e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-11397
Valeant Pharmaceuticals International
(Exact name of registrant as specified in its charter)
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Delaware
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33-0628076 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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One Enterprise
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92656 |
Aliso Viejo, California
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(Zip Code) |
(Address of principal executive offices) |
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(949) 461-6000
(Registrants telephone number, including area code)
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):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
The number of shares outstanding of the registrants Common Stock, $0.01 par value, as of May
4, 2009 was 82,187,125
VALEANT PHARMACEUTICALS INTERNATIONAL
INDEX
1
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
VALEANT PHARMACEUTICALS INTERNATIONAL
CONSOLIDATED CONDENSED BALANCE SHEETS
As of March 31, 2009 and December 31, 2008
(unaudited)
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March 31, |
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December 31, |
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2009 |
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2008 |
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( In thousands, except par value data) |
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ASSETS
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Current Assets: |
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Cash and cash
equivalents |
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$ |
139,909 |
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$ |
199,582 |
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Marketable
securities |
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5,930 |
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19,193 |
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Accounts
receivable, net |
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122,172 |
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144,509 |
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Inventories, net |
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70,564 |
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72,972 |
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Prepaid expenses
and other
current assets |
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14,216 |
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17,605 |
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Current deferred
tax assets, net |
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15,425 |
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16,179 |
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Income taxes |
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13,145 |
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Total
current
assets |
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381,361 |
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470,040 |
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Property, plant and
equipment, net |
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84,194 |
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90,228 |
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Deferred tax
assets, net |
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32,431 |
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14,850 |
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Goodwill |
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98,132 |
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114,634 |
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Intangible assets,
net |
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446,095 |
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467,795 |
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Other assets |
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26,673 |
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28,385 |
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Total
non-current
assets |
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687,525 |
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715,892 |
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$ |
1,068,886 |
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$ |
1,185,932 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current Liabilities: |
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Trade payables |
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$ |
29,097 |
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$ |
41,638 |
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Accrued
liabilities |
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196,536 |
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231,451 |
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Notes payable
and current
portion of
long-term debt |
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318 |
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666 |
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Deferred revenue |
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16,616 |
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15,415 |
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Income taxes
payable |
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5,198 |
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2,497 |
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Current deferred
tax liabilities,
net |
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22 |
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52 |
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Current
liabilities for
uncertain tax
positions |
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504 |
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478 |
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Total
current
liabilities |
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248,291 |
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292,197 |
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Long-term debt,
less current
portion |
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340,076 |
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398,136 |
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Deferred revenue |
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9,286 |
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11,841 |
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Deferred tax
liabilities, net |
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3,350 |
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3,206 |
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Liabilities for
uncertain tax
positions |
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53,903 |
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53,425 |
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Other liabilities |
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154,599 |
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175,379 |
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Total
non-current
liabilities |
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561,214 |
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641,987 |
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Total
liabilities |
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809,505 |
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934,184 |
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Commitments and
contingencies
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Stockholders
Equity: |
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Common stock, $0.01 par value; 200,000
shares authorized; 82,185 (March 31, 2009)
and 81,753 (December 31, 2008) shares
outstanding (after deducting shares in
treasury of 18,688 as of March 31,
2009 and December 31, 2008) |
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822 |
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818 |
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Additional
capital |
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1,144,213 |
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1,138,575 |
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Accumulated
deficit |
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(874,589 |
) |
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(905,784 |
) |
Accumulated
other
comprehensive
income |
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(11,083 |
) |
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18,122 |
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Total
Valeant
stockholders
equity |
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259,363 |
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251,732 |
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Noncontrolling
interest |
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18 |
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17 |
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Total
stockholders
equity |
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259,381 |
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251,748 |
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$ |
1,068,886 |
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$ |
1,185,932 |
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The accompanying notes are an integral part of these consolidated condensed financial statements.
2
VALEANT PHARMACEUTICALS INTERNATIONAL
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2009 and 2008
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Three Months Ended |
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March 31, |
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2009 |
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2008 |
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( Unaudited , in thousands, except per share data) |
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Revenues: |
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Product sales |
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$ |
152,833 |
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$ |
139,210 |
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Service revenue |
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6,738 |
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Alliances (including ribavirin royalties) |
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18,352 |
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12,773 |
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Total revenues |
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177,923 |
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151,983 |
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Costs and expenses: |
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Cost of goods sold (excluding amortization) |
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39,697 |
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35,755 |
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Cost of services |
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4,326 |
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Selling, general and administrative |
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64,216 |
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69,439 |
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Research and development costs, net |
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8,735 |
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29,294 |
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Restructuring, asset impairments and dispositions |
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1,211 |
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(13,190 |
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Amortization expense |
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17,004 |
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13,329 |
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Total costs and expenses |
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135,189 |
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134,627 |
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Income from operations |
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42,734 |
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17,356 |
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Other income (expense), net including translation and exchange |
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1,212 |
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(1,531 |
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Gain on early extinguishment of debt |
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4,599 |
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Interest income |
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1,835 |
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4,724 |
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Interest expense |
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(8,013 |
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(13,384 |
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Income from continuing operations before income taxes |
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42,367 |
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7,165 |
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Provision for income taxes |
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11,569 |
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4,659 |
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Income from continuing operations |
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30,798 |
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2,506 |
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Income from discontinued operations, net of tax |
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398 |
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3,293 |
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Net income |
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31,196 |
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5,799 |
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Less: Net income attributable to noncontrolling interest |
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1 |
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2 |
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Net income attributable to Valeant |
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$ |
31,195 |
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$ |
5,797 |
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Basic income per share attributable to Valeant: |
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Income from continuing operations attributable to Valeant |
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$ |
0.37 |
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$ |
0.03 |
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Income from discontinued operations attributable to Valeant |
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0.01 |
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0.03 |
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Net income per share attributable to Valeant |
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$ |
0.38 |
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$ |
0.06 |
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Diluted income per share attributable to Valeant: |
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Income from continuing operations attributable to Valeant |
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$ |
0.37 |
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$ |
0.03 |
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Income from discontinued operations attributable to Valeant |
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0.03 |
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Net income per share attributable to Valeant |
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$ |
0.37 |
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$ |
0.06 |
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Shares used in per share computation Basic |
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82,548 |
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89,590 |
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Shares used in per share computation Diluted |
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83,402 |
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90,212 |
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The accompanying notes are an integral part of these consolidated condensed financial statements.
3
VALEANT PHARMACEUTICALS INTERNATIONAL
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31, 2009 and 2008
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Three Months Ended |
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March 31, |
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2009 |
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2008 |
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(Unaudited, in thousands) |
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Net income |
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$ |
31,196 |
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$ |
5,799 |
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Other comprehensive income (loss): |
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Foreign currency translation adjustments |
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(29,485 |
) |
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53,569 |
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Unrealized gain (loss) on marketable equity
securities |
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(1,874 |
) |
Unrealized gain (loss) on hedges |
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211 |
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(595 |
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Pension liability adjustment |
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69 |
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14 |
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Comprehensive income |
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$ |
1,991 |
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$ |
56,913 |
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The accompanying notes are an integral part of these consolidated condensed financial statements.
4
VALEANT PHARMACEUTICALS INTERNATIONAL
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2009 and 2008
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Three Months Ended |
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March 31, |
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2009 |
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2008 |
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(Unaudited, in thousands) |
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Cash flows from operating activities: |
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Net income |
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$ |
31,196 |
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$ |
5,799 |
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Income from discontinued operations |
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398 |
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3,293 |
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Income from continuing operations |
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30,798 |
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2,506 |
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Adjustments to reconcile income from continuing operations to net
cash provided by
operating activities in continuing operations: |
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Depreciation and amortization |
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20,764 |
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17,795 |
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Provision for losses on accounts receivable and inventory |
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536 |
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5,877 |
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Stock compensation expense |
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4,322 |
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2,372 |
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Translation and exchange (gains) losses, net |
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(1,181 |
) |
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1,532 |
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Impairment charges and other non-cash items |
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5,508 |
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(18,720 |
) |
Payments of
accreted interest on long-term debt and notes payable |
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(13,277 |
) |
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Deferred income taxes |
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(2,201 |
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|
2,001 |
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Gain on extinguishment of debt |
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(4,599 |
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Change in assets and liabilities, net of effects of acquisitions: |
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Accounts receivable |
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15,093 |
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33,789 |
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Inventories |
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(2,918 |
) |
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(6,050 |
) |
Prepaid expenses and other assets |
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3,461 |
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(731 |
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Trade payables and accrued liabilities |
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4,431 |
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|
10,047 |
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Income taxes |
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(9,960 |
) |
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|
244 |
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Other liabilities |
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(12,955 |
) |
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(236 |
) |
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Cash flow from operating activities in continuing operations |
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37,822 |
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|
50,426 |
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Cash flow from operating activities in discontinued operations |
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(2,149 |
) |
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(7,457 |
) |
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Net cash provided by operating activities |
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35,673 |
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42,969 |
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Cash flows from investing activities: |
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Capital expenditures |
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(7,076 |
) |
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(3,631 |
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Proceeds from sale of assets |
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255 |
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289 |
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Proceeds from sale of businesses |
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36,317 |
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Proceeds from investments |
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13,541 |
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35,037 |
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Purchase of investments |
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(802 |
) |
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(500 |
) |
Acquisition of businesses, license rights and product lines |
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(32,211 |
) |
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(504 |
) |
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Cash flow from investing activities in continuing operations |
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(26,293 |
) |
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|
67,008 |
|
Cash flow from investing activities in discontinued operations |
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(10,273 |
) |
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|
69,497 |
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Net cash provided by (used in) investing activities |
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(36,566 |
) |
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136,505 |
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Cash flows from financing activities: |
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|
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Payments on long-term debt and notes payable |
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(52,779 |
) |
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(398 |
) |
Proceeds from capitalized lease financing, long-term debt and notes
payable |
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|
2,006 |
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|
50 |
|
Stock option exercises |
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7,036 |
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Cash flow from financing activities in continuing operations |
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(43,737 |
) |
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|
(348 |
) |
Cash flow from financing activities in discontinued operations |
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|
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Net cash used in financing activities |
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(43,737 |
) |
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(348 |
) |
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|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(15,043 |
) |
|
|
9,606 |
|
|
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|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(59,673 |
) |
|
|
188,732 |
|
Cash and cash equivalents at beginning of period |
|
|
199,582 |
|
|
|
309,365 |
|
|
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|
Cash and cash equivalents at end of period |
|
|
139,909 |
|
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|
498,097 |
|
|
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|
Cash and cash equivalents classified as part of discontinued operations |
|
|
|
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|
(25,992 |
) |
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Cash and cash equivalents of continuing operations |
|
$ |
139,909 |
|
|
$ |
472,105 |
|
|
|
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|
|
The accompanying notes are an integral part of these consolidated condensed financial statements.
5
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2009
(Unaudited)
(all amounts in thousands, except share and per share amounts, unless otherwise indicated)
In the consolidated condensed financial statements included herein, we, us, our,
Valeant and the Company refer to Valeant Pharmaceuticals International and its subsidiaries.
The consolidated condensed financial statements have been prepared by us, without audit, pursuant
to 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 accounting principles generally accepted in the United States of America 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 consolidated condensed 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, 2008. The
year-end condensed balance sheet data was derived from audited financial statements, but does not
include all disclosures required by accounting principles generally accepted in the United States
of America.
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 Schering-Plough Ltd.
(Schering-Plough). As a result of our acquisition of Dow Pharmaceutical Sciences, Inc. (Dow) in
December 2008, beginning in January 2009, we receive royalties from patent protected formulations
developed by Dow and licensed to third parties and revenue from contract research services
performed by Dow.
Principles of Consolidation: The accompanying consolidated financial statements include the
accounts of Valeant Pharmaceuticals International, its wholly owned subsidiaries and its
majority-owned subsidiary in Poland. All significant intercompany account balances and transactions
have been eliminated.
Marketable Securities: Marketable securities include short-term commercial paper, government
agency securities and corporate bonds which, at the time of purchase, have maturities of greater
than three months. Short-term commercial paper and government agency securities are generally
categorized as held-to-maturity and are thus carried at amortized cost, because we have both the
intent and the ability to hold these investments until they mature. As of December 31, 2008,
corporate bonds are categorized as available for sale and are carried at fair value. As of March
31, 2009 and December 31, 2008, the fair value of these marketable securities approximated cost.
Accumulated Other Comprehensive Income: The components of accumulated other comprehensive
income consists of accumulated foreign currency translation adjustments, unrealized losses on
marketable equity securities, pension funded status and changes in the fair value of derivative
instruments.
Discontinued Operations: The results of operations and the related financial position related
to our product rights in Infergen and our business operations located in Western and Eastern
Europe, Middle East and Africa (the WEEMEA business) have been reflected as discontinued
operations in our consolidated financial statements in accordance with the Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 144 Accounting
for the Disposal and Impairment of Long-Lived Assets (SFAS 144) and Emerging Issues Task Force
(EITF) Issue No. 03-13, Applying the Conditions in Paragraph 42 of FASB Statement No. 144 in
Determining Whether to Report Discontinued Operations (EITF 03-13). For more details regarding
our discontinued operations, see Note 4.
Stock-Based Compensation: We adopted SFAS No. 123(R), Share-Based Payment (SFAS 123(R)) on
January 1, 2006. SFAS 123(R) requires companies to recognize compensation expense for the fair
value of all share based incentive programs including employee stock options. In order to estimate
the fair value of stock options
6
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
under the provisions of SFAS 123(R) we use the Black-Scholes option valuation model. Option
valuation models such as Black-Scholes require the input of subjective assumptions which can vary
over time. Additional information about our stock incentive programs and the assumptions used in
determining the fair value of stock options are contained in Note 10.
Income Taxes: Income taxes are calculated in accordance with SFAS No. 109, Accounting for
Income Taxes (SFAS 109). SFAS 109 requires that we recognize deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in our financial
statements or tax returns. A valuation allowance is established to reduce our deferred tax assets
to the amount expected to be realized when, in managements opinion, it is more likely than not,
that some portion of the deferred tax asset will not be realized. In estimating the future tax
consequences of any transaction, we consider all expected future events under presently existing
tax laws and rates.
Derivative Financial Instruments: We account for derivative financial instruments based on
whether they meet our criteria for designation as hedging transactions, either as cash flow, net
investment or fair value hedges. Our derivative instruments are recorded at fair value and are
included in other assets or accrued liabilities. Depending on the nature of the hedge, changes in
the fair value of a hedged item are either offset against the change in the fair value of the
hedged item through earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings.
Per Share Information: We compute basic earnings per share by dividing income or loss
available to common stockholders attributable to Valeant by the weighted-average number of common
shares outstanding. We compute diluted earnings per share by adjusting the weighted-average number
of common shares outstanding to reflect the effect of potentially dilutive securities including
options, warrants, and convertible debt or preferred stock. We adjust income available to common
stockholders attributable to Valeant in these computations to reflect any changes in income or loss
attributable to Valeant that would result from the issuance of the dilutive common shares.
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 Pronouncements:
We adopted SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements-an
amendment of ARB No. 51 (SFAS 160), effective January 1, 2009. The adoption of SFAS 160 did not
have a material impact on our consolidated financial statements. SFAS 160 establishes accounting
and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation
of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as a separate component of equity in
the consolidated financial statements. In addition, SFAS 160 changes the way the consolidated
statement of operations is presented and requires consolidated net income to be reported at amounts
that include the amount attributable to both Valeant and the noncontrolling interest.
In February 2008, the FASB issued Staff Position FAS 157-2, Effective Date of FASB Statement
No. 157 (FSP FAS 157-2), which delayed the effective date of the FASB Statement of Financial
Accounting Standards No. 157, Fair Value Measurements (SFAS 157), for certain nonfinancial assets
and nonfinancial liabilities until interim periods for fiscal years beginning after November 15,
2008. SFAS 157 changed the underlying methodology of determining fair value when fair value
measurements are required in accounting principles generally accepted in the United States. SFAS
157 also expanded the disclosure requirements about fair value measurements. The adoption of FSP
FAS 157-2 did not have a material impact on our financial position, cash flows or results of
operations.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
141(R)). SFAS 141(R) establishes principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the acquiree. SFAS 141(R) also provides
guidance for recognizing and measuring goodwill acquired in the business combination and determines
what information to disclose to enable users of the financial statements to evaluate the
7
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
nature and
financial effects of the business combination. Among other requirements, SFAS 141(R) expands the
definition of a business combination, requires acquisitions to be accounted for at fair value,
and requires transaction costs and restructuring charges to be expensed. SFAS 141(R) is effective
for fiscal years beginning on or after December 15, 2008. SFAS 141(R) requires that any reduction
to a tax valuation allowance established in purchase accounting that does not qualify as a
measurement period adjustment will be accounted for as a reduction to income tax expense, rather
than a reduction of goodwill. We adopted SFAS 141(R) as of January 1, 2009. The adoption did not
have a material effect on our consolidated financial statements. SFAS 141(R) is required to be
adopted concurrently with SFAS 160.
In December 2007, the FASB ratified the consensus reached by the EITF in EITF Issue No. 07-1,
Accounting for Collaborative Arrangements (EITF 07-1). EITF 07-1 defines collaborative
arrangements and establishes reporting requirements for transactions between participants in a
collaborative arrangement and between participants in the arrangement and third parties. EITF 07-1
also establishes the appropriate income statement presentation and classification for joint
operating activities and payments between participants, as well as the sufficiency of the
disclosures related to these arrangements. EITF 07-1 is effective for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Retrospective application to all
prior periods presented is required for all collaborative arrangements existing as of the effective
date. We adopted EITF 07-1 on January 1, 2009. The adoption of EITF 07-1 did not have a material
impact on our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 requires
enhanced disclosures about an entitys derivative and hedging activities, including (i) how and why
an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are
accounted for under SFAS 133, and (iii) how derivative instruments and related hedged items affect
an entitys financial position, financial performance and cash flows. We adopted SFAS 161 on
January 1, 2009. The adoption of SFAS 161 did not have a material impact on our consolidated
financial statements.
In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, Determination of the Useful
Life of Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets,
(SFAS 142) in order to improve the consistency between the useful life of a recognized intangible
asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the
asset under SFAS 141(R). We adopted FSP FAS 142-3 on January 1, 2009. The adoption of FSP FAS 142-3
did not have a material effect on our consolidated financial statements.
In May 2008, the FASB issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP
APB 14-1). FSP APB 14-1 requires the liability and equity components of convertible debt
instruments that may be settled in cash upon conversion (including partial cash settlement) to be
separately accounted for in a manner that reflects the issuers nonconvertible debt borrowing rate.
FSP APB 14-1 requires bifurcation of a component of the debt instruments, classification of that
component in equity and the accretion of the resulting discount on the debt to be recognized as
interest expense.
We adopted FSP APB 14-1 on January 1, 2009. The guidance in FSP APB 14-1 was applied
retrospectively to all periods presented. FSP APB 14-1 is effective for our 3.0% Convertible
Subordinated Notes (the 3.0% Notes) and our 4.0% Convertible Subordinated Notes (the 4.0%
Notes) issued in 2003, each of which had principal amounts of $240.0 million. See Note 8 for
additional information regarding our implementation of FSP APB 14-1.
Retrospective application is the application of a different accounting principle to prior
accounting periods as if that principle had always been used. More specifically, retrospective
application involves the following:
|
|
|
Financial statements for each individual prior period presented shall be adjusted to
reflect the period-specific effects of applying the new accounting principle. |
|
|
|
|
The cumulative effect of the change on periods prior to those presented shall be
reflected in the carrying amount of assets and liabilities as of the beginning of the
first period presented. |
|
|
|
|
An offsetting adjustment, if any, shall be made to the opening balance of retained
earnings for that period. |
8
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
The following table sets forth the effect of the retrospective application of FSP APB 14-1 on
certain financial statement line items previously reported:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, 2008 |
|
|
As |
|
|
|
|
Originally |
|
|
|
|
Reported |
|
|
|
|
And |
|
|
|
|
Adjusted For |
|
|
|
|
Discontinued |
|
As |
|
|
Operations |
|
Adjusted |
Interest expense |
|
$ |
9,730 |
|
|
$ |
13,384 |
|
Income from continuing operations |
|
|
6,160 |
|
|
|
2,506 |
|
Net income attributable to Valeant |
|
|
9,450 |
|
|
|
5,797 |
|
|
|
|
|
|
|
|
|
|
Basic income per share: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.07 |
|
|
$ |
0.03 |
|
Net income attributable to Valeant |
|
|
0.11 |
|
|
|
0.06 |
|
|
|
|
|
|
|
|
|
|
Diluted income per share: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.07 |
|
|
$ |
0.03 |
|
Net income attributable to Valeant |
|
|
0.10 |
|
|
|
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
December 31, 2008 |
|
|
Originally |
|
As |
|
|
Reported |
|
Adjusted |
Other assets |
|
$ |
29,805 |
|
|
$ |
28,385 |
|
Long-term debt, less current portion |
|
|
447,862 |
|
|
|
398,136 |
|
Additional capital (1) |
|
|
1,067,758 |
|
|
|
1,138,575 |
|
Accumulated deficit (1) |
|
|
(883,273 |
) |
|
|
(905,784 |
) |
|
|
|
(1) |
|
The as adjusted balance includes $0.8 million related to tax deductions for restricted
stock. |
In April 2009, the FASB issued Staff Position No. FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2), which provides new guidance on
the recognition of other-than-temporary impairments of investments in debt securities and provides
new presentation and disclosure requirements for other-than-temporary impairments of investments in
debt and equity securities. FSP FAS 115-2 is effective for our quarter ending June 30, 2009. We are
currently evaluating the requirements of this pronouncement and have not determined the impact, if
any, that adoption will have on our consolidated financial statements.
In April 2009, the FASB issued Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures
about Fair Value of Financial Instruments (FSP FAS 107-1). FSP FAS 107-1 amends SFAS No. 107,
Disclosures about Fair Value of Financial Instruments (SFAS 107) to require disclosures about
fair value of financial instruments in interim reporting periods. Such disclosures were previously
required only in annual financial statements. FSP FAS 107-1 is effective for our quarter ending
June 30, 2009. Because FSP FAS 107-1 applies only to financial statement disclosures, the adoption
will not have a material effect on our consolidated financial statements.
2. Restructuring
Our restructuring charges include severance costs, contract cancellation costs, the
abandonment of capitalized assets, the impairment of manufacturing facilities, and other associated
costs, including legal and professional fees.
9
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
We have accounted for statutory and contractual
severance obligations when they are estimable and probable, pursuant to SFAS No. 112, Employers
Accounting for Postemployment Benefits. For one-time severance arrangements, we have applied the
methodology defined in SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities (SFAS 146). Pursuant to these requirements, these benefits are detailed in an approved
severance plan, which is specific as to number, position, location and timing. In addition, the
benefits are communicated in specific detail to affected employees and it is unlikely that the plan
will change when the costs are recorded. If service requirements exceed a minimum retention period,
the costs are spread over the service period; otherwise they are recognized when they are
communicated to the employees. Contract cancellation costs are recorded in accordance with SFAS
146. We have followed the requirements of SFAS No. 144, Accounting for the Impairment or Disposal
of Long-lived Assets (SFAS 144), in recognizing the abandonment of capitalized assets and the
impairment of manufacturing facilities. For a further description of the accounting for impairment
of long-lived assets under SFAS 144, see Note 1, Organization and Summary of Significant Accounting
Policies, in our annual report on Form 10-K for the year ended December 31, 2008. Other associated
costs, such as legal and professional fees, have been expensed as incurred, pursuant to SFAS 146.
2008 Restructuring
In October 2007, our board of directors initiated a strategic review of our business
direction, geographic operations, product portfolio, growth opportunities and acquisition strategy.
In March 2008, we completed this strategic review and announced a strategic plan designed to
streamline our business, align our infrastructure to the scale of our operations, maximize our
pipeline assets and deploy our cash assets to maximize shareholder value. The strategic plan
included a restructuring program (the 2008 Restructuring), which reduced 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 (Poland, Hungary, the Czech Republic and Slovakia) and Latin America (Mexico and Brazil).
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 2007, we signed an agreement with Invida Pharmaceutical Holdings Pte. Ltd.
(Invida) to sell to Invida certain assets in Asia in a transaction that included certain of our
subsidiaries, branch offices and commercial rights in Singapore, the Philippines, Thailand,
Indonesia, Vietnam, Taiwan, Korea, China, Hong Kong, Malaysia and Macau. This transaction also
included the sale of certain product rights in Japan. We closed this transaction in March 2008.
During the three months ended March 31, 2008, we received initial proceeds of $37.9 million and
recorded a gain of $36.9 million in this transaction. During the nine months ended December 31,
2008, we recorded $2.4 million of net asset adjustments and additional closing costs resulting in a
reduced gain of $34.5 million on the transaction. During the three months ended March 31, 2009, we
received substantially all of the remaining additional proceeds of $3.4 million from the sale.
As of March 31, 2008, we classified our subsidiaries in Argentina and Uruguay as held for
sale in accordance with SFAS 144. In the three months ended March 31, 2008, we recorded an
impairment charge of $7.9 million related to this anticipated sale. We sold these subsidiaries in
June 2008 and recorded a loss on the sale of $2.6 million, in addition to the $7.9 million
impairment charge.
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 restructuring charge of $3.8 million
for the year ended December 31, 2008. The charge consisted of a lease termination penalty of $3.2
million, which will be payable in October 2011, and $0.6 million for certain fixed assets.
The net restructuring, asset impairments and dispositions charge of $1.2 million in the three
months ended March 31, 2009 included $0.9 million of severance charges for a total of 22 affected
employees (414 employees cumulatively). The charge also included $0.3 million of contract
termination costs and other cash costs.
10
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
The following table summarizes the restructuring costs recorded in the three months ended
March 31, 2009:
2008 Restructuring
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
Severance costs (22 employees) |
|
$ |
928 |
|
Contract cancellation costs, legal and professional fees and other associated costs |
|
|
255 |
|
|
|
|
|
Subtotal: cash charges |
|
|
1,183 |
|
Non-cash charges |
|
|
28 |
|
|
|
|
|
Restructurings, asset impairments and dispositions |
|
$ |
1,211 |
|
|
|
|
|
The net restructuring, asset impairments and dispositions gain of $13.2 million in the three
months ended March 31, 2008 included $6.2 million of severance charges for a total of 15 affected
employees (18 employees cumulatively). The severance charges were primarily for our former chief
executive officer and six other executives. The charge also included $4.8 million stock
compensation charges for the accelerated vesting of the stock options and restricted stock units of
our former chief executive officer. The charge included $4.9 million of professional services,
contract cancellation and other costs. We also recorded an impairment charge of $7.9 million
related to our planned sale of our subsidiaries in Argentina and Uruguay and a gain of $36.9
million on our transaction with Invida.
The following table summarizes the restructuring costs and gains recorded in the three months
ended March 31, 2008:
2008
Restructuring
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
Severance costs (15 employees) |
|
$ |
6,215 |
|
Contract cancellation costs, legal and professional fees and other associated costs |
|
|
4,886 |
|
|
|
|
|
Subtotal: cash charges |
|
|
11,101 |
|
Stock compensation |
|
|
4,778 |
|
Impairment of long-lived assets |
|
|
7,853 |
|
|
|
|
|
Subtotal: restructuring expenses |
|
|
23,732 |
|
Gain on Invida transaction |
|
|
(36,922 |
) |
|
|
|
|
Restructurings, asset impairments and dispositions |
|
$ |
(13,190 |
) |
|
|
|
|
Reconciliation of Cash Restructuring Payments with Restructuring Accrual
As of March 31, 2009, the restructuring accrual of $8.4 million includes $8.2 million related
to the 2008 restructuring plan for severance costs, lease termination penalty costs, contract
cancellation costs, legal and professional fees and other associated costs expected to be paid
primarily during the remainder of 2009, except for the lease termination penalty which will be paid
in 2011. The restructuring accrual also includes $0.2 million related to the 2006 restructuring
plan for ongoing contractual payments to Legacy Pharmaceuticals International relating to the sale
of our former site in Puerto Rico which will be paid by June 2009. A summary of accruals and
expenditures of restructuring costs which will be paid in cash is as follows:
2008 and 2006 Restructuring: Reconciliation of Cash Payments and Accruals
|
|
|
|
|
Restructuring accrual, December 31, 2008 |
|
$ |
10,926 |
|
Charges to earnings |
|
|
1,183 |
|
Cash paid |
|
|
(3,705 |
) |
|
|
|
|
Restructuring accrual, March 31, 2009 |
|
$ |
8,404 |
|
|
|
|
|
11
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
3. Acquisitions and Collaboration Agreement
Dow Acquisition
On December 31, 2008, we completed the purchase of all of the outstanding common stock of Dow,
a privately held healthcare company that provides biopharmaceutical development services primarily
in the United States.
We acquired Dow for an agreed price of $285.0 million, subject to certain closing adjustments,
plus transaction costs. Pursuant to the terms of the acquisition, by June 30, 2009, we are required
to pay $35.0 million into an escrow account for the benefit of the Dow common stockholders, subject
to any indemnification claims made by us for a period of eighteen months following the acquisition
closing. We have granted a security interest to the Dow common stockholders in certain royalties to
be paid to us until we satisfy our obligation to fund the $35.0 million escrow account. During the
three months March 31, 2009, we paid $21.0 million into the escrow account.
The accounting treatment for the Dow acquisition requires the recognition of an additional
$86.6 million of conditional purchase consideration because the fair value of the net assets
acquired exceeded the total amount of the acquisition price. Contingent consideration of up to
$235.0 million may be incurred for future milestones related to certain pipeline products still in
development. Over 85% of this contingent consideration is dependent upon the achievement of
approval and commercial targets. Future contingent consideration paid in excess of the $86.6
million will be treated as an additional cost of the acquisition and result in the recognition of
goodwill.
During the three months ended March 31, 2009, we completed our evaluation of the fair value of
assets acquired or liabilities assumed. The conditional purchase consideration was reduced from
$95.9 million recorded as of December 31, 2008 to $86.6 million as of March 31, 2009, due to the
reduction in the fair value of the intangible assets acquired from the preliminary appraisal,
reduction in deferred tax assets and other closing adjustments.
The acquired intangible assets consisted of outlicensed technology, customer relationships and
developed formulations. Developed formulations include Dows U.S. Food and Drug Administration
(FDA) approved product, Acanya, a topical treatment for acne which was launched in the first
quarter of 2009. Outlicensed technology has been licensed to third parties and will generate future
royalty revenue. Customer relationships are from Dows contract research services. The
weighted-average amortization period for such intangible assets acquired is outlined in the table
below:
|
|
|
|
|
|
|
|
|
|
|
Value of |
|
|
|
|
|
|
Intangible |
|
|
Weighted-Average |
|
|
|
Assets |
|
|
Amortization |
|
|
|
Acquired |
|
|
Period |
|
Developed formulations |
|
$ |
104,500 |
|
|
6.1 years |
Outlicensed technology |
|
|
70,000 |
|
|
9.5 years |
Customer relationships |
|
|
6,600 |
|
|
7.0 years |
|
|
|
|
|
|
|
|
Total identifiable intangible assets |
|
$ |
181,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Coria Acquisition
In October 2008, we completed our purchase of all of the common stock of Coria Laboratories,
Ltd. (Coria) for a purchase price of $96.9 million. The excess of the purchase price over the
fair value of the net assets acquired was allocated to goodwill. The goodwill is not deductible for
tax purposes. In conjunction with the acquisition, we acquired intangible assets for developed
technology of $74.9 million, including $42.7 million for CeraVe. During the three months ended
March 31, 2009, we revised the estimated useful life for the acquired intangible asset for CeraVe
from an indefinite life to 30 years. We recorded amortization of $0.7 million for the CeraVe
intangible asset in the three months ended March 31, 2009, as a result of the change in estimate.
In conjunction with the change in the useful life of the intangible asset for CeraVe, we recorded a
reduction of $16.7 million to the acquired goodwill and deferred tax liabilities, net.
12
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
The weighted-average amortization period for the acquired intangible assets, including the
change in estimated life for CeraVe, is presented below:
|
|
|
|
|
|
|
|
|
|
|
Value of |
|
|
|
|
|
|
Intangible |
|
|
Weighted-Average |
|
|
|
Assets |
|
|
Amortization |
|
|
|
Acquired |
|
|
Period |
|
Developed technology |
|
$ |
74,900 |
|
|
19.8 years |
|
|
|
|
|
|
|
|
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 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. To the
extent that our expected development and pre-commercialization expenses under the Collaboration
Agreement are less than $100.0 million, the difference will be recognized as alliance revenue over
the period prior to the launch of a retigabine product (the Pre-Launch Period). We will 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 mid to
late 2010.
GSK has the right to terminate the Collaboration Agreement at any time prior to the receipt of
the approval by the 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. 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 $40.0
million through March 31, 2010, with additional reductions in the amount of the required refund
over the time the Collaboration Agreement is in effect. During the three months ended March 31,
2009, the combined research and development expenses and pre-commercialization expenses incurred
under the Collaboration Agreement by us and GSK were $13.4 million as outlined in the table below.
We recorded a credit of $1.4 million against our share of the expenses to equalize our expenses
with GSK, pursuant to the terms of the Collaboration Agreement.
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
Valeant research and development costs |
|
$ |
7,947 |
|
Valeant selling, general and administrative |
|
|
149 |
|
|
|
|
|
|
|
|
8,096 |
|
|
|
|
|
|
GSK expenses |
|
|
5,303 |
|
|
|
|
|
Total spending for Collaboration Agreement |
|
$ |
13,399 |
|
|
|
|
|
|
|
|
|
|
Equalization (difference between individual partner costs and 50% of total) |
|
$ |
1,397 |
|
|
|
|
|
13
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED 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
following period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
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 prior quarter |
|
|
(10,909 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Incurred cost in current quarter |
|
|
|
|
|
|
|
|
|
|
149 |
|
|
|
7,947 |
|
Incurred cost offset |
|
|
(6,699 |
) |
|
|
|
|
|
|
(387 |
) |
|
|
(6,312 |
) |
Recognize alliance revenue |
|
|
(3,318 |
) |
|
|
(3,318 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release from upfront payment |
|
|
(10,017 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining upfront payment from GSK |
|
$ |
104,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equalization receivable from GSK |
|
|
1,397 |
|
|
|
|
|
|
|
238 |
|
|
|
(1,635 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equalization receivable from GSK |
|
$ |
1,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense and revenue |
|
|
|
|
|
$ |
(3,318 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
$ |
40,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
40,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue short-term |
|
|
13,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue long-term |
|
|
9,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining upfront payment from GSK |
|
$ |
104,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total combined expenses by us and GSK for the Collaboration Agreement to date through March
31, 2009 were $26.5 million.
4. Discontinued Operations
In September 2008, we sold our business operations located in WEEMEA 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. Excluded from this transaction are our
Central European operations, defined as the business in Poland, Hungary, the Czech Republic and
Slovakia. Under the terms of the agreement, we received initial cash proceeds of $428.4 million,
which was reduced by $11.8 million and paid to Meda in January 2009, based upon the estimated
levels of cash, indebtedness and working capital as of the closing date. We recorded a net gain on
this sale of $158.9 million after deducting the carrying value of the net assets sold,
transaction-related expenses and income taxes. During the three months ended March 31, 2009, we
recorded an additional gain on this sale of $0.5 million.
In January 2008, we sold our Infergen product rights to Three Rivers Pharmaceuticals, LLC. We
received $70.8 million as the initial payment for our Infergen product rights, with additional
payments due of up to $20.5 million. We recorded a net gain in this transaction of $39.4 million
after deducting the carrying value of the net assets sold from the proceeds received.
As a result of these dispositions, the results of the WEEMEA business and the Infergen
operations have been reflected as discontinued operations in our consolidated condensed statement
of operations for the three months ended March 31, 2008, in accordance with SFAS 144 and EITF
03-13.
14
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
Summarized selected financial information for discontinued operations for the three months
ended March 31, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
WEEMEA Business: |
|
|
|
|
|
|
|
|
Product sales |
|
$ |
|
|
|
$ |
42,703 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization) |
|
|
|
|
|
|
19,135 |
|
Selling, general and administrative |
|
|
|
|
|
|
20,457 |
|
Research and development costs, net |
|
|
|
|
|
|
98 |
|
Restructuring, asset impairments and dispositions |
|
|
|
|
|
|
526 |
|
Amortization expense |
|
|
|
|
|
|
4,736 |
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
|
|
|
|
44,952 |
|
|
|
|
|
|
|
|
Other expense |
|
|
|
|
|
|
(1,488 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before income taxes, WEEMEA |
|
|
|
|
|
|
(3,737 |
) |
|
|
|
|
|
|
|
|
|
Infergen: |
|
|
|
|
|
|
|
|
Product sales |
|
|
|
|
|
|
1,050 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization) |
|
|
|
|
|
|
2,076 |
|
Selling, general and administrative |
|
|
|
|
|
|
1,365 |
|
Research and development costs, net |
|
|
|
|
|
|
9,684 |
|
Amortization expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
|
|
|
|
13,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, Infergen |
|
|
|
|
|
|
(12,075 |
) |
|
|
|
|
|
|
|
|
|
Other discontinued operations: |
|
|
|
|
|
|
|
|
Other expense |
|
|
(120 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated discontinued operations: |
|
|
|
|
|
|
|
|
Loss from discontinued operations before income taxes |
|
|
(120 |
) |
|
|
(15,812 |
) |
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
4,291 |
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
(120 |
) |
|
|
(20,103 |
) |
Disposal of discontinued operations, net |
|
|
518 |
|
|
|
23,396 |
|
|
|
|
|
|
|
|
Income from discontinued operations, net |
|
$ |
398 |
|
|
$ |
3,293 |
|
|
|
|
|
|
|
|
15
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
5. Fair Value Measurements
SFAS 157 defines fair value, establishes a consistent framework for measuring fair value and
expands disclosure requirements for each major asset and liability category measured at fair value
on either a recurring or nonrecurring basis. SFAS 157 clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants. As such, fair value is a market-based
measurement that should be determined based on assumptions that market participants would use in
pricing an asset or liability. SFAS 157 requires us to use valuation techniques to measure fair
value that maximize the use of observable inputs and minimize the use of unobservable inputs. These
inputs are prioritized as follows:
Level 1 Quoted market prices in active markets for identical assets or liabilities.
Level 2 Inputs, other than quoted prices in active markets, that are observable, either
directly or indirectly.
Level 3 Unobservable inputs that are not corroborated by market data.
The following table provides the assets and liabilities carried at fair value measured on a
recurring basis as of March 31, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (Liabilities) |
|
Assets (Liabilities) |
|
|
March 31, 2009 |
|
December 31, 2008 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
|
|
|
Available-for-sale securities |
|
$ |
1,445 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6,646 |
|
|
$ |
|
|
|
$ |
|
|
Undesignated hedges |
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
157 |
|
|
|
|
|
Net investment derivative contracts |
|
|
|
|
|
|
(121 |
) |
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
Cash flow derivative contracts |
|
|
|
|
|
|
211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities are measured at fair value using quoted market prices and are
classified within Level 1 of the valuation hierarchy and consist of an investment in a publicly
traded investment fund, which is included in other assets, which is carried at fair value. During
the three months ended March 31, 2009, we recorded in selling, general and administrative expenses
an other than temporary impairment charge of $1.5 million due to sustained declines in the value of
the publicly traded investment fund. Available-for-sale securities as of December 31, 2008, consist
of corporate bonds classified as marketable securities and an investment in a publicly traded
investment fund, which is included in other assets, carried at fair value of $3.3 million and $3.3
million, respectively.
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. SFAS 157 states that 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.
16
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
6. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share for the
three months ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Income: |
|
|
|
|
|
|
|
|
Numerator for basic and diluted earnings per share attributable to Valeant: |
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Valeant |
|
$ |
30,797 |
|
|
$ |
2,504 |
|
Income from discontinued operations |
|
|
398 |
|
|
|
3,293 |
|
|
|
|
|
|
|
|
Net income attributable to Valeant |
|
$ |
31,195 |
|
|
$ |
5,797 |
|
|
|
|
|
|
|
|
Shares: |
|
|
|
|
|
|
|
|
Denominator for basic earnings per share attributable to Valeant: |
|
|
|
|
|
|
|
|
Weighted shares outstanding |
|
|
82,104 |
|
|
|
89,286 |
|
Vested stock equivalents (not issued) |
|
|
444 |
|
|
|
304 |
|
|
|
|
|
|
|
|
Denominator for basic earnings per share attributable to Valeant |
|
|
82,548 |
|
|
|
89,590 |
|
Denominator for diluted earnings per share attributable to Valeant: |
|
|
|
|
|
|
|
|
Employee stock options |
|
|
546 |
|
|
|
480 |
|
Other dilutive securities |
|
|
308 |
|
|
|
142 |
|
|
|
|
|
|
|
|
Dilutive potential common shares |
|
|
854 |
|
|
|
622 |
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share attributable to Valeant |
|
|
83,402 |
|
|
|
90,212 |
|
|
|
|
|
|
|
|
Basic income per share attributable to Valeant: |
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Valeant |
|
$ |
0.37 |
|
|
$ |
0.03 |
|
Income from discontinued operations |
|
|
0.01 |
|
|
|
0.03 |
|
|
|
|
|
|
|
|
Net income per share attributable to Valeant |
|
$ |
0.38 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
Diluted income per share attributable to Valeant: |
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Valeant |
|
$ |
0.37 |
|
|
$ |
0.03 |
|
Income from discontinued operations |
|
|
|
|
|
|
0.03 |
|
|
|
|
|
|
|
|
Net income per share attributable to Valeant |
|
$ |
0.37 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
The 3.0% Convertible Subordinated Notes due 2010 and the 4.0% Convertible Subordinated Notes
due 2013, discussed in Note 8, 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 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 and 2008.
For the three months ended March 31, 2009 and 2008, options to purchase 2,059,564 and
9,181,797 weighted average shares of common stock, respectively, were also not included in the
computation of earnings per share because the option exercise prices were greater than the average
market price of our common stock and, therefore, the effect would have been anti-dilutive.
17
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
7. Detail of Certain Accounts
The following tables present the details of certain amounts included in our consolidated
balance sheet as of March 31, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Accounts receivable, net: |
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
$ |
90,094 |
|
|
$ |
93,796 |
|
Royalties receivable |
|
|
15,004 |
|
|
|
21,774 |
|
Other receivables |
|
|
20,280 |
|
|
|
33,038 |
|
|
|
|
|
|
|
|
|
|
|
125,378 |
|
|
|
148,608 |
|
Allowance for doubtful accounts |
|
|
(3,206 |
) |
|
|
(4,099 |
) |
|
|
|
|
|
|
|
|
|
$ |
122,172 |
|
|
$ |
144,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net: |
|
|
|
|
|
|
|
|
Raw materials and supplies |
|
$ |
18,645 |
|
|
$ |
16,742 |
|
Work-in-process |
|
|
10,303 |
|
|
|
8,506 |
|
Finished goods |
|
|
53,046 |
|
|
|
61,641 |
|
|
|
|
|
|
|
|
|
|
|
81,994 |
|
|
|
86,889 |
|
Allowance for inventory obsolescence |
|
|
(11,430 |
) |
|
|
(13,917 |
) |
|
|
|
|
|
|
|
|
|
$ |
70,564 |
|
|
$ |
72,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net: |
|
|
|
|
|
|
|
|
Property, plant and equipment, at cost |
|
$ |
166,853 |
|
|
$ |
178,156 |
|
Accumulated depreciation and amortization |
|
|
(82,659 |
) |
|
|
(87,928 |
) |
|
|
|
|
|
|
|
|
|
$ |
84,194 |
|
|
$ |
90,228 |
|
|
|
|
|
|
|
|
Intangible assets: As of March 31, 2009 and December 31, 2008, the components of intangible
assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
|
|
Average |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
|
Lives (years) |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
Product rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neurology |
|
|
12 |
|
|
$ |
276,015 |
|
|
$ |
(153,677 |
) |
|
$ |
122,338 |
|
|
$ |
276,229 |
|
|
$ |
(147,745 |
) |
|
$ |
128,484 |
|
Dermatology |
|
|
13 |
|
|
|
275,025 |
|
|
|
(62,337 |
) |
|
|
212,688 |
|
|
|
275,032 |
|
|
|
(54,906 |
) |
|
|
220,126 |
|
Other |
|
|
15 |
|
|
|
69,962 |
|
|
|
(41,215 |
) |
|
|
28,747 |
|
|
|
72,956 |
|
|
|
(41,970 |
) |
|
|
30,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product rights |
|
|
13 |
|
|
|
621,002 |
|
|
|
(257,229 |
) |
|
|
363,773 |
|
|
|
624,217 |
|
|
|
(244,621 |
) |
|
|
379,596 |
|
Outlicensed technology |
|
|
10 |
|
|
|
70,000 |
|
|
|
(1,907 |
) |
|
|
68,093 |
|
|
|
74,000 |
|
|
|
|
|
|
|
74,000 |
|
Customer relationships |
|
|
8 |
|
|
|
8,832 |
|
|
|
(494 |
) |
|
|
8,338 |
|
|
|
8,242 |
|
|
|
(30 |
) |
|
|
8,212 |
|
Trade names |
|
Indefinite |
|
|
5,891 |
|
|
|
|
|
|
|
5,891 |
|
|
|
5,987 |
|
|
|
|
|
|
|
5,987 |
|
License agreement |
|
|
5 |
|
|
|
67,376 |
|
|
|
(67,376 |
) |
|
|
|
|
|
|
67,376 |
|
|
|
(67,376 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
|
|
|
|
$ |
773,101 |
|
|
$ |
(327,006 |
) |
|
$ |
446,095 |
|
|
$ |
779,822 |
|
|
$ |
(312,027 |
) |
|
$ |
467,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
Future amortization of intangible assets at March 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled Future Amortization Expense |
|
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
Thereafter |
|
|
Total |
|
|
|
|
Product rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neurology |
|
$ |
18,650 |
|
|
$ |
24,276 |
|
|
$ |
18,947 |
|
|
$ |
17,859 |
|
|
$ |
16,818 |
|
|
$ |
25,787 |
|
|
$ |
122,337 |
|
Dermatology |
|
|
21,397 |
|
|
|
28,525 |
|
|
|
28,525 |
|
|
|
28,525 |
|
|
|
26,902 |
|
|
|
76,016 |
|
|
|
209,890 |
|
Other |
|
|
3,047 |
|
|
|
4,170 |
|
|
|
4,417 |
|
|
|
4,345 |
|
|
|
4,245 |
|
|
|
8,522 |
|
|
|
28,746 |
|
Outlicensed technology |
|
|
5,720 |
|
|
|
7,626 |
|
|
|
7,626 |
|
|
|
7,081 |
|
|
|
7,081 |
|
|
|
29,918 |
|
|
|
65,052 |
|
Customer relationships |
|
|
1,404 |
|
|
|
1,634 |
|
|
|
1,399 |
|
|
|
1,163 |
|
|
|
927 |
|
|
|
1,810 |
|
|
|
8,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
50,218 |
|
|
$ |
66,231 |
|
|
$ |
60,914 |
|
|
$ |
58,973 |
|
|
$ |
55,973 |
|
|
$ |
142,053 |
|
|
$ |
434,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the three months ended March 31, 2009 and 2008 was $17.0 million and
$13.3 million, respectively, of which $14.7 million and $11.0 million, respectively, related to
amortization of acquired product rights.
In the three months ended March 31, 2009, we acquired product rights in Poland for $0.4
million in cash and $0.6 million in other consideration.
8. Long-term Debt
3.0% and 4.0% Convertible Subordinated Notes
FSP APB 14-1 requires the issuer of convertible debt instruments with cash settlement features
to separately account for the liability and equity components of the convertible debt instruments
in a manner that reflects the issuers borrowing rate at the date of issuance for a similar debt
instrument without the conversion feature. FSP APB 14-1 requires bifurcation of a component of the
convertible debt instruments, classification of that component in equity and the accretion of the
resulting discount on the debt to be recognized as interest expense. Upon adoption of FSP APB 14-1,
we were required to separately account for the debt and equity components of our 3.0% Notes and our
4.0% Notes, both of which were issued in 2003 for an aggregate principal amount of $480.0 million.
The equity component associated with the 3.0% Notes and the 4.0% Notes was $58.0 million and
$62.2 million, respectively, at the time of issuance and was applied as debt discount and as
additional capital. Transaction costs related to the issuance of the 3.0% Notes and the 4.0% Notes
were allocated to the liability component and equity component in proportion to the allocation of
proceeds and were accounted for as debt issuance costs and equity issuance costs, respectively.
The unamortized discount for the 3.0% Notes will be amortized through the debt maturity date
of August 16, 2010. Interest expense for the amortization of the discount on the 3.0% Notes for the
three months ended March 31, 2009 and 2008 was $2.0 million and $2.3 million, respectively.
Interest expense for the contractual coupon rate for the 3.0% Notes for the three months ended
March 31, 2009 and 2008 was $1.4 million and $1.8 million, respectively.
The unamortized discount for the 4.0% Notes will be amortized through the debt maturity date
of November 15, 2013. Interest expense for the amortization of the discount on the 4.0% Notes for
the three months ended March 31, 2009 and 2008 was $1.5 million and $1.4 million, respectively.
Interest expense for the contractual coupon rate for the 4.0% Notes was $2.4 million for the three
months ended March 31, 2009 and for the three months ended March 31, 2008.
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 of $61.6 million
and the estimated fair value of $57.0 million 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.
Upon adoption of FSP APB 14-1, $13.3
million of the purchase price was attributable to
accreted interest on the debt discount 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 and notes payable in cash flow
from operating activities in continuing operations.
19
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
The liability component and the equity component of the 3.0% Notes and the 4.0% Notes as of
March 31, 2009 and December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
3.0% Notes |
|
$ |
141,639 |
|
|
$ |
207,360 |
|
Unamortized discount |
|
|
(7,754 |
) |
|
|
(13,548 |
) |
|
|
|
|
|
|
|
Net carrying value of 3.0% Notes |
|
$ |
133,885 |
|
|
$ |
193,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.0% Notes |
|
$ |
240,000 |
|
|
$ |
240,000 |
|
Unamortized discount |
|
|
(34,631 |
) |
|
|
(36,179 |
) |
|
|
|
|
|
|
|
Net carrying value of 4.0% Notes |
|
$ |
205,369 |
|
|
$ |
203,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity component for 3.0% Notes |
|
$ |
49,917 |
|
|
$ |
57,190 |
|
Equity component for 4.0% Notes |
|
$ |
62,167 |
|
|
$ |
62,167 |
|
The conversion price was 31.6336 shares per $1,000 principal amount for the 3.0% Notes and the
4.0% Notes. The number of shares used to determine the aggregate consideration that will be
delivered upon conversion was 4,480,551 shares for the 3.0% Notes and 7,592,064 shares for the 4.0%
Notes as of March 31, 2009. The if-converted value of the 3.0% Notes and the 4.0% Notes did not
exceed the principal amount as of March 31, 2009.
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 Valeant 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. The net cost of the Convertible Note Hedge of $42.9 million was recorded as the sale of
a permanent equity instrument pursuant to EITF No. 00-19 Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Companys Own Stock. 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 three months ended March 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 1,846,169 shares. As of
March 31, 2009, the number of shares covered by the Convertible Note Hedge is 10,807,271, the same
number of shares underlying the conversion of the remaining balance of $141.6 million principal
amount of the 3.0% Notes and $200.0 million principal amount of the 4.0% Notes.
7.0% Senior Notes
In July 2008, we redeemed the 7.0% Senior Notes at an aggregate redemption price of $310.5
million. In connection with this redemption, we recorded a $14.9 million loss on early
extinguishment of debt in 2008, including a redemption premium of $10.5 million, unamortized loan
costs of $2.9 million and an interest rate swap agreement termination fee of $1.5 million. The
interest rate swap was terminated in July 2008 in connection with the redemption of the 7.0% Senior
Notes.
9. Income Taxes
We have historically incurred losses in the United States, where our research and development
activities are conducted and our corporate offices are located. As of March 31, 2009, there is
insufficient objective evidence as to the timing and amount of future U.S. taxable income to allow
for the release of the remaining U.S. valuation allowance which is primarily offsetting future
benefits of foreign tax and research and development credits. The valuation allowance was recorded
because it is more likely than not that such benefits will not be utilized. Ultimate realization of
these tax benefits is dependent upon generating sufficient taxable income in the United States.
20
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
The income tax provision for the three months ended March 31, 2009 consists of $9.2 million
related to the expected taxes on earnings in tax jurisdictions outside the U.S. and $2.3 million
related to current U.S. tax deductions of which $1.5 million of the benefit is required to be
credited to additional paid in capital.
Due to ownership changes in the stock of the company as well as our acquisitions of Dow and
Coria in 2008, the benefit of U.S. losses and research credits are subject to a yearly limitation.
However, the limitation is sufficient to allow for utilization of all losses and research credits
during the carryforward period, assuming sufficient taxable income is sustainable.
As of March 31, 2009, we had $49.1 million of unrecognized tax benefits (FASB interpretation
No. 48, Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109),
of which $9.7 million would reduce our effective tax rate, if recognized. Of the total unrecognized
tax benefits, $5.4 million was recorded as an offset against a valuation allowance. To the extent
such portion of unrecognized tax benefits is recognized at a time when a valuation allowance no
longer exists, the recognition would affect our tax rate.
Our continuing practice is to recognize interest and penalties related to income tax matters
in income tax expense. As of March 31, 2009, we had accrued $4.0 million for interest and $1.0
million for penalties. We accrued additional interest of $0.2 million during the three months ended
March 31, 2009. It is reasonably possible that the total amount of unrecognized tax benefits may
be reduced within the next 12 months as a result of ongoing discussions we are having with the IRS.
We are currently under audit by the IRS for the 2005 and 2006 tax years. One of our Mexican
subsidiaries is under audit for the 2004 and 2005 tax years. Our significant subsidiaries are open
to tax examinations for years ending in 2001 and later.
As of December 31, 2008, we classified the intangible asset for CeraVe as an indefinite life
intangible and recorded approximately $16.7 million as a deferred tax liability with no offsetting
reduction to the valuation allowance. As of March 31, 2009, we revised the estimated useful life
for the CeraVe intangible asset to 30 years. As a result, the Company reduced the valuation
allowance and decreased goodwill. See Note 3 for additional information related to the change in
estimated useful life for this intangible asset.
10. Stock and Stock Incentive Programs
Stock and Securities Repurchase Programs: In June 2007, our board of directors authorized a
stock repurchase program. This program authorized us to repurchase up to $200.0 million of our
outstanding common stock in a 24-month period. In June 2008, our board of directors increased the
authorization to $300.0 million, over the original 24-month period. This program was completed in
November 2008. The total number of shares repurchased pursuant to this program was 17,618,920 at an
average price of $17.03 per share, including transaction costs.
In October 2008, our board of directors authorized us to repurchase up to $200.0 million of
our outstanding common stock or convertible subordinated notes in a 24-month period ending October
2010, unless earlier terminated or completed. Under the program, purchases may be made from time to
time on the open market, in privately negotiated transactions, and in amounts as we see
appropriate. The number of securities to be purchased and the timing of such purchases are subject
to various factors, which may include the price of our common stock, general market conditions,
corporate requirements and alternate investment opportunities. The securities repurchase program
may be modified or discontinued at any time. During the three months ended March 31, 2009, we
purchased $65.7 million aggregate principal amount of our 3.0% Notes due 2010 for $64.3 million in
cash (see Note 8). In total, we have purchased $98.4 million aggregate principal amount of our 3.0%
Notes at a purchase price of $93.2 million as of March 31, 2009. As of March 31, 2009, we have
repurchased an aggregate 298,961 shares of our common stock for $6.1 million under this program.
Stock-based compensation: The variables used in our share-based compensation expense
calculations include our estimation of the forfeiture rate related to share-based payments. In
2006, 2007 and continuing into 2008, we experienced significant turnover at both the executive and
management levels, which affected our actual forfeiture rate. We increased the estimated forfeiture
rate in the three months ended December 31, 2007 from 5% to 35%.
21
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
A summary of stock compensation expense in continuing operations for our stock incentive plans
for the three months ended March 31, 2009 and 2008 is presented below:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Employee stock options |
|
$ |
1,494 |
|
|
$ |
1,239 |
|
Restricted stock units |
|
|
2,828 |
|
|
|
1,067 |
|
Employee stock purchase plan |
|
|
|
|
|
|
66 |
|
|
|
|
|
|
|
|
Total stock-based compensation |
|
$ |
4,322 |
|
|
$ |
2,372 |
|
|
|
|
|
|
|
|
In addition to the above amounts, we recorded stock compensation expense in discontinued
operations related to employee stock options of $0.1 million in the three months ended March 31,
2008.
Future stock compensation expense for restricted stock units, performance stock units and
stock option incentive awards outstanding as of March 31, 2009 is as follows:
|
|
|
|
|
Remainder of 2009 |
|
$ |
8,743 |
|
2010 |
|
|
7,864 |
|
2011 |
|
|
2,486 |
|
2012 |
|
|
589 |
|
|
|
|
|
|
|
$ |
19,682 |
|
|
|
|
|
11. 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 and interest rate exposures. We do not speculate in derivative instruments in
order to profit from foreign currency exchange or interest rate 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, and
the Canadian Dollar in 2009. 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. In 2008, we
used an interest rate swap to lower our interest expense by exchanging fixed rate payments for
floating rate payments. The interest rate swap was terminated in July 2008 in connection with the
redemption of our 7.0% Senior Notes.
22
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
The table below summarizes the fair value and balance sheet location of our outstanding
derivatives at March 31, 2009 and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009 |
|
|
|
|
|
|
Asset Derivatives |
|
Liability Derivatives |
|
|
|
|
|
|
Balance |
|
|
|
|
|
Balance |
|
|
|
|
Notional |
|
Sheet |
|
Fair |
|
Sheet |
|
Fair |
Description |
|
Amount |
|
Location |
|
Value |
|
Location |
|
Value |
Undesignated hedges |
|
$ |
3,935 |
|
|
Other assets |
|
$ |
10 |
|
|
|
|
|
|
$ |
|
|
Net investment derivative contracts |
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
|
(121 |
) |
Cash flow derivative contracts |
|
|
2,231 |
|
|
Other assets |
|
|
211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
|
|
|
Asset Derivatives |
|
Liability Derivatives |
|
|
|
|
|
|
Balance |
|
|
|
|
|
Balance |
|
|
|
|
Notional |
|
Sheet |
|
Fair |
|
Sheet |
|
Fair |
Description |
|
Amount |
|
Location |
|
Value |
|
Location |
|
Value |
Undesignated hedges |
|
$ |
3,916 |
|
|
Other assets |
|
$ |
192 |
|
|
Accrued liabilities |
|
$ |
(35 |
) |
Net investment derivative contracts |
|
|
18,779 |
|
|
Other assets |
|
|
13 |
|
|
|
|
|
|
|
|
|
A summary is set out below of the accounting treatment for our undesignated, net investment,
cash flow and fair value hedges and interest rate swaps:
|
|
|
Changes in the fair value of undesignated hedges are recorded in earnings in the
period of the change. |
|
|
|
|
Changes in the fair value of a derivative that is designated and qualifies as a net
investment hedge are recorded as translation adjustment in accumulated other
comprehensive income. |
|
|
|
|
Changes in the fair value of a derivative that is designated and qualifies as a cash
flow hedge are recorded in accumulated other comprehensive income and then recognized in
earnings when the hedged items affect earnings. |
|
|
|
|
Changes in the fair value of a derivative that is designated and qualifies as a fair
value hedge are recorded in exchange gains or loss in the period of the change. |
|
|
|
|
Changes in the fair value of the interest rate swap are recorded as interest expense
in the period of the change. |
The table below summarizes the information related the changes in the fair value of our
derivatives instruments for the three months ended March 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
|
|
|
Net |
|
Cash |
|
|
|
|
|
|
|
|
|
|
Investment |
|
Flow |
|
Fair |
|
Interest |
|
|
Undesignated |
|
Derivative |
|
Derivative |
|
Value |
|
Rate |
Description |
|
Hedges |
|
Contracts |
|
Contracts |
|
Hedges |
|
Swap |
Gain recognized in currency translation
adjustment in other comprehensive income |
|
$ |
|
|
|
$ |
2,807 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Loss recognized in exchange gain / loss |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008 |
|
|
|
|
|
|
Net |
|
Cash |
|
|
|
|
|
|
|
|
|
|
Investment |
|
Flow |
|
Fair |
|
Interest |
|
|
Undesignated |
|
Derivative |
|
Derivative |
|
Value |
|
Rate |
Description |
|
Hedges |
|
Contracts |
|
Contracts |
|
Hedges |
|
Swap |
Gain recognized in interest expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
319 |
|
Loss recognized in royalty income |
|
|
|
|
|
|
|
|
|
|
(438 |
) |
|
|
|
|
|
|
|
|
Gain (Loss) recognized in exchange gain / loss |
|
|
(152 |
) |
|
|
|
|
|
|
|
|
|
|
656 |
|
|
|
|
|
Refer to Note 5 for additional information about the fair value of our derivatives.
23
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
12. 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.
Derivative Actions Related to Stock Options: We are a nominal defendant in two shareholder
derivative lawsuits pending in state court in Orange County, California, styled (i) Michael
Pronko v. Timothy C. Tyson et al., and (ii) Kenneth Lawson v. Timothy C. Tyson et al. These
lawsuits, which were filed on October 27, 2006 and November 16, 2006, respectively, purported to
assert derivative claims on our behalf against certain of our current and/or former officers and
directors. The lawsuits asserted claims for breach of fiduciary duties, abuse of control, gross
mismanagement, waste of corporate assets, unjust enrichment, and violations of the California
Corporations Code related to the purported backdating of employee stock options. The plaintiffs
sought, among other things, damages, an accounting, the rescission of stock options, and a
constructive trust over amounts acquired by the defendants who have exercised Valeant stock
options. On January 16, 2007, the court issued an order consolidating the two cases. On February
6, 2007, the court issued a further order abating the Lawson action due to a procedural defect
while the Pronko action proceeded. On March 25, 2009, the court approved a settlement that
resolved the claims raised in the Pronko and Lawson actions. The settlement and final judgment
required us to adopt certain corporate governance reforms aimed at improving our process for
granting stock options. It also provided for an award of fees to counsel for the plaintiffs of
$1.2 million and reimbursement of expenses of approximately $33 thousand, which amounts were
covered by insurance.
We are also a nominal defendant in a shareholder derivative action pending in the Court of
Chancery of the state of Delaware, styled Sherwood v. Tyson, et. al., filed on March 20, 2007.
This complaint also purports to assert derivative claims on the Companys behalf for breach of
fiduciary duties, gross mismanagement and waste, constructive fraud and unjust enrichment related
to the alleged backdating of employee stock options. The plaintiff seeks, among other things,
damages, an accounting, disgorgement, rescission and/or repricing of stock options, and
imposition of a constructive trust for the benefit of the Company on amounts by which the
defendants were unjustly enriched. The plaintiff has agreed to a stay pending resolution of the
Pronko action in California. The Company intends to seek the dismissal of this action, whether
by agreement of the plaintiff or by motion, based on the final judgment entered in the Pronko and
Lawson actions.
Permax Product Liability Cases: On April 23, 2008, we were served a complaint in a case
captioned Barbara M. Shows v. Eli Lilly and Company, Elan Corporation, PLC, Amarin Corporation,
PLC, and Valeant Pharmaceuticals International in the Circuit Court of Jefferson Davis County,
Mississippi, which was removed to federal court in the Southern District of Mississippi,
Hattiesburg Division. On December 24, 2008, the parties agreed to settle the matter in full and
executed the settlement agreement in January 2009. 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 v. Eli
Lilly and Company and Valeant Pharmaceuticals International in Superior Court, Orange County,
California (the California Actions). The California 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;
24
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
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. We are in the process of
defending these matters. Eli Lilly, holder of the right granted by the FDA to market and sell
Permax in the United States, which right was licensed to Amarin and the source of the
manufactured product, has also been named in the suits. 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-1720DFH-TAB in the U.S.
District Court for the Southern District of Indiana, Indianapolis Division (the Lilly Action).
In the Lilly Action, Lilly brings a claim 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.
Spear Pharmaceuticals, Inc.: On December 17, 2007, Spear Pharmaceuticals, Inc. and Spear
Dermatology Products, Inc. filed a complaint in federal court for the District of Delaware, Case
No. 07-821, 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 seek damages for
Valeants alleged breach of contract, trade secret misappropriation and unjust enrichment, in
addition to other causes of action against William Blair. We believe this case is without merit
and are vigorously defending ourselves in this matter.
On April 11, 2008, the FDA approved an Abbreviated New Drug Application (ANDA) for a 5%
fluorouracil cream sponsored by 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 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, seeking to suspend the FDAs approval of Spears ANDA. On May 1, 2008, the Court
granted the FDAs request to stay proceedings on Valeants application for a TRO until May 14,
2008. On May 14, 2008, the FDA entered an administrative order staying the approval of the Spear
ANDA and initiating a process for reconsidering the approval of the Spear ANDA. Spear
Pharmaceuticals agreed to the stay and to the prohibition on marketing, sale and shipment of its
product until May 30, 2008. On May 31, 2008, the Court granted our application for a TRO
suspending approval of the Spear ANDA. On June 18, 2008 the Court denied our request for a
preliminary injunction to continue the suspension of the Spear ANDA and extinguished the TRO. The
stay on the Spear ANDA has been removed and the Spear product may be marketed, sold and shipped.
On September 23, 2008, we filed an Amended Complaint under the Administrative Procedure Act
challenging the FDAs initial decision to approve Spears ANDA, the FDAs re-affirmance of Spears ANDA and the FDAs denial of
Valeants Citizens Petition.
Paddock Litigation: By way of letter dated November 24, 2008, Paddock Laboratories, Inc.
(Paddock) notified Galderma Laboratories L.P. (Galderma), Dermalogix Partners, Inc.
(Dermalogix), Panda Pharmaceuticals, L.L.C. (Panda), and The University of Tennessee Research
Foundation (UT) that it had submitted ANDA No. 90-898 with the FDA seeking approval for a
generic version of Clobex® (a clobetasol propionate spray, .05%) prior to expiration
of U.S. Patent Nos. 5,972,920 (the 920 patent) and 5,990,100 (the
25
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
100 patent). The Paddock ANDA contains a Paragraph IV certification by Paddock that the claims of the 920 and 100
patents will not be infringed by Paddocks proposed formulation and that the 920 and 100
patents are invalid and/or unenforceable. On January 7, 2009, Galderma, Galderma S.A., and
Dermalogix (collectively, Plaintiffs) filed a complaint against Paddock for the infringement of
the 920 patent Civil Case No. 4-09CV-002-Y pending in the United States District Court for the
Northern District of Texas, Fort Worth Division. Plaintiffs complaint alleges that Paddocks
filing of ANDA No. 90-898 is an act of infringement of the 920 patent under 35 U.S.C. §
271(e)(2). On January 29, 2009, Paddock filed an answer and counterclaims against not only
Plaintiffs, but also Panda, UT, and Dow for a declaratory judgment of non-infringement,
invalidity and unenforceability of the 920 patent and of the 100 patent. The 920 patent is
owned by Dermalogix. The 100 patent is owned by Panda and The University of Tennessee Research
Corporation (now known as The University of Tennessee Research Foundation, which we have
abbreviated UT). Dow is a party to licenses involving the 920 patent and the 100 patent. On
April 6, 2009, Paddock voluntarily dismissed its counterclaims involving the 100 patent,
resulting in the dismissal of Panda and UT from the lawsuit. On April 23, 2009, Dow filed a
Motion to Dismiss as we believe that Dow is improperly joined to the case. At the same time, Dow
also filed a Motion to Stay Discovery to place any Dow discovery obligations on hold. Paddock
will have an opportunity to respond to these motions.
Plaintiffs filed this suit within forty-five days of Paddocks Paragraph IV certification.
As a result, The Drug Price Competition and Patent Restoration Act of 1984 (the Hatch-Waxman
Act) provides an automatic stay on the FDAs final approval of Paddocks ANDA for thirty months,
which will expire in May 2011.
Tolmar Matter: By way of letter dated 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. The ANDA
contains a Paragraph IV certification 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 and 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.
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.
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 resolution of these matters will not
have a material effect on our consolidated financial position, results of operations or
liquidity.
13. Business Segments
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 and
divested businesses located in Argentina, Uruguay and Asia. 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 revenues from branded generic pharmaceutical products primarily in Mexico and
Brazil.
26
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
Additionally, we generate alliance revenue, including royalties from the sale of ribavirin by
Schering-Plough and revenues associated with the Collaboration Agreement with GSK. We also generate
alliance revenue and service revenue from the development of dermatological products resulting from
the acquisition of Dow.
The following table sets forth the amounts of our segment revenues and operating income for
the three months ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Revenues |
|
|
|
|
|
|
|
|
Specialty pharmaceuticals product sales |
|
$ |
86,313 |
|
|
$ |
80,014 |
|
Specialty
pharmaceuticals services and alliance revenue (1) |
|
|
11,905 |
|
|
|
|
|
Branded generics Europe product sales |
|
|
35,338 |
|
|
|
37,953 |
|
Branded generics Latin America product sales |
|
|
31,182 |
|
|
|
21,243 |
|
Alliances (ribavirin royalties) |
|
|
13,185 |
|
|
|
12,773 |
|
|
|
|
|
|
|
|
Consolidated revenues |
|
$ |
177,923 |
|
|
$ |
151,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
|
|
|
|
|
|
Specialty pharmaceuticals |
|
$ |
28,250 |
|
|
$ |
(3,688 |
) |
Branded generics Europe |
|
|
8,864 |
|
|
|
12,741 |
|
Branded generics Latin America |
|
|
12,208 |
|
|
|
(2,375 |
) |
|
|
|
|
|
|
|
|
|
|
49,322 |
|
|
|
6,678 |
|
Alliances |
|
|
13,185 |
|
|
|
12,773 |
|
Corporate (2) |
|
|
(18,562 |
) |
|
|
(15,285 |
) |
|
|
|
|
|
|
|
Subtotal |
|
|
43,945 |
|
|
|
4,166 |
|
Restructuring, asset impairments and dispositions |
|
|
(1,211 |
) |
|
|
13,190 |
|
|
|
|
|
|
|
|
Consolidated segment operating income |
|
|
42,734 |
|
|
|
17,356 |
|
Interest income |
|
|
1,835 |
|
|
|
4,724 |
|
Interest expense |
|
|
(8,013 |
) |
|
|
(13,384 |
) |
Gain on early extinguishment of debt |
|
|
4,599 |
|
|
|
|
|
Other, net |
|
|
1,212 |
|
|
|
(1,531 |
) |
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
$ |
42,367 |
|
|
$ |
7,165 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Specialty pharmaceuticals services and alliance revenue consists of $6.7 million of service
revenue from Dow, $1.9 million of royalties earned from patent protected formulations developed by
Dow and $3.3 million from the GSK Collaboration Agreement. |
|
(2) |
|
Stock-based compensation expense has been considered a corporate cost as management
excludes this item in assessing the financial performance of individual business segments and
considers it a function of valuation factors that pertain to overall corporate stock performance. |
27
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
The following table sets forth our total assets by segment as of March 31, 2009 and December
31, 2008:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Total Assets |
|
|
|
|
|
|
|
|
Specialty pharmaceuticals |
|
$ |
613,279 |
|
|
$ |
692,734 |
|
Branded generics Europe |
|
|
175,177 |
|
|
|
219,234 |
|
Branded generics Latin America |
|
|
107,235 |
|
|
|
103,573 |
|
Alliances |
|
|
12,875 |
|
|
|
16,436 |
|
Corporate |
|
|
160,320 |
|
|
|
153,955 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,068,886 |
|
|
$ |
1,185,932 |
|
|
|
|
|
|
|
|
During the three months ended March 31, 2009 and 2008, 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, |
|
|
2009 |
|
2008 |
Sales: |
|
|
|
|
|
|
|
|
McKesson |
|
$ |
33,259 |
|
|
$ |
29,828 |
|
Cardinal |
|
|
21,246 |
|
|
|
18,142 |
|
Percentage of total product sales: |
|
|
|
|
|
|
|
|
McKesson |
|
|
22 |
% |
|
|
21 |
% |
Cardinal |
|
|
14 |
% |
|
|
13 |
% |
14. Alliance Revenue
We report the royalties received from the sale of ribavirin by Schering-Plough separately from
our pharmaceuticals product sales revenue. Beginning in January 2009, we earn royalty income from
patent protected formulations developed by Dow and licensed to third parties. The following table
provides the details of our alliance revenue in the three months ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Ribavirin royalty |
|
$ |
13,185 |
|
|
$ |
12,773 |
|
Dermatology royalties |
|
|
1,849 |
|
|
|
|
|
GSK Collaboration |
|
|
3,318 |
|
|
|
|
|
|
|
|
|
|
|
|
Total alliance revenue |
|
$ |
18,352 |
|
|
$ |
12,773 |
|
|
|
|
|
|
|
|
15. Related Parties
Mr.
Robert A. Ingram has been the Vice Chairman Pharmaceuticals of GSK. Mr. Ingram
has been elected to the board of directors of Valeant since 2003. In 2008, Mr. Ingram became the boards lead director.
Mr. Stephan F. Stefano has been Senior Vice President of GSKs Payor Markets Division since
January 2001. Effective March 25, 2009, Mr. Stefano was elected by the board of directors of
Valeant to fill an open board position in the class expiring in 2010. See Note 3 for further
discussion of the Collaboration Agreement with GSK.
Mr. 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 the
board of directors of Valeant to fill an open board position in the class expiring in 2011. See
Note 4 for further discussion of transactions between Meda and Valeant.
28
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
16. Subsequent Events
In
April 2009, we acquired Emo-Farm sp. z o.o., a privately held
Polish company for approximately $28 million. In
April 2009, we also acquired certain branded OTC skin care product rights in Australia and New
Zealand for $6 million.
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
consolidated condensed financial statements included elsewhere in this 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 or as OTC products 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 operations in Europe and Latin America which focus on
pharmaceutical products that are bioequivalent to original products and are marketed under company
brand names.
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
primarily in Mexico and Brazil.
Additionally, we generate alliance revenue, including royalties from the sale of ribavirin by
Schering-Plough Ltd. (Schering-Plough) and revenues associated with the Collaboration Agreement
with GSK (as defined below). We also generate alliance revenue and service revenue from the
development of dermatological products resulting from the acquisition of Dow Pharmaceutical
Sciences, Inc. (Dow).
Business Strategy
In March 2008, we announced a new company-wide restructuring effort and new strategic
initiatives (the 2008 Strategic Plan). The restructuring was designed to streamline our business,
align our infrastructure to the scale of our operations, maximize our pipeline assets and deploy
our cash assets to maximize shareholder value, while highlighting key opportunities for growth.
We have built our current business infrastructure by executing our multi-faceted strategy: 1)
focus the business on core geographies and therapeutic classes; 2) maximize pipeline assets through
strategic partnerships with other pharmaceutical companies; and 3) deploy cash with an appropriate
mix of debt purchases, share buybacks and selective acquisitions. We believe our multi-faceted
strategy will allow us to expand our product offerings and upgrade our product portfolio with
higher growth and higher margin assets.
Our leveraged 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 the R&D expense in our
income statement. This is achieved in 4 ways: (1) we structure partnerships and collaborations so
that our partner funds development work, e.g. GSK collaboration on retigabine, (2) we bring
products already developed for other markets to our territories, e.g. joint ventures with Meda in
Canada, Mexico and Australia, (3) we acquire dossiers and registrations for branded generic
products, which require limited and low risk formulation 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 brings invaluable scientific experience
and allows higher utilization and infrastructure cost absorption.
Prior to the start of the 2008 Strategic Plan, we reviewed our portfolio for products and
geographies that did not meet our growth and profitability expectations and, as a result, divested
or discontinued certain non-strategic products and regional operations. In January 2008, we sold
our rights in Infergen to Three Rivers Pharmaceuticals, LLC. In March 2008, we sold certain assets
in Asia to Invida Pharmaceutical Holdings Pte. Ltd. (Invida) that included certain of our
subsidiaries, branch offices and commercial rights in Singapore, the Philippines, Thailand,
Indonesia, Vietnam, Korea, China, Hong Kong, Malaysia and Macau. This transaction also included
sale of certain product rights in Japan. In June 2008, we sold our subsidiaries in Argentina and
Uruguay. In September 2008, we sold our business operations located in Western and Eastern Europe,
Middle East and Africa (the WEEMEA
30
business) to Meda AB, an international specialty pharmaceutical company located in Stockholm,
Sweden (Meda).
The results of operations for the three months ended March 31, 2008 have been adjusted in this
quarterly report to exclude the results of operations for Infergen and the WEEMEA business, whose
results are presented as discontinued operations.
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.
In October 2008, we acquired Coria Laboratories Ltd. (Coria), a privately-held specialty
pharmaceutical company focused on dermatology products in the United States. In November 2008, we
acquired DermaTech Pty Ltd (DermaTech), an Australian specialty pharmaceutical company focused on
dermatology products marketed in Australia. In December 2008, we acquired Dow, a privately-held
dermatology company that specializes in the development of topical products on a proprietary basis,
as well as for pharmaceutical and biotechnology companies.
Pharmaceutical Products
Product sales from our pharmaceutical segments accounted for 86% of our total revenues from
continuing operations for the three months ended March 31, 2009, compared with 92% for the three
months ended March 31, 2008. Product sales increased by $13.6 million, or 10%, for the three months
ended March 31, 2009, compared with the three months ended March 31, 2008. The 10% increase in
pharmaceutical product sales for the three months ended March 31, 2009 was due to a 28% increase in
volume and a 3% increase in price offset by a 21% reduction due to currency fluctuations.
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 2009 and beyond.
Alliance Revenue
Our royalties have historically been derived from sales of ribavirin, 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. We also licensed ribavirin to Roche in 2003. Roche discontinued
royalty payments to us in June 2007.
Ribavirin royalties were $13.2 million and $12.8 million for the three months ended March 31,
2009 and 2008, respectively. We expect ribavirin royalties to decline in 2009 as royalty payments
from Schering-Plough 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. We expect that
royalties from Schering-Plough in Japan will continue after 2009.
Beginning in January 2009, we receive royalties from patent protected formulations developed
by Dow and licensed to third parties. These royalties were $1.9 million for the three months ended
March 31, 2009.
Beginning in January 2009, we also receive revenue from contract research services performed
by Dow in the areas of dermatology and topical medication. These 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. This service revenue was $6.7 million for the three months ended
March 31, 2009.
Research and Development
We are developing product candidates, including two clinical stage programs, retigabine and
taribavirin, which target large market opportunities. Retigabine is being developed in partnership
with GSK as an adjunctive treatment for partial-onset seizures in patients with epilepsy.
Taribavirin is a pro-drug of ribavirin for the treatment of chronic
31
hepatitis C in treatment-naive patients in conjunction with a pegylated interferon. We are
looking for potential partnering opportunities for taribavirin.
Collaboration Agreement
In October 2008, we closed the Collaboration Agreement with GSK to develop and commercialize
retigabine and its back up 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. To the
extent that our expected development and pre-commercialization expenses under the Collaboration
Agreement are less than $100.0 million, the difference will be recognized as alliance revenue over
the period prior to launch of a retigabine product (the Pre-Launch Period). We will 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 mid to
late 2010.
GSK has the right to terminate the Collaboration Agreement at any time prior to the receipt of
the approval by the United States 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. 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 $40.0 million through March 31, 2010, with
additional reductions in the amount of the required refund over the time the Collaboration
Agreement is in effect. During the three months ended March 31, 2009, the combined research and
development expenses and pre-commercialization expenses incurred under the Collaboration Agreement
by us and GSK were $13.4 million as outlined in the table below. We recorded a credit of $1.4
million against our share of the expenses to equalize our expenses with GSK, pursuant to the terms
of the Collaboration Agreement.
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
Valeant research and development costs |
|
$ |
7,947 |
|
Valeant selling, general and administrative |
|
|
149 |
|
|
|
|
|
|
|
|
8,096 |
|
|
|
|
|
|
GSK expenses |
|
|
5,303 |
|
|
|
|
|
Total spending for Collaboration Agreement |
|
$ |
13,399 |
|
|
|
|
|
|
|
|
|
|
Equalization (difference between individual partner costs and 50% of total) |
|
$ |
1,397 |
|
|
|
|
|
32
The table below outlines the alliance revenue, expenses incurred, associated credits against
the expenses incurred, and the remaining upfront payment for the Collaboration Agreement during the
following period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
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 prior quarter |
|
|
(10,909 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Incurred cost in current quarter |
|
|
|
|
|
|
|
|
|
|
149 |
|
|
|
7,947 |
|
Incurred cost offset |
|
|
(6,699 |
) |
|
|
|
|
|
|
(387 |
) |
|
|
(6,312 |
) |
Recognize alliance revenue |
|
|
(3,318 |
) |
|
|
(3,318 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release from upfront payment |
|
|
(10,017 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining upfront payment from GSK |
|
$ |
104,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equalization receivable from GSK |
|
|
1,397 |
|
|
|
|
|
|
|
238 |
|
|
|
(1,635 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equalization receivable from GSK |
|
$ |
1,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense and revenue |
|
|
|
|
|
$ |
(3,318 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
$ |
40,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
40,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue short-term |
|
|
13,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue long-term |
|
|
9,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining upfront payment from GSK |
|
$ |
104,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total combined expenses by us and GSK for the Collaboration Agreement to date through March
31, 2009 were $26.5 million.
Results of Operations
In connection with the 2008 Strategic Plan and resulting acquisitions and dispositions in
2008, we realigned our organization in the fourth quarter of 2008 to improve our execution and
align our resources and product development efforts in the markets in which we operate. We have
realigned segment financial data for the three months ended March 31, 2008 to reflect these changes
in our organizational structure.
Our products are sold through three operating segments comprising Specialty Pharmaceuticals,
Branded
Generics Europe and Branded Generics Latin America. The Specialty Pharmaceuticals segment
includes product revenues primarily from the United States, Canada, Australia and divested
businesses located in Argentina, Uruguay and Asia. The Branded Generics Europe segment includes
product revenues from branded generic pharmaceutical products primarily in Poland, Hungary, the
Czech Republic and Slovakia. The Branded Generics Latin America segment includes product revenues
from branded generic pharmaceutical products primarily in Mexico and Brazil. 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 consolidated condensed financial statements
included elsewhere in this quarterly report. For additional financial information by business
segment, see Note 13 of notes to consolidated condensed financial statements included elsewhere in
this quarterly report.
33
The following table compares revenues by reportable segments and operating expenses for the
three months ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Revenues |
|
|
|
|
|
|
|
|
Specialty pharmaceuticals product sales |
|
$ |
86,313 |
|
|
$ |
80,014 |
|
Specialty pharmaceuticals services and alliance revenue |
|
|
11,905 |
|
|
|
|
|
Branded generics Europe |
|
|
35,338 |
|
|
|
37,953 |
|
Branded generics Latin America |
|
|
31,182 |
|
|
|
21,243 |
|
Alliances (ribavirin royalties) |
|
|
13,185 |
|
|
|
12,773 |
|
|
|
|
|
|
|
|
Consolidated revenues |
|
|
177,923 |
|
|
|
151,983 |
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization) |
|
|
39,697 |
|
|
|
35,755 |
|
Cost of services |
|
|
4,326 |
|
|
|
|
|
Selling, general and administrative |
|
|
64,216 |
|
|
|
69,439 |
|
Research and development costs, net |
|
|
8,735 |
|
|
|
29,294 |
|
Restructuring, asset impairments and dispositions |
|
|
1,211 |
|
|
|
(13,190 |
) |
Amortization expense |
|
|
17,004 |
|
|
|
13,329 |
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
42,734 |
|
|
$ |
17,356 |
|
|
|
|
|
|
|
|
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 for the three
months ended March 31, 2009 were $86.3 million, compared with $80.0 million for the corresponding
period in 2008, representing an increase of $6.3 million (8%). The increase in product sales was
primarily driven by growth in existing products and $11.4 million in revenue from products acquired
in late 2008. This increase was partly offset by an $8.1 million reduction in sales of Efudex as a
result of generic competition, a reduction of $3.5 million due to the sale of business operations
in Argentina, Uruguay and Asia and $5.2 million from the depreciation of the Canadian Dollar and
Australian Dollar relative to the U.S. Dollar.
In the Branded Generics Europe segment, revenues for the three months ended March 31, 2009
were $35.3 million compared with $38.0 million for the corresponding period in 2008, a decrease of
$2.7 million (7%). The depreciation of foreign currencies, particularly the Polish Zloty, relative
to the U.S. Dollar resulted in a $13.9 million decrease in product sales revenue. This reduction
was partly offset by growth in existing products and increased revenue from a distribution
contract.
In the Branded Generics Latin America segment, revenues for the three months ended March 31,
2009 were $31.2 million compared with $21.2 million for the corresponding period in 2008, an
increase of $10.0 million (47%). The increase in product sales is across all products primarily
from the improvement of trading relationships with the major wholesalers in Mexico that has
impacted product sales for the previous two years. This increase was partly offset by $10.1 million
due to the depreciation of foreign currencies, particularly the Mexican Peso, relative to the U.S.
Dollar.
Alliance Revenue: Alliance revenue for the three months ended March 31, 2009 and 2008 was
$18.4 million and $12.8 million, respectively. Alliance revenue in the three months ended March 31,
2008 consisted exclusively of ribavirin royalty revenue. Ribavirin royalty revenue was $13.2
million for the three months ended March 31, 2009.
We expect ribavirin royalties to decline in 2009 as royalty payments from Schering-Plough 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. We expect that royalties from Schering-Plough
in Japan will continue after 2009.
Beginning in January 2009, we receive royalties from patent protected formulations developed
by Dow and licensed to third parties. These royalties were $1.9 million for the three months ended
March 31, 2009.
34
Beginning in January 2009, we also 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. This service revenue was $6.7 million for the three months ended
March 31, 2009.
We also earned $3.3 million under the GSK Collaboration Agreement for the three months ended
March 31, 2009.
Services and alliance revenue in the Specialty Pharmaceuticals segment of $11.9 million
includes $1.9 million of dermatology revenue, the $6.7 million of service revenue and $3.3 million
earned under the GSK Collaboration Agreement.
Gross Profit Margin: Gross profit margin on product sales, net of pharmaceutical product
amortization, was 63% for the three months ended March 31, 2009, compared with 65% for the
corresponding period in 2008. Total amortization expense was $17.0 million and $13.3 million for
the three months ended March 31, 2009 and 2008, respectively, the increase being driven primarily
by products acquired within the Specialty Pharmaceuticals segment in the U.S. in late 2008. The
gross profit margin improvement in the Branded Generics Latin America segment was primarily due
to the negative impact of inventory reserve provisions in the three months ended March 31, 2008.
The decline in the gross profit margin in the Branded Generics Europe segment is primarily due to
mix of products and low margin revenue from a distribution contract.
Gross profit margin on product sales (excluding pharmaceutical product amortization) was 74%
for the three months ended March 31, 2009 and also for the three months ended March 31, 2008.
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Increase |
|
|
Percent |
|
|
|
2009 |
|
|
2008 |
|
|
(Decrease) |
|
|
Change |
|
Gross Profit (excluding amortization) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals |
|
$ |
70,949 |
|
|
$ |
66,515 |
|
|
$ |
4,434 |
|
|
|
7 |
% |
% of product sales |
|
|
82 |
% |
|
|
83 |
% |
|
|
|
|
|
|
|
|
Branded generics Europe |
|
|
18,921 |
|
|
|
24,791 |
|
|
|
(5,870 |
) |
|
|
(24 |
)% |
% of product sales |
|
|
54 |
% |
|
|
65 |
% |
|
|
|
|
|
|
|
|
Branded generics Latin America |
|
|
23,285 |
|
|
|
12,215 |
|
|
|
11,070 |
|
|
|
91 |
% |
% of product sales |
|
|
75 |
% |
|
|
58 |
% |
|
|
|
|
|
|
|
|
Corporate |
|
|
(19 |
) |
|
|
(66 |
) |
|
|
47 |
|
|
|
|
|
% of product sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated gross profit |
|
$ |
113,136 |
|
|
$ |
103,455 |
|
|
$ |
9,681 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of product sales |
|
|
74 |
% |
|
|
74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals |
|
$ |
15,991 |
|
|
$ |
12,065 |
|
|
$ |
3,926 |
|
|
|
33 |
% |
Branded generics Europe |
|
|
234 |
|
|
|
278 |
|
|
|
(44 |
) |
|
|
(16 |
)% |
Branded generics Latin America |
|
|
779 |
|
|
|
986 |
|
|
|
(207 |
) |
|
|
(21 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization |
|
$ |
17,004 |
|
|
$ |
13,329 |
|
|
$ |
3,675 |
|
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit (including amortization) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals |
|
$ |
54,958 |
|
|
$ |
54,450 |
|
|
$ |
508 |
|
|
|
1 |
% |
% of product sales |
|
|
64 |
% |
|
|
68 |
% |
|
|
|
|
|
|
|
|
Branded generics Europe |
|
|
18,687 |
|
|
|
24,513 |
|
|
|
(5,826 |
) |
|
|
(24 |
)% |
% of product sales |
|
|
53 |
% |
|
|
65 |
% |
|
|
|
|
|
|
|
|
Branded generics Latin America |
|
|
22,506 |
|
|
|
11,229 |
|
|
|
11,277 |
|
|
|
100 |
% |
% of product sales |
|
|
72 |
% |
|
|
53 |
% |
|
|
|
|
|
|
|
|
Corporate |
|
|
(19 |
) |
|
|
(66 |
) |
|
|
47 |
|
|
|
|
|
% of product sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated gross profit |
|
$ |
96,132 |
|
|
$ |
90,126 |
|
|
$ |
6,006 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of product sales |
|
|
63 |
% |
|
|
65 |
% |
|
|
|
|
|
|
|
|
Selling, General and Administrative Expenses: Selling, general and administrative (SG&A)
expenses were $64.2 million and $69.4 million for the three months ended March 31, 2009 and 2008,
respectively, reflecting a decrease of $5.2 million (8%). As a percentage of product sales, SG&A
expenses were 42% and 50% in the three months ended March 31, 2009 and 2008, respectively. The
decrease in SG&A expenses for the three months ended March 31, 2009 primarily reflects savings from
our restructuring initiatives partially offset by increased costs attributable to the acquisition
of Dow and Coria. SG&A expenses included the recognition of an other-than-temporary impairment of
$1.5 million and a loss on sale of $0.2 million in an investment in a publicly traded investment
fund and $1.6 million of transfer taxes on an intercompany return of capital. SG&A expenses had
$8.5 million of favorable currency impact.
Research and Development Costs: Research and development expenses were $8.7 million and $29.3
million for the three months ended March 31, 2009 and 2008, respectively, reflecting a decrease of
$20.6 million (70%). The decrease in research and development expenses was largely related to the
expenditures of $15.2 million for the retigabine clinical development program in the three month
period ended March 31, 2008. Our research and development expenses for the retigabine clinical
development program in the three month period ended March 31, 2009 were $7.9 million but were
reduced to zero by the credit from GSK under the Collaboration Agreement. Research and development
expenses also decreased $4.8 million from the effects of our restructuring actions. In addition,
spending for other products in development, primarily Diastat Intranasal and taribavirin, decreased
by $3.2 million. Research and development costs are expected to increase as certain dermatology
compounds enter Phase III clinical trial activity.
36
Restructuring, Asset Impairments and Dispositions: Our restructuring charges include severance
costs, contract cancellation costs, the abandonment of capitalized assets, the impairment of
manufacturing facilities, and other associated costs, including legal and professional fees. We
have accounted for statutory and contractual severance obligations when they are estimable and
probable, pursuant to SFAS No. 112, Employers Accounting for
Postemployment Benefits. For one-time severance arrangements, we have applied the methodology
defined in SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS
146). Pursuant to these requirements, these benefits are detailed in an approved severance plan,
which is specific as to number, position, location and timing. In addition, the benefits are
communicated in specific detail to affected employees and it is unlikely that the plan will change
when the costs are recorded. If service requirements exceed a minimum retention period, the costs
are spread over the service period; otherwise they are recognized when they are communicated to the
employees. Contract cancellation costs are recorded in accordance with SFAS 146. We have followed
the requirements of SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets
(SFAS 144), in recognizing the abandonment of capitalized assets and the impairment of
manufacturing facilities. For a further description of the accounting for impairment of long-lived
assets under SFAS 144, see Note 1, Organization and Summary of Significant Accounting Policies, in
our annual report on Form 10-K for the year ended December 31, 2008. Other associated costs, such
as legal and professional fees, have been expensed as incurred, pursuant to SFAS 146.
2008 Restructuring
In October 2007, our board of directors initiated a strategic review of our business
direction, geographic operations, product portfolio, growth opportunities and acquisition strategy.
In March 2008, we completed this strategic review and announced a strategic plan designed to
streamline our business, align our infrastructure to the scale of our operations, maximize our
pipeline assets and deploy our cash assets to maximize shareholder value. The strategic plan
included a restructuring program (the 2008 Restructuring), which reduced 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 (Poland, Hungary, the Czech Republic and Slovakia) and Latin America (Mexico and Brazil).
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 2007, we signed an agreement with Invida Pharmaceutical Holdings Pte. Ltd.
(Invida) to sell to Invida certain assets in Asia in a transaction that included certain of our
subsidiaries, branch offices and commercial rights in Singapore, the Philippines, Thailand,
Indonesia, Vietnam, Taiwan, Korea, China, Hong Kong, Malaysia and Macau. This transaction also
included the sale of certain product rights in Japan. We closed this transaction in March 2008.
During the three months ended March 31, 2008, we received initial proceeds of $37.9 million and
recorded a gain of $36.9 million in this transaction. During the nine months ended December 31,
2008, we recorded $2.4 million of net asset adjustments and additional closing costs resulting in a
reduced gain of $34.5 million on the transaction. During the three months ended March 31, 2009, we
received substantially all of the remaining additional proceeds of $3.4 million from the sale.
As of March 31, 2008, we classified our subsidiaries in Argentina and Uruguay as held for
sale in accordance with SFAS 144. In the three months ended March 31, 2008, we recorded an
impairment charge of $7.9 million related to this anticipated sale. We sold these subsidiaries in
June 2008 and recorded a loss on the sale of $2.6 million, in addition to the $7.9 million
impairment charge.
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 restructuring charge of $3.8 million
for the year ended December 31, 2008. The charge consisted of a lease termination penalty of $3.2
million, which will be payable in October 2011, and $0.6 million for certain fixed assets.
The net restructuring, asset impairments and dispositions charge of $1.2 million in the three
months ended March 31, 2009 included $0.9 million of severance charges for a total of 22 affected
employees (414 employees cumulatively). The charge also included $0.3 million of contract
termination costs and other cash costs.
37
The following table summarizes the restructuring costs recorded in the three months ended
March 31, 2009:
2008 Restructuring
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
Severance costs (22 employees) |
|
$ |
928 |
|
Contract cancellation costs, legal and professional fees and other associated costs |
|
|
255 |
|
|
|
|
|
Subtotal: cash charges |
|
|
1,183 |
|
Non-cash charges |
|
|
28 |
|
|
|
|
|
Restructurings, asset impairments and dispositions |
|
$ |
1,211 |
|
|
|
|
|
The net restructuring, asset impairments and dispositions gain of $13.2 million in the three
months ended March 31, 2008 included $6.2 million of severance charges for a total of 15 affected
employees (18 employees cumulatively). The severance charges were primarily for our former chief
executive officer and six other executives. The charge also included $4.8 million stock
compensation charges for the accelerated vesting of the stock options and restricted stock units of
our former chief executive officer. The charge included $4.9 million of professional services,
contract cancellation and other costs. We also recorded an impairment charge of $7.9 million
related to our planned sale of our subsidiaries in Argentina and Uruguay and a gain of $36.9
million on our transaction with Invida.
The following table summarizes the restructuring costs and gains recorded in the three months
ended March 31, 2008:
2008 Restructuring
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
Severance costs (15 employees) |
|
$ |
6,215 |
|
Contract cancellation costs, legal and professional fees and other associated costs |
|
|
4,886 |
|
|
|
|
|
Subtotal: cash charges |
|
|
11,101 |
|
Stock compensation |
|
|
4,778 |
|
Impairment of long-lived assets |
|
|
7,853 |
|
|
|
|
|
Subtotal: restructuring expenses |
|
|
23,732 |
|
Gain on Invida transaction |
|
|
(36,922 |
) |
|
|
|
|
Restructurings, asset impairments and dispositions |
|
$ |
(13,190 |
) |
|
|
|
|
Reconciliation of Cash Restructuring Payments with Restructuring Accrual
As of March 31, 2009, the restructuring accrual of $8.4 million includes $8.2 million related
to the 2008 restructuring plan for severance costs, lease termination penalty costs, contract
cancellation costs, legal and professional fees and other associated costs expected to be paid
primarily during the remainder of 2009, except for the lease termination penalty which will be paid
in 2011. The restructuring accrual also includes $0.2 million related to the 2006 restructuring
plan for ongoing contractual payments to Legacy Pharmaceuticals International relating to the sale
of our former site in Puerto Rico which will be paid by June 2009. A summary of accruals and
expenditures of restructuring costs which will be paid in cash is as follows:
2008 and 2006 Restructuring: Reconciliation of Cash Payments and Accruals
|
|
|
|
|
Restructuring accrual, December 31, 2008 |
|
$ |
10,926 |
|
Charges to earnings |
|
|
1,183 |
|
Cash paid |
|
|
(3,705 |
) |
|
|
|
|
Restructuring accrual, March 31, 2009 |
|
$ |
8,404 |
|
|
|
|
|
Amortization: Amortization expense was $17.0 million and $13.3 million for the three months
ended March 31, 2009 and 2008, respectively, an increase of $3.7 million (28%). Amortization
increased by $4.3 million related to
38
the intangible assets obtained in our acquisition of Dow,
Coria and DermaTech, partially offset by the declining amortization of the rights to the ribavirin
royalty intangible, which has been amortized using an accelerated method
and was fully amortized as of September 30, 2008 and lower amortization from the divestiture
of our operations in Asia, Uruguay and Argentina.
Interest Expense and Income: Interest expense was $8.0 million and $13.4 million for the
three months ended March 31, 2009 and 2008, respectively, and decreased $5.4 million (40%). The
decrease was mostly due to the purchase of our $300.0 million 7.0% Senior Notes, which occurred in
July 2008.
Interest income was $1.8 million and $4.7 million for the three months ended March 31, 2009
and 2008, respectively, and decreased $2.9 million (61%). The decrease was due to lower cash
balances resulting from our acquisitions, the purchase of our $300.0 million 7.0% Senior Notes,
repurchases of our common stock, purchase of a portion of our 3.0% Notes, and lower average
interest rates.
On January 1, 2009, we adopted Financial Accounting Standards Board Staff Position No. APB
14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) (FSP APB 14-1). FSP APB 14-1 requires the liability and
equity components of convertible debt instruments that may be settled in cash upon conversion
(including partial cash settlement) to be separately accounted for in a manner that reflects the
issuers nonconvertible debt borrowing rate. FSP APB 14-1 requires bifurcation of a component of
the debt instruments, classification of that component in equity and the accretion of the resulting
discount on the debt to be recognized as interest expense. FSP APB 14-1 is effective for our 3.0%
Convertible Subordinated Notes (the 3.0% Notes) and our 4.0% Convertible Subordinated Notes (the
4.0% Notes) issued in 2003. FSP APB 14-1 requires retrospective application upon adoption to
prior periods presented. Interest expense attributable to the adoption of FSP APB 14-1 was $3.5
million and $3.7 million for the three months ended March 31, 2009 and 2008, respectively. See Note
8 for additional information regarding our implementation of FSP APB 14-1 included elsewhere in
this quarterly report.
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 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 of $61.6 million and the estimated fair value of $57.0 million 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.
Upon adoption of FSP APB 14-1, $13.3 million of the purchase price
was attributable to accreted interest on the debt discount 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 and notes payable in cash flow from operating activities in continuing operations.
Other Income (Expense), Net, Including Translation and Exchange: Other income (expense), net,
including translation and exchange was income of $1.2 million and expense of $1.5 million for the
three months ended March 31, 2009 and 2008, respectively. The increase in 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, 2009 and 2008
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 U.S. liabilities
and state and local taxes in the United States. We continue to provide residual U.S. tax on the
unremitted earnings of our foreign subsidiaries including applicable withholding taxes due upon
repatriation. At this time, there is insufficient objective evidence as to the timing and amount of
future U.S. taxable income to allow for the release of the remaining U.S. valuation allowance which
is primarily offsetting future benefits of foreign tax and research and development credits.
Because of our losses in prior periods, we are required to maintain a valuation allowance
offsetting our net U.S. deferred tax assets of approximately $109.5 million. See Note 9 Income
Taxes 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. Because evidence such as our historical operating results
during the most recent three-year period is afforded more weight than forecasted results for future
periods, our historical losses during this three-year period represent sufficient negative evidence
regarding the need for a full valuation allowance under SFAS 109. We will release this valuation
allowance when management determines that it is more likely than not that our deferred tax assets
will be realized. Any release of valuation allowance will be recorded as a tax benefit increasing
net income.
It is reasonably possible that if we continue to generate taxable profits in the US over the
near term that management may evaluate that it is more likely than not that the deferred tax assets
will be realized.
39
The exact timing of the valuation allowance release is subject to change based on the level of
profitability that we are able to achieve and our visibility into future period results. Any
release of valuation allowance will be recorded as a tax benefit increasing net income or an
adjustment to paid-in capital. We expect that a significant portion of the release of the valuation
allowance will be recorded as an income tax benefit at the time of release, significantly
increasing our reported net income.
Income from Discontinued Operations, Net: The results from discontinued operations were $0.4
million and $3.3 million of income for the three months ended March 31, 2009 and 2008,
respectively, and relate primarily to the WEEMEA business and our Infergen operations.
Liquidity and Capital Resources
Cash and cash equivalents and marketable securities totaled $145.8 million at March 31, 2009 compared with $218.8 million at December 31, 2008. The decrease of $73.0 million resulted in part from $64.3 million paid to purchase a portion of the 3.0% Notes. Upon adoption of FSP APB 14-1, $13.3
million of the $64.3 million was attributable to accreted interest on the debt discount. The $13.3 million has been reflected as payments of accreted interest on long-term debt and notes payable in cash flow from operating activities in continuing operations. The remaining $51.0 million has been reflected as payments on long-term debt and notes payable in cash flows from financing activities in continuing operations. In addition to the $64.3 million paid to purchase a portion of the 3.0% Notes, the decrease of $73.0 million related to $29.7 million paid for liabilities for the acquisition of Dow, $15.1 million related to the effect of exchange rate changes, $13.3 million paid for liabilities related to the sale of the WEEMEA business and $7.1 million of capital expenditures. The decrease of $73.0 million was offset in part by $51.1 million of cash from operations, and proceeds from stock option exercises of $7.0 million. Working capital was $133.1 million at March 31, 2009 compared with $177.8 million at December 31, 2008. The decrease in working capital of $44.7 million primarily resulted from the decrease in cash and cash equivalents and marketable securities and a decrease in accounts receivable, offset by a decrease in trade payables and accrued liabilities and an increase in income taxes receivable.
Cash provided by operating activities in continuing operations is expected to be our primary source of funds for operations in 2009. During the three months ended March 31, 2009, cash provided by operating activities in continuing operations totaled $37.8 million, compared with $50.4 million for the corresponding period in 2008. The cash provided by operating activities in continuing operations was primarily a result of net income and a decrease in accounts receivable, offset in part by payments of accreted interest on long-term debt and notes payable. The cash provided by operating activities in continuing operations for 2008 was a result of the reduction in accounts receivable and the increase in trade payables and accrued liabilities.
Cash used in investing activities in continuing operations was $26.3 million for the three months ended March 31, 2009, compared with cash provided by investing activities in continuing operations of $67.0 million in 2008. In 2009, cash used in investing activities in continuing operations consisted primarily of the acquisition of businesses and product rights of
$32.2 million, capital expenditures of $7.1 million, offset in part by proceeds from investments of $13.5 million. 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. In 2008, cash provided by investing activities in continuing operations consisted primarily of proceeds of $37.9 million received from the Invida transaction and $34.5 million of net proceeds from investments offset by capital expenditures of $3.6 million. Cash provided by investing activities in discontinued operations in 2008 of $69.5 million consisted primarily of $70.8 million of cash proceeds received as the initial payment in the sale of our Infergen operations to Three Rivers Pharmaceuticals.
Cash used in financing activities in continuing operations was $43.7 million for the three months ended March 31, 2009, compared with $0.3 million in 2008 and primarily consisted of the purchase of long-term debt of $51.0 million, offset in part by proceeds from stock option exercises of $7.0 million.
If GSK terminates the Collaboration Agreement prior to the expiration of the Review Period, we
would be required to refund to GSK up to $40.0 million of the upfront fee through March 31, 2010,
with additional reductions in the amount of the required refund over the time the Collaboration
Agreement is in effect.
We believe that our existing cash and cash equivalents and funds generated from operations
will be sufficient to meet our operating requirements at least through March 31, 2010, and to
provide cash needed to fund capital expenditures and our clinical development program. While we
have no current intent to issue additional debt or equity securities, we may seek additional debt
financing or issue additional equity securities to finance future acquisitions or for other
purposes. There can be no assurance we would be able to secure such financing on acceptable terms,
if at all, especially in light of current economic and market conditions. We fund our operating
cash requirements primarily from cash provided by operating activities. Our sources of liquidity
are cash and cash equivalent balances, cash flow from operations, and cash provided by investing
activities.
40
We did not pay dividends for either the three months ended March 31, 2009 or the twelve months
ended December 31, 2008.
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,
2008. Our 3.0% and 4.0% Convertible Subordinated Notes include conversion features that are
considered off-balance sheet arrangements under SEC requirements.
Products in Development
Late Stage Development of New Chemical Entities
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. The results of the key
Phase II study indicated that the compound is potentially efficacious with a demonstrated
statistically significant reduction in monthly seizure rates of 23% to 35% as adjunctive therapy in
patients with partial seizures.
Following a Special Protocol Assessment by the FDA, two Phase III trials of retigabine were
initiated in 2005. One Phase III trial (RESTORE 1; RESTORE stands for Retigabine Efficacy and
Safety Trial for partial Onset Epilepsy) was conducted at approximately 50 sites, mainly in the
Americas (U.S., Central/South America); the second Phase III trial (RESTORE 2) was conducted at
approximately 70 sites, mainly in Europe.
We announced clinical data results for RESTORE 1 on February 12, 2008. RESTORE 1 evaluated the
1200 mg daily dose of retigabine (the highest dose in the RESTORE program) versus placebo in
patients taking stable doses of one to three additional anti-epileptic drugs (AEDs). Retigabine
demonstrated statistically significant (p< 0.001) results on the primary efficacy endpoints
important for regulatory review by both the FDA and the European Medicines Evaluation Agency
(EMEA).
The intent-to-treat (ITT) median reduction in 28-day total partial seizure frequency from
baseline to the end of the double-blind period (the FDA primary efficacy endpoint), was 44.3%
(n=153) and 17.5% (n=152) for the retigabine arm and placebo arm of the trial, respectively. The
responder rate, defined as > 50% reduction in 28-day total partial seizure frequency
compared with the baseline period, during maintenance (the dual primary efficacy endpoint required
for the EMEA submission) was 55.5% (n=119) and 22.6% (n=137) for the retigabine arm and the placebo
arm of the trial, respectively.
During RESTORE 1, 26.8% of patients in the retigabine arm and 8.6% of patients in the placebo
arm withdrew due to adverse events. The most common side effects associated with retigabine in
RESTORE 1 included dizziness, somnolence, fatigue, confusion, dysarthria (slurring of speech),
ataxia (loss of muscle coordination), blurred vision, tremor, and nausea. Results of the study were
presented at the 8th European Congress on Epileptology, Berlin, Germany in September 2008.
On May, 13, 2008, we announced clinical data results for RESTORE 2. RESTORE 2 evaluated the
600 and 900 mg daily doses of retigabine versus placebo in patients taking stable doses of one to
three additional AEDs. Retigabine at both the 600 mg and 900 mg doses demonstrated highly
statistically significant results on the primary efficacy endpoints important for regulatory review
by both the FDA and the EMEA.
The ITT median reduction in 28-day total partial seizure frequency from baseline to the end of
the double-blind period (the FDA primary efficacy endpoint), was 15.9% (n=179), 27.9% (n=181) and
39.9% (n=178) for the placebo, retigabine 600 mg and retigabine 900 mg arms of the trial,
respectively. The responder rate, defined as > 50% reduction in 28-day total partial
seizure frequency compared with the baseline period, during maintenance (the dual primary efficacy
endpoint required for the EMEA submission) was 18.9% (n=164), 38.6% (n=158) and 47.0% (n=149) for
the placebo, retigabine 600 mg and retigabine 900 mg and placebo arms of the trial, respectively.
During RESTORE 2, 14.4% and 25.8% of patients in the retigabine 600 mg and 900 mg arms,
respectively, and 7.8% of patients in the placebo arm withdrew due to adverse events. As expected,
the most common side effects associated with retigabine in RESTORE 2 included dizziness,
somnolence, and fatigue and were generally seen at much lower rates than at a 1200 mg dose in the RESTORE 1 trial. Results of the study were
presented at the 62nd American Epilepsy Society annual meeting in Seattle, Washington in December
2008.
41
In March 2007, we initiated development of a modified release formulation of retigabine. In
addition, in November 2007, we began enrolling patients into a randomized, double-blind,
placebo-controlled Phase IIa study to evaluate the efficacy and tolerability of retigabine as a
treatment for neuropathic pain resulting from post-herpetic neuralgia. We completed enrollment at
the end of 2008.
As discussed in more detail in the subsection Collaboration Agreement above, 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 $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, 2009 and $15.2 million for the three months ended March 31,
2008.
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. We are developing
taribavirin in oral form for the treatment of hepatitis C.
Preclinical studies indicated that taribavirin, a prodrug of ribavirin, has antiviral and
immunological activities (properties) similar to ribavirin. In 2006, we reported the results of two
pivotal Phase III trials for taribavirin. The Viramidine Safety and Efficacy Versus Ribavirin
(VISER) trials included two co-primary endpoints: one for safety (superiority to ribavirin in
incidence of anemia) and one for efficacy (non-inferiority to ribavirin in sustained viral response
(SVR)). The results of the VISER trials met the safety endpoint of a reduced incidence of anemia
but did not meet the efficacy endpoint.
The studies demonstrated that 38-40% of patients treated with taribavirin achieved SVR and
that the drug has a safety advantage over ribavirin by significantly reducing the number of
subjects who developed anemia, but that it was not comparable to ribavirin in efficacy at the fixed
dose of 600 mg which was studied. We believe that the results of the studies were significantly
impacted by the dosing methodology which employed a fixed dose of taribavirin for all patients and
a variable dose of ribavirin based on a patients weight. Our analysis of the study results led us
to believe that the dosage of taribavirin, like ribavirin, likely needs to be based on a patients
weight to achieve efficacy equal or superior to that of ribavirin. Additionally, we think that
higher doses of taribavirin than those studied in the VISER program may be necessary to achieve our
efficacy objectives and to deliver doses of taribavirin derived ribavirin comparable to the doses
of ribavirin that are used as standard of care.
Based on our analysis, we initiated a Phase IIb study to evaluate the efficacy of taribavirin
at 20, 25 and 30 mg/kg in combination with pegylated interferon, compared with ribavirin in
combination with pegylated interferon. In the VISER program, taribavirin was administered in a
fixed dose of 600 mg BID (approximately equivalent to 13-18 mg/kg).
The Phase IIb study is a U.S. multi-center, randomized, parallel, open-label study in 278
treatment naïve, genotype 1 patients evaluating taribavirin at 20 mg/kg, 25 mg/kg, and 30 mg/kg per
day in combination with pegylated interferon alfa-2b. The control group is being administered
weight-based dosed ribavirin (800/1,000/1,200/1,400 mg daily) and pegylated interferon alfa-2b.
Overall treatment duration is 48 weeks with a post-treatment follow-up period of 24 weeks. The
primary endpoints for this study are viral load reduction at treatment week 12 and anemia rates
throughout the study.
On March 17, 2008, we reported the results of the 12-week analysis of the taribavirin Phase
IIb study. The 12-week early viral response (EVR) data from the Phase IIb study showed comparable
reductions in viral load for weight-based doses of taribavirin and ribavirin. The anemia rate was
statistically significantly lower for patients receiving taribavirin in the 20mg/kg and 25mg/kg
arms versus the ribavirin control arm. The most common adverse events were fatigue, nausea,
flu-like symptoms, headache and diarrhea. The incidence rates among treatment arms were generally
comparable except with respect to diarrhea. Diarrhea was approximately twice as common in
taribavirin patients as ribavirin patients. However, the diarrhea was not treatment limiting for
taribavirin or ribavirin patients.
42
We presented treatment week 24 results from our Phase IIb study evaluating weight-based dosing
with taribavirin versus weight-based ribavirin (both in combination with pegylated interferon
alfa-2b in naïve, chronic hepatitis C, genotype 1 patients) at the 59th annual American Association
for the Study of Liver Disease, San Francisco, California in November 2008 and on November 24,
2008, we published the 48-week end of treatment results in a press release. We presented results
from the week-60 analysis for the Phase IIb dose-finding clinical trial on April 23, 2009 at the
European Association for the Study of Liver (EASL) 44th Annual Meeting in Copenhagen, Denmark. The
treatment 24-week and end of treatment 48-week results and the week 60 follow up results continue
to demonstrate a consistent and similar viral response rate for both taribavirin and ribavirin at
all doses studied, while the beneficial effect of taribavirin on anemia has been maintained
throughout the duration of therapy.
We are actively seeking potential partners for the taribavirin program. External research and
development expenses for taribavirin were $0.8 million and $2.7 million for the three months ended
March 31, 2009 and 2008, respectively.
Dermatology Products
A number of late stage 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: IDP-107 is an antibiotic for the treatment of moderate to severe acne vulgaris.
Acne is a disorder of the pilosebaceous unit and can be identified by the presence of
inflammatory and non-inflammatory lesions, pustules, papules, or pimples. Acne vulgaris is a
common skin disorder that affects about 85% of people at some point in their lives. IDP-107 is
currently in Phase II studies.
IDP-108: IDP-108 is an antifungal targeted to treat Onychomycosis. It is an investigational
topical drug for nail, hair, and skin fungal infections. The mechanism of antifungal activity
appears similar to other antifungal triazoles, i.e. ergosterol synthesis inhibition. IDP-108, in
a non-lacquer formulation, is currently in Phase II studies.
IDP-113: IDP-113 has the same active pharmaceutical ingredient as IDP-108. IDP-113 is a
topical therapy in solution form for the treatment of tinea capitis, which is a fungal infection
of the scalp characterized by bald patches. IDP-113 is currently in Phase II studies.
IDP-115: IDP-115 is a product that combines an active ingredient with sunscreen agents
providing SPF for the treatment of rosacea. IDP-115 has completed Phase II clinical trials.
Rosacea is characterized by erythema that begins on the central face and can spread to the
cheeks, nose, and forehead and less commonly affect the neck, chest, ears, and scalp.
Foreign Operations
Approximately
57% and 61% of our revenues from continuing operations, which includes
royalties, for the three months ended March 31, 2009 and 2008, respectively, were generated from
operations outside the United States. All of our foreign operations are subject to risks inherent
in conducting business abroad, including possible nationalization or expropriation, price and
currency exchange controls, fluctuations in the relative values of currencies, political
instability and restrictive governmental actions. 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.
Critical Accounting Estimates
The consolidated condensed 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 annual report on Form 10-K
for the year ended December 31, 2008 for a discussion of our critical accounting estimates.
43
Other Financial Information
With respect to the unaudited consolidated condensed financial information of Valeant
Pharmaceuticals International for the three months ended March 31, 2009 and 2008,
PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their report dated May 7, 2009,
appearing herein, states that they did not audit and they do not express an opinion on that
unaudited consolidated condensed 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 Act) for their report on the unaudited
consolidated condensed 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 Act.
44
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 on Form 10-Q 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. These forward-looking statements are subject to a variety of risks and
uncertainties, including those discussed below and elsewhere in this quarterly report on Form 10-Q,
which could cause actual results to differ materially from those anticipated by our management.
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.
Forward-looking statements may be identified by the use of the words anticipates, expects,
intends, plans, and variations or similar expressions. You should understand that various
important factors and assumptions, including those set forth below, could cause our actual results
to differ materially from those anticipated in this report.
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Adverse U.S and international economic and market conditions may adversely affect our
product sales and business. |
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Due to the large portion of our business conducted outside the United States, we have
significant foreign currency risk. |
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If retigabine, taribavirin and other product candidates in development do not become
approved and commercially successful products, our ability to generate future growth in
revenue and earnings will be adversely affected. |
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We may be unable to identify, acquire and integrate acquisition targets successfully. |
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Even in well designed clinical trials, the potential of a drug to cause serious or
widespread personal injury may not be apparent. In addition, the existence of a correlation
between use of a drug and serious or widespread personal injury may not be apparent until
it has been in widespread use for some period of time. Particularly when a drug is used to
treat a disease or condition which is complex and the patients are taking multiple
medications, such correlations may indicate, but do not necessarily indicate, that the drug
has caused the injury; nevertheless we may decide to, or regulatory authorities may require
that we, withdraw the drug from the market and/or we may incur significant costs, including
the potential of paying substantial damages. Withdrawals of products from the market and/or
incurring significant costs, including the requirement to pay substantial damages in
personal injury cases, would materially affect our business and results of operations. |
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Our future growth will depend, in large part, upon our ability or the ability of our
partners or licensees to develop or obtain and commercialize new products and new
formulations of, or indications for, current products. |
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Identifying a material weakness in our internal control over financial reporting in
future periods could adversely affect our stock price and our ability to prepare complete
and accurate financial statements in a timely manner. |
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The results from the interim analyses of our Phase IIb study for taribavirin may not be
predictive of the final results of the 72-week Phase IIb study or of any subsequent
clinical trial necessary for approval of taribavirin. |
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We are involved in several legal proceedings, including the current SEC investigation
and those other proceedings described in Note 12, Commitments and Contingencies, of the
notes to consolidated condensed financial statements included elsewhere in this quarterly
report, any of which could result in substantial cost and divert managements attention and
resources. |
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Third parties may be able to sell generic forms of our products or block the sales of
our products if our intellectual property rights or data exclusivity rights do not
sufficiently protect us; patent rights of third parties may also be asserted against us. |
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Some of the products we sell have no meaningful exclusivity protection via patent or
data exclusivity rights. These products represent a significant amount of our revenues.
Without exclusivity protection, competitors face fewer barriers in introducing competing
products. The introduction of competing products could adversely affect our results of
operations and financial condition. |
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We are subject to uncertainty related to health care reform measures and reimbursement
policies. |
45
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The matters relating to the Special Committees review of our historical stock option
granting practices and our prior restatement of our consolidated financial statements have
resulted in increased litigation and regulatory proceedings against us and could have a
material adverse effect on us. |
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Our business could be seriously harmed if competitors develop more effective or less
costly drugs for our target indications. |
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Obtaining necessary government approvals is time consuming and not assured.
Uncertainties and delays inherent in the process can preclude or delay development and
commercialization of our products. |
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If we or our third-party manufacturers are unable to manufacture our products or the
manufacturing process is interrupted due to failure to comply with regulations or for other
reasons, the manufacture of our products could be interrupted. |
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Many of our key processes, opportunities and expenses are a function of existing
national and/or local government regulation. Significant changes in regulations could have
a material adverse impact on our business. |
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Our business, financial condition and results of operations are subject to risks arising
from the international scope of our operations. |
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If the counterparties to our convertible notes hedge and warrant transactions do not
fulfill their obligations, if and when they occur, such a failure could have a material
adverse effect on our financial position and results of operations, and result in
stockholder dilution. |
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Existing and future audits by, or other disputes with, taxing authorities may not be
resolved in our favor. |
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Our stockholder rights plan and anti-takeover provisions of our charter documents could
provide our board of directors with the ability to delay or prevent a change in control of
us. |
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We are subject to a consent order with the Securities and Exchange Commission, which
permanently enjoins us from violating securities laws and regulations. The consent order
also precludes protection for forward-looking statements under the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 with respect to forward-looking
statements we made prior to November 28, 2005. The existence of the permanent injunction
under the consent order, and the lack of protection under the safe harbor with respect to
forward-looking statements made prior to November 28, 2005 may limit our ability to defend
against future allegations. |
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We are subject to fraud and abuse and similar laws and regulations, and a failure to
comply with such regulations or prevail in any litigation related to noncompliance could
harm our business. |
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Our restructuring plans are intended to improve operational efficiencies and our
competitiveness. If we are unable to realize the benefits from our restructuring plans, our
business prospects may suffer and our operating results and financial condition would be
adversely affected. |
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All drugs have potential harmful side effects and can expose drug manufacturers and
distributors to liability. In the event one or more of our products is found to have harmed
an individual or individuals, we may be responsible for paying all or substantially all
damages awarded. A successful product liability claim against us could have a material
negative impact on our financial position and results of operations. |
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Our stockholder rights plan, provisions of our certificate of incorporation and
provisions of the Delaware General Corporation Law could provide our Board of Directors
with the ability to deter hostile takeovers or delay, deter or prevent a change in control
of our company, including transactions in which stockholders might otherwise receive a
premium for their shares over then current market prices. |
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We are authorized to issue, without stockholder approval, approximately 10,000,000
shares of preferred stock, 200,000,000 shares of common stock and securities convertible
into either shares of common stock or preferred stock. If we issue additional equity
securities, the price of our securities may be materially and adversely affected. The Board
of Directors can also use issuances of preferred or common stock to deter a hostile
takeover or change in control of our company. |
46
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 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 and the Canadian Dollar. During 2009, we entered into various
forward foreign currency contracts to: a) reduce our exposure to forecasted 2009 Japanese Yen
denominated royalty revenue, b) hedge our net investment in our Polish and Brazilian subsidiaries,
and c) utilize fair value hedges to reduce our exposure to various currencies as a result of
repetitive short-term intercompany investments and obligations. In the aggregate, an unrealized
gain of $0.2 million was recorded in the financial statements at March 31, 2009. 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, 2009, the fair value of our derivatives was:
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Notional/ |
|
Assets (Liabilities) |
|
|
Contract |
|
Carrying |
|
Fair |
Description |
|
Amount |
|
Value |
|
Value |
Undesignated hedges |
|
$ |
3,935 |
|
|
$ |
10 |
|
|
$ |
10 |
|
Net investment derivative contracts |
|
|
20,000 |
|
|
|
(121 |
) |
|
|
(121 |
) |
Cash flow derivative contracts |
|
|
2,231 |
|
|
|
211 |
|
|
|
211 |
|
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 2009 pretax earnings. In addition, we had $381.6 million of fixed rate debt
as of March 31, 2009 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.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure 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, can provide only reasonable 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.
As of March 31, 2009, 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
Securities Exchange Act of 1934). 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 ensure that information we are required to disclose in the reports
that we file or submit under the Securities Exchange Act of 1934, is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions 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.
47
Changes in Internal Control over Financial Reporting
There has been no change in our internal controls over financial reporting that occurred
during the three months ended March 31, 2009 that has materially affected, or is reasonably likely
to materially affect, the internal controls over financial reporting.
48
PART II OTHER INFORMATION
Item 1. Legal Proceedings
See Note 12, Commitments and Contingencies, of the notes to consolidated condensed financial
statements in Item 1 of Part I of this quarterly report, which is incorporated herein by reference.
Item 1A. Risk Factors
There has been no material change in our risk factors as previously described in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2008 in response to Item 1A. to Part I
of such Form 10-K, filed with the Securities and Exchange Commission on March 2, 2009.
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 common stock or convertible subordinated notes in a 24-month period ending October
2010, unless earlier terminated or completed. Under the program, purchases may be made from time to
time on the open market, in privately negotiated transactions, and in amounts as we see
appropriate. The number of securities to be purchased and the timing of such purchases are subject
to various factors, which may include the price of our common stock, general market conditions,
corporate requirements and alternate investment opportunities. The securities repurchase program
may be modified or discontinued at any time. During the three months ended March 31, 2009, we
purchased $65.7 million aggregate principal amount of our 3.0% Convertible Subordinated Notes due
2010 for $64.3 million in cash.
Item 6. Exhibits
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|
|
Exhibit |
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|
3.1
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|
Restated Certificate of Incorporation, as amended to date, previously filed as Exhibit 3.1 to
the Registrants Form 10-Q for the quarter ended September 30, 2003 (File No. 03995078), which
is incorporated herein by reference. |
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3.2
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|
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, dated October
6, 2004, which is incorporated herein by reference. |
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3.3
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|
Certificate of Correction to Restated Certificate of Incorporation, dated April 3, 2006,
previously filed as Exhibit 3.3 to the Registrants Form 10-Q for the quarter ended September
30, 2007, which is incorporated herein by reference. |
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|
3.4
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|
Amended and Restated Bylaws of the Registrant previously filed as Exhibit 3.1 to the
Registrants Current Report on Form 8-K, dated February 25, 2008, which is incorporated herein
by reference. |
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4.1
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|
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, dated November 10, 1994 (No. 94558814), which is
incorporated herein by reference. |
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4.2
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|
Amended Rights Agreement, dated as of October 5, 2004, previously filed as Exhibit 4.1 to the
Registrants Current Report on Form 8-K, dated October 5, 2004, which is incorporated herein by
reference. |
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4.3
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|
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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10.2
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|
Employment letter agreement, dated March 10, 2009, between the Registrant and Bhaskar Chaudhuri. |
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10.3
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|
Description of Registrants annual incentive plan for fiscal year 2009, previously described in
Item 5.02 of Registrants Current Report on Form 8-K, dated March 10, 2009, which is
incorporated herein by reference. |
49
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Exhibit |
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|
15.1
|
|
Review Report of Independent Registered Public Accounting Firm. |
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15.2
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|
Awareness Letter of Independent Registered Public Accounting Firm. |
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31.1
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|
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. |
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31.2
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|
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. |
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|
32.1
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|
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. |
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|
Management contract or compensatory plan or arrangement. |
50
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.
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|
Valeant Pharmaceuticals International
Registrant
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/s/ J. Michael Pearson
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J. Michael Pearson |
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Chairman and Chief Executive Officer |
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|
Date: May 7, 2009
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/s/ Peter J. Blott
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|
Peter J. Blott |
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|
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
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|
Date: May 7, 2009
51
EXHIBIT INDEX
|
|
|
Exhibit |
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|
3.1
|
|
Restated Certificate of Incorporation, as amended to date, previously filed as Exhibit 3.1 to
the Registrants Form 10-Q for the quarter ended September 30, 2003(No. 03995078), which is
incorporated herein by reference. [Note: Item 10(d) of Regulation S-K provides that no document
on file with the SEC for more than 5 years may be incorporated by reference except (1)
documents contained in registration statements or (2) documents that are identified by SEC file
number reference.] |
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|
|
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, dated October
6, 2004, which is incorporated herein by reference. |
|
|
|
3.3
|
|
Certificate of Correction to Restated Certificate of Incorporation, dated April 3, 2006,
previously filed as Exhibit 3.3 to the Registrants Form 10-Q for the quarter ended September
30, 2007, which is incorporated herein by reference. |
|
|
|
3.4
|
|
Amended and Restated Bylaws of the Registrant previously filed as Exhibit 3.1 to the
Registrants Current Report on Form 8-K, dated February 25, 2008, 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, dated November 10, 1994 (No. 94558814), which is
incorporated herein by reference. |
|
|
|
4.2
|
|
Amended Rights Agreement, dated as of October 5, 2004, previously filed as Exhibit 4.1 to the
Registrants Current Report on Form 8-K, dated October 5, 2004, 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. |
|
|
|
10.2
|
|
Employment letter agreement, dated March 10, 2009, between the Registrant and Bhaskar Chaudhuri. |
|
|
|
10.3
|
|
Description of Registrants annual incentive plan for fiscal year 2009, previously described in
Item 5.02 of Registrants Current Report on Form 8-K, dated March 10, 2009, 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. |
|
|
|
32.1
|
|
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. |