independent Registered Public Accounting
Firm.
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to Rule
13a-14(a) under the Exchange Act and Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to Rule
13a-14(a) under the Exchange Act and Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
|
|
Certification of Chief Executive Officer and Chief Financial
Officer of Periodic Financial Reports pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350.
|
|
|
|
|
|
Management contract or compensatory plan or arrangement. |
46