e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31, 2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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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
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(State or other jurisdiction
of
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(I.R.S. Employer
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incorporation or
organization)
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Identification No.)
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One Enterprise, Aliso Viejo, California
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92656
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(Address of principal executive
offices)
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(Zip Code)
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Registrants telephone number, including area code:
(949) 461-6000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common stock, $.01 par value (Including
associated preferred stock purchase rights)
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 Web site, 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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
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
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the registrants voting stock
held by non-affiliates of the registrant on June 30, 2009,
the last business day of the registrants most recently
completed second fiscal quarter based on the closing price of
the common stock on the New York Stock Exchange on such date,
was approximately $2,117,574,000.
The number of outstanding shares of the registrants common
stock as of February 18, 2010 was 78,021,855.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain information contained in Valeant Pharmaceuticals
Internationals definitive proxy statement for the 2010
annual meeting of stockholders is incorporated by reference into
Part III of this
Form 10-K.
Forward-Looking
Statements
In addition to current and historical information, this Annual
Report on
Form 10-K
contains forward-looking statements. These statements relate to,
but are not limited to, our future operations, future alliance
revenue, prospects, potential products, developments and
business strategies. Words such as expects,
anticipates, intends, plans,
should, could, would,
may, will, believes,
estimates, potential, or
continue or similar language identify
forward-looking statements.
Forward-looking statements involve known and unknown risks and
uncertainties. Our actual results may differ materially from
those contemplated by the forward-looking statements. Factors
that might cause or contribute to these differences include, but
are not limited to, those discussed in the sections of this
report entitled Risk Factors and
Managements Discussion and Analysis of Financial
Condition and Results of Operations and sections in other
documents filed with the Securities and Exchange Commission
(SEC), under similar captions. You should consider
these in evaluating our prospects and future financial
performance. These forward-looking statements are made as of the
date of this report. We disclaim any obligation to update or
alter these forward-looking statements in this report or the
other documents in which they are found, whether as a result of
new information, future events or otherwise, or any obligation
to explain the reasons why actual results may differ.
Acanya, Ancobon, Atralin, Bedoyecta, Bisocard, CeraVe, Cesamet,
Cloderm, Diastat, Diastat AcuDial, Dermaveen, Dr. Renaud,
Dr. LeWinns, Efudex/Efudix, Infergen, Kinerase,
Librax, Librium, Mestinon, Migranal, MVE, M.V.I., Nyal, Opana,
Permax, Quarzan, Syncumar and Sinupret are trademarks or
registered trademarks of Valeant Pharmaceuticals International
or its related companies or are used under license. This annual
report also contains trademarks or trade names of other
companies and those trademarks and trade names are the property
of their respective owners.
PART I
Unless the context indicates otherwise, when we refer to
we, us, our,
Valeant or the Company in this Annual
Report on
Form 10-K,
we are referring to Valeant Pharmaceuticals International, a
Delaware corporation, and its subsidiaries on a consolidated
basis.
Introduction
We are a multinational specialty pharmaceutical company that
develops, manufactures and markets a broad range of
pharmaceutical products. Our specialty pharmaceutical and OTC
products are marketed under brand names and are sold in the
United States, Canada, Australia and New Zealand, where we focus
most of our efforts on the dermatology and neurology therapeutic
classes. We also have branded generic and OTC operations in
Europe and Latin America which focus on pharmaceutical products
that are bioequivalent to original products and are marketed
under company brand names.
Business
Strategy
Our strategy is to focus the business on core geographies and
therapeutic classes, maximize pipeline assets through strategic
partnerships with other pharmaceutical companies and deploy cash
with an appropriate mix of selective acquisitions, share
buybacks and debt repurchases. We believe this strategy will
allow us to improve both our growth rates and profitability.
Our leveraged research and development (R&D)
model is a key element to our business strategy. It allows us to
progress development programs to drive future commercial growth,
while minimizing our R&D expense. This is achieved in 4
ways: (1) we structure partnerships and collaborations so
that our partner partially funds development work, e.g.,
collaboration on retigabine with Glaxo Group Limited
(GSK), a wholly-owned subsidiary of GlaxoSmithKline
plc, (2) we bring products already developed for other
markets to our territories, e.g., our joint venture relationship
in Canada with Meda AB (Meda), an international
specialty pharmaceutical company located in Stockholm, Sweden,
(3) we acquire dossiers and registrations for branded
generic products, which
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require limited and low risk manufacturing
start-up and
development activities and (4) we have a dermatology
service business that works with external customers as well as
progressing our internal development programs. This service
business model allows higher utilization and infrastructure cost
absorption.
In March 2008, we announced a company-wide restructuring effort,
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. Specifically, we
reduced our focus to two therapeutic classes
dermatology and neurology, and to five geographic
areas U.S., Canada, Australia/New Zealand,
Mexico/Brazil and Central Europe, and we adjusted our business
infrastructure to support our strategy.
In 2008, we divested or discontinued certain non-strategic
products and regional operations that did not meet our growth
and profitability expectations. 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. 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
the 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
business) to Meda. As a result of these dispositions, the
results of operations of Infergen and of the WEEMEA business
have been classified as discontinued operations in our
consolidated financial statements for all periods presented in
this report.
Acquisitions
In December 2009, we acquired Laboratoire Dr. Renaud, a
privately-held cosmeceutical company located in Canada that
specializes in topical formulations, and a related
U.S. company (together Dr. Renaud), for
aggregate cash consideration of $21.5 million. As a result
of the acquisition, we gained access to a dermatology sales and
marketing infrastructure in Canada and entered into a lease for
a dermatological manufacturing facility.
In October 2009, we acquired Private Formula Holdings
International Pty Limited (PFI), a privately-held
company located in Australia that is engaged in product
development, sales and marketing of premium skincare products
primarily in Australia, for aggregate cash consideration of
$71.1 million and the issuance of 162,500 restricted shares
of our common stock valued at approximately $3.4 million.
The purchase price includes a working capital adjustment of
$0.9 million, which was paid in 2010. The acquisition of
PFI gives us access to two leading brands in the Australian and
New Zealand prestige skincare and nail treatment market and
access to PFIs established pharmacy and department store
distribution network.
In July 2009, we acquired Tecnofarma S.A. de C.V.
(Tecnofarma), a privately-held company located in
Mexico, for a purchase price of approximately one times sales,
plus the assumption of debt of approximately $13.0 million.
Tecnofarma produces generic pharmaceuticals for sale primarily
to the government and private label markets. The acquisition of
Tecnofarma included the acquisition of manufacturing facilities,
which will allow us to reduce our dependence upon third party
manufacturers in Latin America.
In May 2009, we acquired intellectual property, trademarks and
inventory related to certain dermatology products approved for
sale in Australia and New Zealand, for cash of approximately
$7.3 million, including transaction costs.
In April 2009, we acquired EMO-FARM sp. z o.o.
(Emo-Farm), a privately-held Polish company that
specializes in gel-based
over-the-counter
and cosmetic products, for aggregate cash consideration of
$28.6 million. The acquisition of Emo-Farm expanded our
base in Poland into topical products and included the
acquisition of a topical manufacturing facility.
In December 2008, we acquired Dow Pharmaceutical Sciences, Inc.
(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. We acquired Dow for an agreed price of
$285.0 million, subject to certain closing adjustments,
plus transaction costs. Contingent consideration of up to
$235.0 million for future milestones related to certain
pipeline products still in development was included in the
merger agreement. In 2009, we paid
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$115.0 million to the former Dow common stockholders in
order to settle all current and future income and milestone
obligations that we had to these stockholders under the merger
agreement. Specifically, in exchange for this payment, we
received (i) rights to all future profit share payments to
Dow under Dows 2008 agreement with Mylan Pharmaceuticals
Inc. (Mylan) related to sales of 1% clindamycin and
5% benzoyl peroxide gel (IDP-111), for which 90% was
required to be paid to the former Dow common stockholders under
the original merger agreement, and (ii) a release by these
former Dow common stockholders of their right to receive up to
$235.0 million in milestone payments upon a successful
commercialization of Dow pipeline products currently under
development.
In November 2008, we acquired DermaTech Pty Ltd
(DermaTech), an Australian specialty pharmaceutical
company focused on dermatology products marketed in Australia,
for aggregate cash consideration of $15.5 million,
including transaction costs and working capital adjustments.
In October 2008, we acquired Coria Laboratories Ltd.
(Coria), a privately-held specialty pharmaceutical
company focused on dermatology products in the United States,
for aggregate cash consideration of $96.9 million,
including transaction costs and working capital adjustments. As
a result of the acquisition, we acquired an assembled sales
force and a suite of dermatology products which enhanced our
existing product base.
For information regarding these acquisitions, see Note 3 of
notes to consolidated financial statements in Item 8 of
this Annual Report on
Form 10-K.
Segment
Information
Our current product portfolio comprises approximately 380
products, with approximately 2,000 stock keeping units, with no
individual product comprising 10% or more of our consolidated
revenues in 2009. Our products are sold through three segments
comprising Specialty Pharmaceuticals, Branded
Generics Europe and Branded Generics
Latin America. Additionally, within our Specialty
Pharmaceuticals segment, we generate alliance revenue and
service revenue from the licensing of dermatological products
and from contract services in the areas of dermatology and
topical medication. We also generate further alliance revenue,
including royalties from the sale of ribavirin by
Schering-Plough Ltd. (Schering-Plough).
Specialty
Pharmaceuticals
The Specialty Pharmaceuticals segment generates product revenues
from pharmaceutical and OTC products primarily from the United
States, Canada, Australia and New Zealand. Within the Specialty
Pharmaceutical segment, we have a broad range of pharmaceutical
products including dermatology, neurology and prescription
products in other therapeutic areas. These pharmaceutical
products are marketed and sold primarily through wholesalers and
to a lesser extent through retail and
direct-to-physician
channels.
Dermatology Products Efudex/Efudix is
indicated for the treatment of multiple actinic or solar
keratoses and superficial basal cell carcinoma. It is sold as a
cream and ointment under the Efudex/Efudix brand name and as
generic fluorouracil 5%. Acanya gel is a fixed-combination
clindamycin (1.2%)/benzoyl peroxide (2.5%) aqueous gel approved
by the U.S. Food and Drug Administration (FDA)
for the treatment of acne vulgaris in patients 12 years and
older. Studied in patients with moderate and severe acne, Acanya
is a once-daily formulation that offers high efficacy with a
favorable tolerability profile because patients experience less
dryness and skin irritation. Acanya was launched in March 2009.
Atralin gel is an aqueous gel containing tretinoin (0.05%)
approved for acne vulgaris in patients 10 years and older
and is optimized for follicular skin penetration. Atralin has
been demonstrated to reduce acne lesions as early as one month
after the start of treatment and contains ingredients
(hyaluronic acid, collagen and glycerin) known to moisturize and
hydrate the skin. Combined sales of these products in the
Specialty Pharmaceutical segment total approximately 18%, 20%
and 19% of Specialty Pharmaceutical product sales for the years
ended December 31, 2009, 2008 and 2007, respectively.
OTC Products CeraVe is a range of
over-the-counter
products with essential ceramides and other skin-nourishing and
skin-moisturizing ingredients (humectants and emollients)
combined with a unique, patented Multivesicular Emulsion (MVE)
delivery technology that, together, work to rebuild and repair
the skin barrier. CeraVe formulations incorporate ceramides,
cholesterol and fatty acids, all of which are essential for skin
barrier
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repair and are used as adjunct therapy in the management of
various skin conditions. Kinerase is a range of
over-the-counter
and prescription cosmetic products that help skin look smoother,
younger and healthier. Kinerase contains the synthetic plant
growth factor N6-furfuryladenine which has been shown to slow
the changes that naturally occur in the cell aging process in
plants and in skin cells. Nyal is an Australian range of
over-the-counter
products covering an extensive range of tablets, liquids and
nasal sprays to treat cough, cold, flu, sinus and hayfever
symptoms. We also sell topical OTC products under the tradenames
Dermaveen and Dr. LeWinns in Australia and
Dr. Renaud in Canada. The Dr. LeWinns and
Dr. Renaud products were acquired in 2009. Combined sales
of these products in the Specialty Pharmaceutical segment total
approximately 14%, 12% and 11% of Specialty Pharmaceutical
product sales for the years ended December 31, 2009, 2008
and 2007, respectively.
Neurology / Other Products
Diastat/Diastat Acudial are gel formulations of diazepam
administered rectally for the management of selected, refractory
patients with epilepsy, who require intermittent use of diazepam
to control bouts of increased seizure activity. Diastat and
Diastat AcuDial are the only products approved by the FDA for
treatment of such conditions outside of hospital situations.
Cesamet is a synthetic cannabinoid sold in Canada. It is
indicated for the management of severe nausea and vomiting
associated with cancer chemotherapy. Mestinon is an orally
active cholinesterase inhibitor used in the treatment of
myasthenia gravis, a chronic neuromuscular, autoimmune disorder
that causes varying degrees of fatigable weakness involving the
voluntary muscles of the body. Migranal is a nasal spray
formulation of dihydroergotamine indicated for the treatment of
acute migraine headaches. Librax is a combination within a
single capsule formulation of the antianxiety action of Librium
(chlordiazepoxide) and the anticholinergic/spasmolytic effects
of Quarzan (clidinium). It is used as adjunctive therapy in the
treatment of peptic ulcer and in the treatment of irritable
bowel syndrome (irritable colon, spastic colon, mucous colitis)
and acute enterocolitis. Combined sales of these products in the
Specialty Pharmaceutical segment total approximately 39%, 39%
and 36% of Specialty Pharmaceutical product sales for the years
ended December 31, 2009, 2008 and 2007, respectively.
Specialty Pharmaceutical Service and Alliance
Revenue We generate alliance revenue and service
revenue from the licensing of dermatological products and from
contract services in the areas of dermatology and topical
medication. Alliance revenue within our Specialty
Pharmaceuticals segment currently includes profit sharing
payments from the sale of a 1% clindamycin and 5% benzoyl
peroxide gel product (IDP-111) by Mylan, royalty
payments on net sales of Cesamet in the U.S. through
license agreements entered into with Meda in September 2009 and
royalties from patent-protected formulations developed by Dow
and licensed to third parties. In addition, we will receive
future royalties on net sales of two dermatology products in
Europe pursuant to license agreements entered into with Meda.
Contract services are primarily focused on contract research for
external development and clinical research in areas such as
formulations development, in vitro drug penetration
studies, analytical sciences and consulting in the areas of
labeling and regulatory affairs. We also generate revenues
associated with the Collaboration Agreement with GSK (as defined
below).
Branded
Generics Europe
The Branded Generics Europe segment generates
revenues from branded generic pharmaceutical products primarily
in Poland, Hungary, the Czech Republic and Slovakia. The Polish
market represents approximately 77%, 74% and 74% of product
sales in this segment for the years ended December 31,
2009, 2008 and 2007, respectively. Our Branded
Generics Europe segment develops, manufactures and
markets products that are the therapeutic equivalent to their
brand name counterparts, which are developed when patents or
other regulatory exclusivity no longer protect an
originators brand product. Our branded generics strategy
is to develop a commercialization strategy to differentiate
these products through innovative marketing tactics. Our
products in this region are sold under the ICN Polfa brand name
and we market our portfolio of generic branded products to
doctors and pharmacists through approximately 300 sales
professionals.
Our branded generics cover a broad range of treatments including
antibiotics, antifungal medications and diabetic therapies among
many others. Our largest product in this market is Bisocard, a
Beta-blocker that is indicated to treat hypertension and angina
pectoris. Syncumar is a courmarin that is used as an
anti-coagulant for the treatment and prevention of
thromboembolic diseases. Sinupret is an herbal supplement that
is claimed to be beneficial for supporting healthy sinus and
respiratory function. It is commonly used for the treatment of
allergies, coughs, colds and sinus infections.
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Branded
Generics Latin America
The Branded Generics Latin America segment generates
revenues from branded generic pharmaceutical products and OTC
products in Mexico, Brazil and exports out of Mexico to other
Latin American markets. The Mexico domestic market represents
approximately 78%, 77% and 79% of product sales in this segment
for the years ended December 31, 2009, 2008 and 2007,
respectively. Our branded generic and generic products are
developed when patents or other regulatory exclusivity no longer
protect an originators brand product. Our branded generic
products are primarily marketed to physicians and pharmacies
through approximately 300 sales professionals under the Grossman
brand. Our generic portfolio is primarily sold through the
Government Health Care System, which awards its business through
a tender process.
Our portfolio covers a broad range of therapeutic classes
including antibacterials, vitamin deficiency and dermatology.
Our largest product in this market is Bedoyecta, a brand of
vitamin B complex (B1, B6 and B12 vitamins) products. Bedoyecta
products act as energy improvement agents for fatigue related to
age or chronic diseases, and as nervous system maintenance
agents to treat neurotic pain and neuropathy. Bedoyecta is sold
in an injectable form as well as in a tablet form in Mexico and
has strong brand recognition in Mexico. Our second largest
product, M.V.I., multi- vitamin infusion, is a hospital dietary
supplement used in treating trauma and burns.
For detailed information regarding the revenues, operating
profits and identifiable assets attributable to our operating
segments, see Note 18 of notes to consolidated financial
statements in Item 8 of this Annual Report on
Form 10-K.
Alliance
Revenue (Ribavirin Royalties only)
Royalties are 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. For further discussion of this licensing
arrangement, see Note 19 of notes to consolidated financial
statements in Item 8 of this Annual Report on
Form 10-K.
We also licensed ribavirin to Roche in 2003. Roche discontinued
royalty payments to us in June 2007 when the European Patent
Office revoked a ribavirin patent which would have provided
protection through 2017.
Ribavirin royalty revenues were $46.7 million,
$59.4 million and $67.2 million for the years ended
December 31, 2009, 2008 and 2007, respectively, and
accounted for 6%, 9% and 10% of our total revenues in 2009, 2008
and 2007, respectively. Royalty revenues in 2009, 2008 and 2007
were substantially lower than those in prior years. This
decrease was expected and relates to: 1) Roches
discontinuation of royalty payments to us in June 2007;
2) Schering-Ploughs market share losses in ribavirin
sales; 3) reduced Schering-Plough sales in Japan from a
peak in 2005 and 4) discontinuation of royalty payments
from Schering-Plough in European countries after the ten-year
anniversary of the launch of the product, which varied by
European country and started in May 1999.
We expect ribavirin royalties to continue to decline in 2010
predominantly due to discontinued Schering-Plough royalty
payments for European countries. We expect that royalties from
Schering-Plough in Japan will continue after 2010.
Collaboration
Agreement
In October 2008, we closed the worldwide License and
Collaboration Agreement (the Collaboration
Agreement) with Glaxo Group Limited (GSK), a
wholly-owned subsidiary of GlaxoSmithKline plc, to develop and
commercialize retigabine, a
first-in-class
neuronal potassium channel opener for the treatment of adult
epilepsy patients with refractory partial onset seizures, and
its backup compounds. We received $125.0 million in upfront
fees from GSK upon the closing.
We agreed to share equally with GSK the development and
pre-commercialization expenses of retigabine in the United
States, Australia, New Zealand, Canada and Puerto Rico (the
Collaboration Territory) and GSK will develop and
commercialize retigabine in the rest of the world. Our share of
such expenses in the Collaboration Territory is limited to
$100.0 million, provided that GSK will be entitled to
credit our share of any such expenses in excess of such amount
against future payments owed to us under the Collaboration
Agreement. The difference between the upfront payment of
$125.0 million and our expected development and
pre-commercialization expenses under the Collaboration Agreement
is being recognized as alliance revenue over the period prior to
the launch of a
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retigabine product (the Pre-Launch Period). We
recognize alliance revenue during the Pre-Launch Period as we
complete our performance obligations using the proportional
performance model, which requires us to determine and measure
the completion of our expected development and
pre-commercialization costs during the Pre-Launch Period, in
addition to our participation in the joint steering committee.
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. If GSK terminates the
Collaboration Agreement prior to December 31, 2010, we
would be required to refund to GSK a portion of the upfront fee.
In February 2009, the Collaboration Agreement was amended to,
among other matters, reduce the maximum amount of the upfront
fee that we would be required to refund to GSK to
$40.0 million through December 31, 2009, with
additional ratable reductions in the amount of the required
refund during 2010 until reaching zero at December 31, 2010.
During the years ended December 31, 2009 and 2008, the
combined research and development expenses and
pre-commercialization expenses incurred under the Collaboration
Agreement by us and GSK were $65.3 million and
$13.1 million, respectively. We recorded a charge of
$1.2 million and a credit of $4.1 million in the years
ended December 31, 2009 and 2008, respectively, against our
share of the expenses to equalize our expenses with GSK,
pursuant to the terms of the Collaboration Agreement. See
Note 4 of notes to consolidated financial statements in
Item 8 of this Annual Report on
Form 10-K
for additional information
Our rights to retigabine are subject to an Asset Purchase
Agreement between Meda Pharma GmbH & Co. KG
(Meda Pharma) and Xcel Pharmaceuticals,
Inc.(Xcel), which was acquired by us in 2005 (the
Meda Pharma Agreement). Under the Meda Pharma
Agreement, we are required to make certain milestone and royalty
payments to Meda Pharma. Within the Collaboration Territory, any
royalties to Meda Pharma will be shared by us and GSK. In the
rest of the world, we will be responsible for the payment of
these royalties to Meda Pharma from the royalty payments we
receive from GSK.
Research
and Development
Our research and development organization focuses on the
development of products through clinical trials. We currently
have a number of compounds in clinical development: retigabine,
taribavirin, IDP-107, IDP-108, IDP-113 and IDP-115. Our research
and development expenses for the years ended December 31,
2009, 2008 and 2007 were $44.0 million, $87.0 million
and $98.0 million, respectively.
As of December 31, 2009, approximately 150 employees
were involved in our research and development efforts.
Products
in Development
Retigabine
Subject to the terms of the Collaboration Agreement with GSK, we
are developing retigabine as an adjunctive treatment for
partial-onset seizures in patients with epilepsy. Retigabine
stabilizes hyper-excited neurons primarily by opening neuronal
potassium channels. On October 30, 2009, the NDA was filed
for retigabine for the treatment of refractory partial onset
seizures. The FDA accepted the NDA for review on
December 29, 2009 and established a Prescription Drug User
Fee Act (PDUFA) date of August 30, 2010. In
addition, the European Medicines Evaluation Agency
(EMEA) confirmed on November 17, 2009 that the
Marketing Authorization Application (MAA) was
successfully validated, thus enabling the MAA review to
commence. Retigabine has been in development by us since our
acquisition of Xcel in 2005.
In September 2009, a Phase I clinical study was initiated for
three additional retigabine modified release technologies, the
purpose of which is to identify a lead modified release
formulation that will be advanced in further research intended
to support a product with either a once or twice daily dosing
regimen for epilepsy patients.
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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
$25.7 million ($31.2 million total research and
development expenses) and $49.9 million prior to the credit
from the GSK Collaboration Agreement in 2009 and 2008,
respectively.
Taribavirin
Taribavirin (formerly referred to as viramidine) is a nucleoside
(guanosine) analog that is converted into ribavirin by adenosine
deaminase in the liver and intestine. Taribavirin was in
development in oral form for the treatment of hepatitis C.
During 2009, we ceased any further independent development work
on taribavirin and we are seeking potential partners for the
taribavirin program. External research and development expenses
for taribavirin were $2.3 million and $8.5 million in
2009 and 2008, respectively.
Dermatology
Products
A number of dermatology product candidates in development were
acquired as part of the acquisition of Dow in December 2008.
These include, but are not limited to:
IDP-107 is an oral treatment for moderate to severe acne
vulgaris. Acne is a disorder of the pilosebaceous unit
characterized by the presence of inflammatory (pimples) and
non-inflammatory (whiteheads and blackheads) lesions,
predominately on the face. Acne vulgaris is a common skin
disorder that affects about 85% of people at some point in their
lives.
IDP-108, a novel triazole compound, is an antifungal targeted to
treat onychomycosis, a fungal infection of the fingernails and
toenails primarily in older adults. The mechanism of antifungal
activity appears similar to other antifungal triazoles, i.e.
ergosterol synthesis inhibition. IDP-108 is a non-lacquer
formulation designed for topical delivery into the nail.
IDP-113 has the same active pharmaceutical ingredient as
IDP-108. IDP-113 is a topical therapy for the treatment of tinea
capitis, which is a fungal infection of the scalp characterized
by redness, scaling and bald patches, particularly in children.
There are currently no approved topical treatments for this
scalp condition.
IDP-115 combines an established anti-rosacea active ingredient
with sunscreen agents to provide sun protection in the same
topical treatment for rosacea patients. Rosacea is a common
condition treated by dermatologists and characterized by
multiple signs and symptoms including papules, pustules and
erythema, most commonly on the central area of the face.
Licenses
and Patents (Proprietary Rights)
Data
and Patent Exclusivity
We rely on a combination of regulatory and patent rights to
protect the value of our investment in the development of our
products.
A patent is the grant of a property right which allows its
holder to exclude others from, among other things, selling the
subject invention in, or importing such invention into, the
jurisdiction that granted the patent. In both the United States
and the European Union, patents expire 20 years from the
date of application.
In the United States, the Hatch-Waxman Act provides nonpatent
regulatory exclusivity for five years from the date of the first
FDA approval of a new drug compound in an NDA. The FDA is
prohibited during those five years from approving a generic, or
ANDA, that references the NDA. Protection under the Hatch-Waxman
Act will not prevent the filing or approval of another full NDA.
However, the NDA applicant would be required to conduct its own
pre-clinical, adequate and well-controlled clinical trials to
independently demonstrate safety and effectiveness.
8
A similar data exclusivity scheme exists in the European Union,
whereby only the pioneer drug company can use data obtained at
the pioneers expense for up to eight years from the date
of the first approval of a drug by the EMEA and no generic drug
can be marketed for ten years from the approval of the innovator
product. Under both the United States and the European Union
data exclusivity programs, products without patent protection
can be marketed by others so long as they repeat the clinical
trials necessary to show safety and efficacy.
Exclusivity
Rights with Respect to Retigabine and Taribavirin
We own a United States composition of matter patent (which will
expire in 2013) directed to retigabine without regard to
crystalline form. We anticipate that this patent will be
extended to 2018 upon approval of retigabine pursuant to the
patent term restoration provisions of the Hatch-Waxman Act. We
also own two United States patents (both of which will expire in
2018) that are directed to specific crystalline forms of
retigabine. In addition, we own a number of United States
patents and pending applications, with expiration dates ranging
from 2016 to 2023, directed to the use of retigabine to treat a
variety of disease indications. We also own several patents and
pending applications in foreign countries with expiration dates
ranging from 2012 to 2024.
We own a United States patent (which will expire in
2018) directed to a method of treating a viral infection
using a genus of compounds that includes taribavirin. We also
own a United States patent (which will expire in 2020) that
specifically claims the use of taribavirin to treat
hepatitis C infection. If taribavirin receives regulatory
approval, these patents may be eligible for patent term
extensions. We are also pursuing patent rights for taribavirin
in certain foreign countries where we believe it may be
strategically important for the development or commercialization
of the product.
Upon regulatory approval, we expect to obtain five years of data
exclusivity in the United States and eight years in Europe for
retigabine and taribavirin.
Exclusivity
with Respect to Ribavirin
Royalty payments from Schering-Plough do not depend on the
existence of a patent. We expect ribavirin royalties to continue
to decline significantly in 2010 in that 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. Royalties from
Schering-Plough in Japan will continue after 2010.
Generic ribavirin was launched in the United States in the first
half of 2004. Under our agreement with Roche, upon the entry of
generics into the United States, Roche ceased paying royalties
on sales in the United States. Roche discontinued paying
royalties to us for ribavirin sales in Europe in June 2007 when
the Opposition Division of the European Patent Office revoked a
patent covering ribavirin.
Government
Regulations
Government authorities in the United States, at the federal,
state and local level, and in other countries extensively
regulate, among other things, the research, development,
testing, approval, manufacturing, labeling, post-approval
monitoring and reporting, packaging, promotion, storage,
advertising, distribution, marketing and export and import of
pharmaceutical products. The process of obtaining regulatory
approvals and the subsequent compliance with appropriate
federal, state, local and foreign statutes and regulations
require the expenditure of substantial time and financial
resources. FDA approval must be obtained in the United States,
EMEA approval must be obtained for countries that are part of
the European Union and approval must be obtained from comparable
agencies in other countries prior to marketing or manufacturing
new pharmaceutical products for use by humans.
Manufacturers of drug products are required to comply with
manufacturing regulations, including current good manufacturing
regulations enforced by the FDA and similar regulations enforced
by regulatory agencies outside the United States. In addition,
we are subject to price control restrictions on our
pharmaceutical products in many countries in which we operate.
We are also subject to extensive health care marketing and fraud
and abuse regulation by the federal and state governments, such
as the federal False Claims Act, and similar regulations in
foreign countries in which we may conduct our business. The
federal False Claims Act imposes civil and criminal liability on
individuals or entities
9
who submit (or cause the submission of) false or fraudulent
claims for payment to the government. If our operations are
found to be in violation of any of these laws, regulations,
rules or policies or any other law or governmental regulation,
or if interpretations of the foregoing change, we may be subject
to civil and criminal penalties, damages, fines, exclusion from
the Medicare and Medicaid programs and the curtailment or
restructuring of our operations.
Environmental
Regulation
We are subject to national, state and local environmental laws
and regulations, including those governing the handling and
disposal of hazardous wastes, wastewater, solid waste and other
environmental matters. Our development and manufacturing
activities involve the controlled use of hazardous materials.
Marketing
and Customers
Our four major geographic markets are: the United States,
Poland, Mexico and Canada. During the year ended
December 31, 2009, we derived approximately 78% of our
revenues from these markets. U.S. sales represented 42%,
37% and 37% of our total consolidated product net sales in 2009,
2008 and 2007, respectively. Poland accounted for 15%, 19% and
15% of our total consolidated product net sales in 2009, 2008
and 2007, respectively, while Mexico accounted for 17%, 18% and
20%, respectively. Sales to McKesson Corporation and its
affiliates in the United States, Canada and Mexico for the years
ended December 31, 2009, 2008 and 2007 were 21%, 24% and
24%, respectively, of our total consolidated product net sales.
Sales to Cardinal Healthcare in the United States for the years
ended December 31, 2009, 2008 and 2007 were 14%, 17% and
12%, respectively, of our total consolidated product net sales.
No other country, or single customer, generated over 10% of our
total product net sales.
We currently promote our pharmaceutical products to physicians,
hospitals, pharmacies and wholesalers through our own sales
force and sell through wholesalers. In some limited markets, we
additionally sell directly to physicians, hospitals and large
drug store chains and we sell through distributors in countries
where we do not have our own sales staff. As part of our
marketing program for pharmaceuticals, we use direct mailings,
advertise in trade and medical periodicals, exhibit products at
medical conventions and sponsor medical education symposia.
In October 2008, we signed an agreement with GSK, for the
promotion of Diastat and Diastat AcuDial. Under the terms of the
agreement, GSK had exclusive rights to promote Diastat and
Diastat AcuDial to U.S. physicians in 2009. The agreement
was not extended at expiration on December 31, 2009. We
recorded the sales of Diastat and Diastat AcuDial and were
responsible for ongoing brand development during the term of the
agreement.
Competition
Competitive
Landscape for Products and Products in Development
Our competitors include specialty and large pharmaceutical
companies, biotechnology companies, OTC companies, academic and
other research and development institutions and generic
manufacturers, both in the United States and abroad. The
dermatology competitive landscape is highly fragmented, with a
large number of mid size and smaller companies competing in both
the prescription sector and the OTC and cosmeceutical sectors.
Our competitors are pursuing the development of pharmaceuticals
and OTC products that target the same diseases and conditions
that we are targeting in neurology, infectious disease and
dermatology.
We sell a broad range of products, and competitive factors vary
by product line and geographic area in which the products are
sold.
Retigabine
Our competitors are developing products and product candidates
that would compete with retigabine. The success of any of our
competitors products or product candidates could adversely
affect our expected revenues for retigabine, if approved.
10
Generic
Competition
We also face increased competition from manufacturers of generic
pharmaceutical products when patents covering certain of our
currently marketed products expire or are successfully
challenged. Generic versions are generally significantly less
expensive than branded versions, and, where available, may be
required in preference to the branded version under third-party
reimbursement programs, or substituted by pharmacies. If
competitors introduce new products, delivery systems or
processes with therapeutic or cost advantages, our products can
be subject to progressive price reductions or decreased volume
of sales, or both. Most new products that we introduce must
compete with other products already on the market or products
that are later developed by competitors. Manufacturers of
generic pharmaceuticals typically invest far less in research
and development than research-based pharmaceutical companies and
therefore can price their products significantly lower than
branded products. Accordingly, when a branded product loses its
market exclusivity, it normally faces intense price competition
from generic forms of the product. To successfully compete for
business with managed care and pharmacy benefits management
organizations, we must often demonstrate that our products offer
not only medical benefits but also cost advantages as compared
with other forms of care.
We currently have one significant product, Cesamet, which does
not currently have generic competition and which is not
protected by patent or regulatory exclusivity. In mid 2008, the
first generic competitor to Efudex, which is not protected by
patent or regulatory exclusivity, was launched.
On October 12, 2007, we settled a patent infringement
lawsuit with Kali Laboratories, Inc. regarding Kalis
submission of an ANDA with the FDA seeking approval for a
generic version of Diastat (a diazepam rectal gel). Under the
terms of this settlement, we agreed that Valeant would allow
Barr Laboratories (now Teva Pharmaceuticals), with whom Kali has
a marketing agreement, to introduce a generic version of Diastat
and Diastat AcuDial on or after September 1, 2010, or
earlier under certain circumstances.
Manufacturing
We currently operate ten manufacturing plants. All of our
manufacturing facilities that require certification from the FDA
or foreign agencies have obtained such approval.
We also subcontract the manufacturing of certain of our
products, including products manufactured under the rights
acquired from other pharmaceutical companies. Generally,
acquired products continue to be produced for a specific period
of time by the selling company. During that time, we integrate
the products into our own manufacturing facilities or initiate
toll manufacturing agreements with third parties.
We estimate that products representing approximately 60% of our
product sales are produced by third party manufacturers under
toll manufacturing arrangements.
The principal raw materials used by us for our various products
are purchased in the open market. Most of these materials are
available from several sources.
Employees
As of December 31, 2009, we had approximately
3,100 employees. These employees include approximately
1,350 in production, 1,100 in sales and marketing, 150 in
research and development, 100 in service related positions and
400 in general and administrative positions. Collective
bargaining exists for some employees in a number of markets. We
currently consider our relations with our employees to be good
and have not experienced any work stoppages, slowdowns or other
serious labor problems that have materially impeded our business
operations.
Product
Liability Insurance
We have product liability insurance to cover damages resulting
from the use of our products. We have in place clinical trial
insurance in the major markets where we conduct clinical trials.
11
Foreign
Operations
Approximately 57%, 66% and 65% of our revenues from continuing
operations, which includes royalties, for the years ended
December 31, 2009, 2008 and 2007, respectively, were
generated from operations or otherwise earned outside the United
States. All of our foreign operations are subject to risks
inherent in conducting business abroad, including price and
currency exchange controls, fluctuations in the relative values
of currencies, political instability and restrictive
governmental actions including possible nationalization or
expropriation. Changes in the relative values of currencies may
materially affect our results of operations. For a discussion of
these risks, see Item 1A, Risk Factors in this Annual
Report on
Form 10-K.
Available
Information
Our Internet address is www.valeant.com. We
post links on our website to the following filings as soon as
reasonably practicable after they are electronically filed or
furnished to the SEC: annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and any amendment to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Act of 1934.
All such filings are available through our website free of
charge. The information on our Internet website is not
incorporated by reference into this Annual Report on
Form 10-K
or our other securities filings and is not a part of such
filings.
Our filings may also be read and copied at the SECs Public
Reference Room at 100 F. Street, NE, Washington, DC 20549.
Information on the operation of the Public Reference Room may be
obtained by calling the SEC at
1-800-SEC-0330.
The SEC also maintains an Internet website at www.sec.gov
that contains reports, proxy and information statements, and
other information regarding issuers, including us, that file
electronically with the SEC.
You should consider carefully the following risk factors,
together with all of the other information included or
incorporated in this Annual Report on
Form 10-K.
Each of these risk factors, either alone or taken together,
could adversely affect our business, operating results and
financial condition, as well as adversely affect the value of an
investment in our securities. There may be additional risks that
we do not presently know of or that we currently believe are
immaterial which could also impair our business and financial
position.
We
operate in an extremely competitive industry. If competitors
develop more effective or less costly drugs for our target
indications, our business could be seriously
harmed.
Many of our competitors, particularly large pharmaceutical
companies, have substantially greater financial, technical and
human resources than we do. Many of our competitors spend
significantly more on research and development related
activities than we do. Others may succeed in developing products
that are more effective than those currently marketed or
proposed for development by us. Progress by other researchers in
areas similar to those being explored by us may result in
further competitive challenges. In addition, academic
institutions, government agencies and other public and private
organizations conducting research may seek patent protection
with respect to potentially competitive products. They may also
establish exclusive collaborative or licensing relationships
with our competitors.
Our
business, financial condition and results of operations are
subject to risks arising from the international scope of our
operations.
We conduct a significant portion of our business outside the
United States. Approximately 57% and 66% of our revenues from
continuing operations were generated outside the United States
during the years ended December 31, 2009 and 2008,
respectively. We sell our pharmaceutical products in many
countries around the world. 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.
12
If
retigabine 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.
We focus our development activities on areas in which we have
particular strengths. The outcome of any development program is
highly uncertain. Products in clinical trials may fail to yield
a commercial product, or a product may be approved by the FDA
yet not be a commercial success. Success in preclinical and
early stage clinical trials may not necessarily translate into
success in large-scale clinical trials.
In addition, we or a partner will need to obtain and maintain
regulatory approval in order to market retigabine and other
product candidates. Even if they appear promising in large-scale
Phase III clinical trials, regulatory approval may not be
achieved. The results of clinical trials are susceptible to
varying interpretations that may delay, limit or prevent
approval or result in the need for post-marketing studies. In
addition, changes in regulatory policy for product approval
during the period of product development and FDA review of a new
application may cause delays or rejection. Even if we receive
regulatory approval, this approval may include limitations on
the indications for which we can market a product or onerous
risk management programs, thereby reducing the size of the
market that we would be able to address or our product may not
be chosen by physicians for use by their patients. There is no
guarantee that we will be able to satisfy the needed regulatory
requirements, and we may not be able to generate significant
revenue, if any, from retigabine and other product candidates.
Obtaining
necessary government approvals is time consuming and not
assured.
FDA approval must be obtained in the United States and approval
must be obtained from comparable agencies in other countries
prior to marketing or manufacturing new pharmaceutical products
for use by humans. Obtaining FDA approval for new products and
manufacturing processes can take a number of years and involves
the expenditure of substantial resources. Numerous requirements
must be satisfied, including preliminary testing programs on
animals and subsequent clinical testing programs on humans, to
establish product safety and efficacy. No assurance can be given
that we will obtain approval in the United States, or any other
country, of any application we may submit for the commercial
sale of a new or existing drug or compound. Nor can any
assurance be given that if such approval is secured, the
approved labeling will not have significant labeling
limitations, or that those drugs or compounds will be
commercially successful.
Furthermore, changes in existing regulations or adoption of new
regulations could prevent or delay us from obtaining future
regulatory approvals or jeopardize existing approvals, which
could significantly increase our costs associated with obtaining
approvals and negatively impact our market position.
If we,
our partners or licensees cannot successfully develop and/or
commercialize our products, our growth rate would be negatively
impacted.
Our future growth rate will depend, in 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. We are engaged in programs
involving compounds which we may develop
and/or
commercialize ourselves, or with a partner or by a licensee. We
may also participate in the development
and/or
commercialization of our partners product candidates.
Commercializing products is time consuming, expensive and
unpredictable. There can be no assurance that we will be able
to, either by ourselves or in collaboration with our partners or
through our licensees, successfully develop or commercialize new
products, complete clinical trials, obtain regulatory approvals,
or gain market acceptance for such products. Our existing
arrangements with our partners and licensees contain, and future
arrangements are likely to contain, various provisions, such as
repayment upon termination rights, that, if exercised, could
have a negative impact on efforts to commercialize the
applicable products, or on our company in general. It may be
necessary for us to enter into other arrangements with other
pharmaceutical companies in order to market effectively any new
products or new indications for existing products. There can be
no assurance that we will be successful in entering into such
arrangements on terms favorable to us or at all.
Any future revenue we may obtain under our worldwide license and
collaboration agreement with GSK is subject to the risks and
uncertainties described above.
13
Due to
the large portion of our business conducted outside the United
States, we have significant foreign currency risk.
We sell products in many countries that are susceptible to
significant foreign currency risk. In some of these markets we
sell products for U.S. Dollars. While this eliminates our
direct currency risk in such markets, it increases our risk that
we could lose market share to competitors because if a local
currency is devalued significantly, it becomes more expensive
for customers in that market to purchase our products in
U.S. Dollars. The international scope of our operations may
also lead to volatile financial results and difficulties in
managing our operations.
We may
be unable to identify, acquire and integrate acquisition targets
successfully.
Part of our business strategy includes acquiring and integrating
complementary businesses, products, technologies or other
assets, and forming strategic alliances, joint ventures and
other business combinations, to help drive future growth.
Acquisitions or similar arrangements may be complex, time
consuming and expensive. They may fail to further our business
strategy as anticipated, expose us to increased competition or
challenges with respect to our products or geographic markets,
and expose our to additional liabilities associated with
acquired business, product, technology or other asset or
arrangement. Any one of these challenges or risks could impair
our ability to realize any benefit from our acquisition or
arrangement after we have expended resources on them.
In addition, our acquisitions strategy may require us to use a
significant portion of our available cash, obtain additional
debt or contingent liabilities that may increase leverage, or
issue additional equity that may dilute ownership of our
stockholders. We may not be able to finance acquisitions on
terms satisfactory to us.
Finally, we may not consummate some negotiations for
acquisitions or arrangements. Negotiations for acquisitions or
arrangements that are not ultimately consummated could result in
significant diversion of management time, as well as substantial
out-of-pocket
costs. Our competitors may have greater resources than us and
therefore be better able to complete acquisitions or may cause
the ultimate price we pay for acquisitions to increase.
We cannot forecast the number, timing or size of future
acquisitions or arrangements, or the effect that any such
transactions might have on our operating or financial results.
Any such acquisition or arrangement could disrupt our business
and negatively impact our operating results and financial
condition. Our failure to implement successfully our acquisition
strategy would limit our potential growth and could have a
material adverse effect on our business.
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.
We manufacture and have contracted with third parties to
manufacture some of our drug products, including products under
the rights acquired from other pharmaceutical companies.
Manufacturers are required to adhere to current good
manufacturing (cGMP) regulations enforced by the FDA
or similar regulations required by regulatory agencies in other
countries. Compliance with the FDAs cGMP requirements
applies to both drug products seeking regulatory approval and to
approved drug products. Our manufacturing facilities and those
of our contract manufacturers must be inspected and found to be
in full compliance with cGMP or similar standards before
approval for marketing.
Our dependence upon others to manufacture our products may
adversely affect our profit margins and our ability to develop
and obtain approval for our products on a timely and competitive
basis, if at all. Our failure or that of our contract
manufacturers to comply with cGMP regulations or similar
regulations outside of the United States can result in
enforcement action by the FDA or its foreign counterparts,
including, among other things, warning letters, fines,
injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, refusal of the
government to renew marketing applications and criminal
prosecution. In addition, delays or difficulties by us or with
our contract manufacturers in producing, packaging, or
distributing our products could adversely affect the sales of
our current products or introduction of other products.
In addition to regulatory compliance risks, our contract
manufacturers in the United States and in other countries are
subject to a wide range of business risks, such as seizure of
assets by governmental authorities, natural disasters, and
domestic and international economic conditions. Were we or any
of our contract manufacturers not
14
able to manufacture our products because of regulatory, business
or any other reasons, the manufacture of our products would be
interrupted. This could have a negative impact on our sales,
financial condition and competitive position.
Adverse
U.S. and international economic and market conditions may
adversely affect our product sales and business.
Current U.S. and international economic and market
conditions are uncertain. Our revenues and operating results may
be affected by uncertain or changing economic and market
conditions, including the challenges faced in the credit markets
and financial services industry. If domestic and global economic
and market conditions remain uncertain or persist or deteriorate
further, we may experience material impacts on our business,
operating results and financial condition. Adverse economic
conditions impacting our customers, including among others,
increased taxation, higher unemployment, lower customer
confidence in the economy, higher customer debt levels, lower
availability of customer credit, higher interest rates and
hardships relating to declines in the stock markets, could cause
purchases of our products to decline, which could adversely
affect our revenues and operating results.
Moreover, our projected revenues and operating results are based
on assumptions concerning certain levels of customer spending.
Any failure to attain our projected revenues and operating
results as a result of adverse economic or market conditions
estimated by us, our investors or the securities analysts that
follow our common stock, could have a material adverse effect on
our business and result in a decline in the price of our common
stock.
Adverse economic and market conditions could also negatively
impact our business by negatively impacting the parties with
whom we do business, including among others, our business
partners (including our customers as well as our alliance
partners from whom we receive royalties and milestone payments),
our manufacturers and our suppliers.
If our
products cause, or are alleged to cause, serious or widespread
personal injury, we may have to withdraw those products from the
market and/or incur significant costs, including payment of
substantial sums in damages.
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 operation.
Legislative
or regulatory reform of the healthcare system may affect our
ability to sell our products profitably.
In both the United States and certain foreign jurisdictions,
there have been a number of legislative and regulatory proposals
to change the healthcare system in ways that could impact our
ability to sell our products profitably. In recent years, new
legislation has been proposed in the United States at the
federal and state levels that would effect major changes in the
healthcare system, either nationally or at the state level.
Recently, President Obama and members of Congress have proposed
significant reforms. On November 7, 2009, the House of
Representatives passed and, on December 24, 2009, the
Senate passed health care reform legislation that would require
most individuals to have health insurance, establish new
regulations on health plans, create insurance pooling mechanisms
and a government health insurance option to compete with private
plans and other expanded public health measures. This
legislation would also reduce Medicare spending on services
provided by hospitals and other providers.
Given that legislation has not yet been enacted, it is still not
possible to determine what, if any impact this legislation may
have on the pharmaceutical industry and our business. Further
federal and state proposals are likely.
15
However, an expansion in governments role in the
U.S. healthcare industry may lower reimbursements for our
products, reduce medical procedure volumes and adversely affect
our business, possibly materially. In addition, the potential
for adoption of these proposals affects or will affect our
ability to raise capital, obtain additional collaborators and
market our products. We expect to experience pricing pressures
in connection with the sale of our products due to the trend
toward managed health care, the increasing influence of health
maintenance organizations and additional legislative proposals.
Our results of operations could be adversely affected by future
health care reforms.
Products
representing a significant amount of our revenue are not
protected by patent or data exclusivity rights.
A majority 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.
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.
The process by which pharmaceutical products are approved is
lengthy and highly regulated. Our multi-year clinical trials
programs are planned and executed to conform to these
regulations, and once begun, can be difficult and expensive to
change should the regulations regarding approval of
pharmaceutical products significantly change.
Failures to comply with the applicable legal requirements at any
time during the product development process, approval process or
after approval may result in administrative or judicial
sanctions. These sanctions could include the FDAs
imposition of a hold on clinical trials, refusal to approve
pending applications, withdrawal of an approval, warning
letters, product recalls, product seizures, total or partial
suspension of production or distribution, injunctions, fines,
civil penalties or criminal prosecution. Any agency or judicial
enforcement action could have a material adverse effect on us.
In addition, newly discovered or developed safety or
effectiveness data may require changes to a products
approved labeling, including the addition of new warnings,
precautions and contraindications.
Manufacturers of drug products are required to comply with
manufacturing regulations, including current good manufacturing
regulations enforced by the FDA and similar regulations enforced
by regulatory agencies outside the United States. In addition,
we are subject to price control restrictions on our
pharmaceutical products in many countries in which we operate.
We are also subject to extensive health care marketing and fraud
and abuse regulation by the federal and state governments and
foreign countries in which we may conduct our business. If our
operations are found to be in violation of any of these laws,
regulations, rules or policies or any other law or governmental
regulation, or if interpretations of the foregoing change, we
may be subject to civil and criminal penalties, damages, fines,
exclusion from the Medicare and Medicaid programs and the
curtailment or restructuring of our operations.
In addition, we depend on patent law and data exclusivity to
keep generic products from reaching the market in our
evaluations of the development of our products. In assessing
whether we will invest in any development program, or license a
product from a third party, we assess the likelihood of patent
and/or data
exclusivity under the laws and regulations then in effect. If
those schemes significantly change in a large market, or across
many smaller markets, our ability to protect our investment may
be adversely affected.
Appropriate tax planning requires that we consider the current
and prevailing national and local tax laws and regulations, as
well as international tax treaties and arrangements that we
enter into with various government authorities. Changes in
national/local tax regulations or changes in political
situations may limit or eliminate the effects of our tax
planning and could result in unanticipated tax expenses.
16
We are
involved in various legal proceedings that could adversely
affect us.
We are involved in several legal proceedings, including those
described in Note 21 of notes to the consolidated financial
statements. Defending against claims and any unfavorable legal
decisions, settlements or orders could have a material adverse
effect on us.
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.
Pharmaceutical and biotechnology companies have faced lawsuits
and investigations pertaining to violations of health care
fraud and abuse laws, such as the federal False
Claims Act, the federal Anti-kickback Statute, the Foreign
Corrupt Practices Act and other state and federal laws and
regulations. Increasingly, states require pharmaceutical
companies to have comprehensive compliance programs and to
disclose certain payments made to healthcare providers or funds
spent on marketing and promotion of drug products. If we are in
violation of any of these requirements or any such actions are
instituted against us, and we are not successful in defending
ourselves or asserting our rights, those actions could have a
significant impact on our business, including the imposition of
significant fines or other sanctions.
We
could be adversely affected by violations of the U.S. Foreign
Corrupt Practices Act and similar worldwide anti-bribery
laws.
The U.S. Foreign Corrupt Practices Act, or FCPA, and
similar worldwide anti-bribery laws generally prohibit companies
and their intermediaries from making improper payments to
non-U.S. officials
for the purpose of obtaining or retaining business. Our policies
mandate compliance with these anti-bribery laws.
We operate in many parts of the world that have experienced
governmental corruption to some degree and in certain
circumstances, strict compliance with anti-bribery laws may
conflict with local customs and practices or may require us to
interact with doctors and hospitals, some of which may be state
controlled, in a manner that is different than in the United
States. Despite our training and compliance program, we cannot
assure you that our internal control policies and procedures
always will protect us from reckless or criminal acts committed
by our employees or agents. Violations of these laws, or
allegations of such violations, could disrupt our business and
result in a material adverse effect on our financial condition,
results of operations and cash flows.
We may
be involved in infringement actions which are uncertain, costly
and time-consuming and could have a material adverse effect on
our business, results of operations, financial condition and
cash flows.
In order to protect or enforce patent rights, we may initiate
litigation against third parties, and we may also become subject
to infringement claims by third parties. The outcomes of
infringement action are uncertain and infringement actions are
costly and divert technical and management personnel from their
normal responsibilities. The cost of such actions as well as the
ultimate outcome of such actions could have a material adverse
effect on our business, results of operations, financial
condition and cash flows.
The existence of a patent will not necessarily protect us from
competition. Competitors may successfully challenge our patents,
produce similar drugs that do not infringe our patents or
produce drugs in countries that do not respect our patents.
Existing
and future audits by, or other disputes with, taxing authorities
may not be resolved in our favor.
Our income tax returns are subject to audit in various
jurisdictions. Existing and future audits by, or other disputes
with, tax authorities may not be resolved in our favor and could
have an adverse effect on our reported effective tax rate and
after-tax cash flows.
We are
subject to a consent order with the SEC.
We are subject to a consent order with the SEC, 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
17
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 we made prior to November 28, 2005 may
limit our ability to defend against future allegations.
The
current SEC investigation could adversely affect our business
and the trading price of our securities.
The SEC is conducting an investigation regarding events and
circumstances surrounding trading in our common stock and the
public release of data from our first pivotal Phase III
trial for taribavirin in March 2006. In addition, the SEC
requested information regarding our restatement of certain
historical financial statements announced in March 2008, data
regarding our stock option grants since January 1, 2000 and
information about our pursuit in the Delaware Chancery Court of
the return of certain bonuses paid to Milan Panic, a former
chairman and chief executive officer, and others. In September
2006, our board of directors established the Special Committee
to review our historical stock option practices and related
accounting. The Special Committee concluded its investigation in
January 2007. We have briefed the SEC with the results of the
Special Committees investigation. We have cooperated fully
and will continue to cooperate with the SEC on its
investigation. We cannot predict the outcome of the
investigation. In the event that the investigation leads to SEC
action against any current or former officer or director, our
business (including our ability to complete financing
transactions) and the trading price of our securities may be
adversely impacted. In addition, if the SEC investigation
continues for a prolonged period of time, it may have an adverse
impact on our business or the trading price of our securities
regardless of the ultimate outcome of the investigation. In
addition, the SEC inquiry has resulted in the incurrence of
significant legal expenses and the diversion of
managements attention from our business, and this may
continue, or increase, until the investigation is concluded.
The
matters relating to the Special Committees review of our
historical stock option granting practices and the 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.
In September 2006, our board of directors appointed a Special
Committee, which consisted solely of independent directors, to
conduct a review of our historical stock option granting
practices and related accounting during the period from 1982
through July 2006. The Special Committee identified a number of
occasions on which the exercise prices for stock options granted
to certain of our directors, officers and employees were set
using closing prices of our common stock with dates different
than the actual approval dates, resulting in additional
compensation charges.
To correct these and other accounting errors, we amended our
Annual Report on
Form 10-K
for the year ended December 31, 2005 and our quarterly
reports on
Form 10-Q
for the quarters ended March 31, 2006 and June 30,
2006 to restate the consolidated financial statements contained
in those reports.
Our historical stock option granting practices and the
restatement of our prior financial statements have exposed us to
greater risks associated with litigation and regulatory
proceedings. We were named as nominal defendant in three
shareholder derivative lawsuits which asserted claims related to
our historic stock option practices. To date, these shareholder
derivative lawsuits have been dismissed. In addition, the SEC
has opened a formal SEC inquiry into our historical stock option
grant practices. We cannot assure you that this current
litigation, the SEC inquiry or any future litigation or
regulatory action will result in the same conclusions reached by
the Special Committee. The conduct and resolution of these
matters will be time consuming, expensive and distracting from
the conduct of our business. Furthermore, if we are subject to
adverse findings in any of these matters, we could be required
to pay damages or penalties or have other remedies imposed upon
us which could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
If we
identify a material weakness in our internal control over
financial reporting in future periods, our stock price could be
adversely affected and our ability to prepare complete and
accurate financial statements in a timely manner could be
adversely affected.
We identified a material weakness in our internal control over
financial reporting as of December 31, 2007. The material
weakness, which arose primarily as a result of our lack of a
sufficient complement of personnel in our
18
foreign locations and monitoring controls at the corporate
level, is further described in Item 9A of our Annual Report
on
Form 10-K
for the year ended December 31, 2007. Because of the
foregoing, we concluded that certain financial statements,
earnings press releases and similar communications should no
longer be relied upon and that certain of our financial
statements would need to be restated. We also concluded that our
disclosure controls and procedures were not effective as of
December 31, 2007. As more fully described in Item 9A
of our Annual Report on
Form 10-K
for the year ended December 31, 2008, in 2008 we took steps
to remediate this material weakness and to improve our
disclosure controls and procedures.
If we fail to maintain our disclosure controls and procedures at
the reasonable assurance level, our financial statements and
related disclosure could contain material misstatements, the
preparation and filing of our financial statements and related
filings could be delayed, and substantial costs and resources
may be required to remediate any weaknesses or deficiencies or
to improve our disclosure controls and procedures. If we cannot
produce reliable and timely financial statements, investors
could lose confidence in our reported financial information, the
market price of our stock could decline significantly or we may
be unable to obtain financing on acceptable terms, and our
business and financial condition could be harmed.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Our major facilities are in the following locations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
Owned or
|
|
Square
|
|
Location
|
|
Purpose
|
|
Leased
|
|
Footage
|
|
|
Aliso Viejo, California
|
|
Corporate Headquarters
|
|
Leased
|
|
|
110,000
|
|
Specialty Pharmaceuticals
|
|
|
|
|
|
|
|
|
Montreal, Canada
|
|
Offices, manufacturing and warehouse facility
|
|
Owned
|
|
|
94,000
|
|
Petaluma, California
|
|
Offices and laboratories
|
|
Leased
|
|
|
50,000
|
|
Branded Generics Latin America
|
|
|
|
|
|
|
|
|
Mexico City, Mexico
|
|
Offices and manufacturing facility
|
|
Leased
|
|
|
128,000
|
|
Mexico City, Mexico
|
|
Offices and manufacturing facility
|
|
Owned
|
|
|
211,000
|
|
San Juan del Rio, Mexico
|
|
Offices and manufacturing facility
|
|
Owned
|
|
|
96,000
|
|
Branded Generics Europe
|
|
|
|
|
|
|
|
|
Rzeszow, Poland
|
|
Offices and manufacturing facility
|
|
Owned
|
|
|
447,000
|
|
In our opinion, facilities occupied by us are more than adequate
for present requirements, and our current equipment is
considered to be in good condition and suitable for the purposes
for which they are used.
|
|
Item 3.
|
Legal
Proceedings
|
See Note 21 of notes to consolidated financial statements
in Item 8 of this Annual Report on
Form 10-K.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted for a vote of our stockholders during
the fourth quarter of the year ended December 31, 2009.
19
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Price
Range of Common Stock
Our common stock is traded on the New York Stock Exchange
(symbol: VRX). As of February 18, 2010 there were 4,352
holders of record of our common stock.
The following table sets forth, for the periods indicated the
high and low sales prices of our common stock on the New York
Stock Exchange Composite Transactions reporting
system.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Fiscal Quarters
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First
|
|
$
|
24.65
|
|
|
$
|
15.64
|
|
|
$
|
14.63
|
|
|
$
|
11.00
|
|
Second
|
|
$
|
26.22
|
|
|
$
|
16.34
|
|
|
$
|
17.71
|
|
|
$
|
11.99
|
|
Third
|
|
$
|
28.13
|
|
|
$
|
22.17
|
|
|
$
|
21.00
|
|
|
$
|
16.00
|
|
Fourth
|
|
$
|
34.44
|
|
|
$
|
26.63
|
|
|
$
|
23.28
|
|
|
$
|
14.58
|
|
Performance
Graph
The following graph compares the cumulative total return on our
common stock with the cumulative return on the Standard and
Poors Mid Cap 400 Index (S&P Mid Cap 400
Index) and a 10-Stock Custom Composite Index (the
Custom Composite Index) for the five years ended
December 31, 2009. The Custom Composite Index consists of
Allergan, Inc.; Biovail Corporation; Cephalon, Inc.; Forest
Laboratories, Inc.; Gilead Sciences, Inc.; King Pharmaceuticals,
Inc.; Medicis Pharmaceutical Corporation; Mylan Inc.; Shire
Pharmaceuticals Group plc and Watson Pharmaceuticals, Inc.
Based on
reinvestment of $100 beginning on December 31,
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec-04
|
|
|
|
Dec-05
|
|
|
|
Dec-06
|
|
|
|
Dec-07
|
|
|
|
Dec-08
|
|
|
|
Dec-09
|
|
Valeant Pharmaceuticals International
|
|
|
|
100
|
|
|
|
|
70
|
|
|
|
|
67
|
|
|
|
|
47
|
|
|
|
|
89
|
|
|
|
|
124
|
|
S&P Mid Cap 400 Index
|
|
|
|
100
|
|
|
|
|
111
|
|
|
|
|
121
|
|
|
|
|
129
|
|
|
|
|
81
|
|
|
|
|
110
|
|
Custom Composite Index
|
|
|
|
100
|
|
|
|
|
121
|
|
|
|
|
134
|
|
|
|
|
128
|
|
|
|
|
109
|
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Securities
Authorized for Issuance Under Equity Compensation
Plans
The information required under this section is set forth in our
definitive proxy statement to be filed in connection with our
2010 annual meeting of stockholders and is incorporated by
reference.
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
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. In May 2009, our board of directors increased the
authorization to $500.0 million, over a period ending in
May 2011. Under the program, purchases may be made from time to
time on the open market, in privately negotiated transactions,
pursuant to tender offers or otherwise, including pursuant to
one or more trading plans, at times and in amounts as we see
appropriate. The 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 and regulatory requirements and alternate
investment opportunities. The securities repurchase program may
be modified or discontinued at any time.
During the year ended December 31, 2009, we purchased
$173.5 million aggregate principal amount of our
3.0% Convertible Subordinated Notes (the
3.0% Notes) and 4.0% Convertible
Subordinated Notes (the 4.0% Notes) for
$178.3 million consisting of cash consideration aggregating
$171.1 million and warrants (the Warrants) to
purchase 1,769,265 shares of our common stock (the
Warrant Shares) at an exercise price of $31.61 per
share. The Warrants were issued to certain former holders of
3.0% Notes in August 2009 as part of an exchange
transaction, which was made without registration under the
Securities Act of 1933, as amended (the Securities
Act) in reliance on Section 3(a)(9) thereof. The
estimated fair value of the Warrants using the Black-Scholes
pricing model was $7.2 million. The Warrants are fully
vested, are exercisable on a cashless basis only and expire on
August 16, 2010. The number of Warrant Shares and the per
share exercise price are subject to adjustment upon stock splits
and combinations, certain dividends and distributions, rights
offerings, tender offers and consolidations, mergers and sales
or conveyances of all or substantially all of our assets made or
effected by us. In total, we have purchased $206.1 million
aggregate principal amount of our 3.0% Notes and
4.0% Notes at a purchase price of $207.3 million as of
December 31, 2009, including cash and warrants. During the
year ended December 31, 2009, we purchased
6,949,932 shares of our common stock for a total of
$202.4 million. As of December 31, 2009, we have
repurchased an aggregate 7,248,893 shares of our common
stock for $208.5 million under this program.
Set forth below is the information regarding shares repurchased
under the securities repurchase program during the fourth
quarter of the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Value of Shares that
|
|
|
|
Total Number
|
|
|
Average
|
|
|
Shares Purchased
|
|
|
May Yet Be
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
as Part of Publicly
|
|
|
Purchased under the
|
|
Period
|
|
Repurchased
|
|
|
Per Share
|
|
|
Announced Plan
|
|
|
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
10/1/09 10/31/09
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
225,600
|
|
11/1/09 11/30/09
|
|
|
4,331,884
|
|
|
$
|
32.38
|
|
|
|
4,331,884
|
|
|
$
|
85,333
|
|
12/1/09 12/31/09
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
85,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,331,884
|
|
|
$
|
32.38
|
|
|
|
4,331,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
Policy
We did not declare and did not pay dividends in 2009 or 2008.
While our board of directors reviews our dividend policy from
time to time, we currently intend to retain any earnings for
future growth and, therefore, do not expect to pay any cash
dividends in the foreseeable future.
21
|
|
Item 6.
|
Selected
Financial Data
|
The selected statement of operations and balance sheet data
shown below were derived from our consolidated financial
statements. The consolidated statement of operations data for
the years ended December 31, 2009, 2008 and 2007 and the
consolidated balance sheet data as of December 31, 2009 and
2008 have been derived from our audited financial statements
included elsewhere in this Annual Report on
Form 10-K.
The consolidated statement of operations data for the years
ended December 31, 2006 and 2005 and the consolidated
balance sheet data as of December 31, 2007, 2006 and 2005
have been derived from audited consolidated financial statements
which are not included in this Annual Report on
Form 10-K.
You should read this selected financial data together with our
consolidated financial statements and related notes, as well as
the discussion under the caption Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009 (1)
|
|
|
2008 (1)
|
|
|
2007
|
|
|
2006
|
|
|
2005 (1)
|
|
|
|
(In thousands except per share data)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
710,761
|
|
|
$
|
593,165
|
|
|
$
|
603,051
|
|
|
$
|
603,810
|
|
|
$
|
546,429
|
|
Service revenue
|
|
|
22,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alliance revenue
|
|
|
97,311
|
|
|
|
63,812
|
|
|
|
86,452
|
|
|
|
81,242
|
|
|
|
91,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
830,461
|
|
|
|
656,977
|
|
|
|
689,503
|
|
|
|
685,052
|
|
|
|
638,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
199,349
|
|
|
|
(172,680
|
)
|
|
|
20,145
|
|
|
|
3,522
|
|
|
|
(92,838
|
)
|
Provision (benefit) for income taxes (2)
|
|
|
(58,270
|
)
|
|
|
34,688
|
|
|
|
13,535
|
|
|
|
36,577
|
|
|
|
67,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
257,619
|
|
|
|
(207,368
|
)
|
|
|
6,610
|
|
|
|
(33,055
|
)
|
|
|
(159,872
|
)
|
Income (loss) from discontinued operations, net of tax (3)
|
|
|
6,125
|
|
|
|
166,548
|
|
|
|
(26,796
|
)
|
|
|
(37,332
|
)
|
|
|
(40,468
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
263,744
|
|
|
|
(40,820
|
)
|
|
|
(20,186
|
)
|
|
|
(70,387
|
)
|
|
|
(200,340
|
)
|
Less: Net income attributable to noncontrolling interest
|
|
|
3
|
|
|
|
7
|
|
|
|
2
|
|
|
|
3
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Valeant
|
|
$
|
263,741
|
|
|
$
|
(40,827
|
)
|
|
$
|
(20,188
|
)
|
|
$
|
(70,390
|
)
|
|
$
|
(200,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share attributable to Valeant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to Valeant
|
|
$
|
3.15
|
|
|
$
|
(2.37
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.74
|
)
|
Income (loss) from discontinued operations attributable to
Valeant
|
|
|
0.07
|
|
|
|
1.90
|
|
|
|
(0.29
|
)
|
|
|
(0.40
|
)
|
|
|
(0.45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to Valeant
|
|
$
|
3.22
|
|
|
$
|
(0.47
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.75
|
)
|
|
$
|
(2.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share attributable to Valeant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to Valeant
|
|
$
|
3.07
|
|
|
$
|
(2.37
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.74
|
)
|
Income (loss) from discontinued operations attributable to
Valeant
|
|
|
0.07
|
|
|
|
1.90
|
|
|
|
(0.28
|
)
|
|
|
(0.40
|
)
|
|
|
(0.45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to Valeant
|
|
$
|
3.14
|
|
|
$
|
(0.47
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.75
|
)
|
|
$
|
(2.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share of common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.24
|
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
(In thousands)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
68,080
|
|
|
$
|
199,582
|
|
|
$
|
287,728
|
|
|
$
|
311,012
|
|
|
$
|
208,397
|
|
Working capital (4)
|
|
|
125,079
|
|
|
|
175,450
|
|
|
|
412,272
|
|
|
|
348,402
|
|
|
|
220,447
|
|
Net assets of discontinued operations (3)
|
|
|
|
|
|
|
|
|
|
|
272,047
|
|
|
|
282,251
|
|
|
|
307,096
|
|
Total assets
|
|
|
1,305,479
|
|
|
|
1,185,932
|
|
|
|
1,492,321
|
|
|
|
1,503,386
|
|
|
|
1,512,740
|
|
Total debt (5)
|
|
|
600,589
|
|
|
|
398,802
|
|
|
|
716,821
|
|
|
|
698,502
|
|
|
|
681,606
|
|
Stockholders equity
|
|
|
371,179
|
|
|
|
251,748
|
|
|
|
479,571
|
|
|
|
509,857
|
|
|
|
527,843
|
|
Notes to
Selected Financial Data:
|
|
|
(1) |
|
The results of operations of Coria, DermaTech, Dow, Emo-Farm,
Tecnofarma, PFI and Dr. Renaud are included since their
respective acquisition dates of October 15, 2008;
November 14, 2008; December 31, 2008; April 29,
2009; July 31, 2009; October 6, 2009 and
December 15, 2009. In connection with our acquisitions
prior to 2009, portions of the purchase price are allocated to
acquired in-process research and development
(IPR&D) on projects that, as of the acquisition
date, had not yet reached technological feasibility and had no
alternative future use. In 2008, we recorded $185.8 million
and $0.5 million of IPR&D expense related to the
acquisitions of Dow and Coria, respectively. In 2005, we
acquired Xcel for approximately $280.0 million of which
$126.4 million was allocated to IPR&D costs and
charged to expense. |
|
(2) |
|
The tax provision in 2005 included a net charge of
$27.4 million associated with an Internal Revenue Service
examination of our U.S. tax returns for the years 1997 to 2001
(including interest). The tax provision in 2007 includes a net
credit of $21.5 million to partially reverse the 2005
charge, as a result of resolving many of the issues raised
during the examination through an appeals process. In 2007, 2006
and 2005, we recorded valuation allowance increases of
$58.6 million, $33.1 million and $44.5 million,
respectively, against our deferred tax asset to recognize the
uncertainty of realizing the benefits of our accumulated U.S.
and state net operating losses and credits. In 2007, the
increase in the U.S. valuation allowance was offset by
liabilities for uncertain tax positions of $60.1 million,
with a net decrease of the valuation allowance of
$7.0 million. As of December 31, 2008, the valuation
allowances totaled $123.8 million. During 2008, based upon
certain transactions including the sale of the WEEMEA business
and reversal of our intent to indefinitely reinvest foreign
earnings, we released $23.6 million and $4.5 million
of the valuation allowance through additional capital and
goodwill, respectively. Additionally, the tax provisions in 2005
and 2008 do not reflect tax benefits for acquired IPR&D
charged to expense. The tax benefit in 2009 includes
$102.5 million related to the partial release of our
valuation allowance in the U.S. as we determined that it is more
likely than not that we would utilize our deferred tax assets
with the exception of state capital losses and foreign net
operating losses. See Note 11 of notes to consolidated
financial statements in Item 8 of this Annual Report on
Form 10-K
for additional information. |
|
(3) |
|
In September 2008 and September 2007, we reclassified our WEEMEA
business and Infergen operations, respectively, as discontinued
operations. The consolidated financial statements have been
reclassified for all historical periods presented. In 2006, the
loss from discontinued operations was partly offset by the
partial release of $5.6 million from a reserve for our
environmental liability related to our former biomedical
facility. In December 2005, we acquired the U.S. and Canadian
rights to Infergen from InterMune. In this transaction, we
charged $47.2 million to acquired IPR&D. As a result
of the reclassification of the Infergen operations to
discontinued operations, this charge was classified as an
expense within discontinued operations. |
|
(4) |
|
Working capital in 2007 and 2006 excludes $325.9 million
and $236.6 million, respectively, of assets held for sale. |
|
(5) |
|
In June 2009, we issued $365.0 million aggregate principal
amount of senior notes due 2016 (the Senior Notes).
In 2009, we repurchased $173.5 million aggregate principal
amount of our 3.0% Notes and 4.0% Notes. In 2008, we
repurchased $32.6 million aggregate principal amount of our
3.0% Notes. In July 2008, we redeemed
$300.0 million aggregate principal amount of
7.0% Senior Notes due 2011 (the 7.0% Senior
Notes). |
23
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Pharmaceutical
Products
Product sales from our pharmaceutical segments accounted for 86%
of our total revenues from continuing operations for the year
ended December 31, 2009, compared to 90% for the year ended
December 31, 2008. Product sales increased by
$117.6 million for the year ended December 31, 2009,
as compared to the year ended December 31, 2008. The
increase in pharmaceutical product sales for the year ended
December 31, 2009 was due to a 25% increase in volume and a
7% increase in price, offset by a 12% reduction due to currency
fluctuations.
Our current product portfolio comprises approximately 380
products, with approximately 2,000 stock keeping units. We
market our products through a marketing and sales force
consisting of approximately 1,100 employees. Our future
growth is expected to be driven primarily by the
commercialization of new products, growth of our existing
products, and business development.
We have experienced generic challenges and other competition to
our products, as well as pricing challenges, and expect these
challenges to continue in 2010 and beyond.
Results
of Operations
Our products are sold through three operating segments
comprising Specialty Pharmaceuticals, Branded
Generics Europe and Branded Generics
Latin America. 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
financial statements included elsewhere in this Annual Report on
Form 10-K.
For additional financial information by business segment, see
Note 18 of notes to consolidated financial statements in
Item 8 of this Annual Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals product sales
|
|
$
|
403,865
|
|
|
$
|
303,723
|
|
|
$
|
326,682
|
|
Specialty pharmaceuticals service and alliance revenue
|
|
|
73,028
|
|
|
|
4,374
|
|
|
|
19,200
|
|
Branded generics Europe product sales
|
|
|
151,650
|
|
|
|
152,804
|
|
|
|
125,070
|
|
Branded generics Latin America product sales
|
|
|
155,246
|
|
|
|
136,638
|
|
|
|
151,299
|
|
Alliances (ribavirin royalties only)
|
|
|
46,672
|
|
|
|
59,438
|
|
|
|
67,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues
|
|
|
830,461
|
|
|
|
656,977
|
|
|
|
689,503
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization)
|
|
|
192,974
|
|
|
|
167,916
|
|
|
|
158,060
|
|
Cost of services
|
|
|
17,836
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
255,782
|
|
|
|
278,019
|
|
|
|
292,001
|
|
Research and development costs, net
|
|
|
43,977
|
|
|
|
86,967
|
|
|
|
97,957
|
|
Special charges and credits including acquired in-process
research and development
|
|
|
6,351
|
|
|
|
186,300
|
|
|
|
|
|
Restructuring, asset impairments, dispositions and
acquisition-related costs
|
|
|
10,068
|
|
|
|
21,295
|
|
|
|
27,675
|
|
Amortization expense
|
|
|
70,640
|
|
|
|
49,973
|
|
|
|
55,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
$
|
232,833
|
|
|
$
|
(133,493
|
)
|
|
$
|
57,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Year
Ended December 31, 2009 Compared to 2008
Computations of percentage change period over period are based
upon our results, as rounded and presented herein.
Product Sales Revenues: In our Specialty
Pharmaceuticals segment, revenues from product sales for the
year ended December 31, 2009 increased $100.2 million
(33%) to $403.9 million from $303.7 million in 2008.
The increase in Specialty Pharmaceuticals sales for the year
ended December 31, 2009 was driven by net growth of
$61.9 million in existing products, predominantly Diastat,
Acanya, Librax, Cesamet, Migranal and Ancobon, as well as from
sales of products acquired in late 2008 as part of the Coria and
DermaTech acquisitions, which contributed incremental revenues
of $34.7 million and $9.0 million, respectively.
Product sales revenue in 2009 also include $5.7 million
attributable to our 2009 acquisitions of PFI and
Dr. Renaud. These increases were partially offset by a
reduction of $5.8 million due to the sale of business
operations in Argentina, Uruguay and Asia in 2008 and
$5.3 million due to depreciation of the Canadian Dollar and
Australian Dollar relative to the U.S. Dollar.
In our Branded Generics Europe segment, revenues for
the year ended December 31, 2009 decreased
$1.1 million (1%) to $151.7 million from
$152.8 million in 2008. The depreciation of foreign
currencies, particularly the Polish Zloty, relative to the
U.S. Dollar resulted in decreases of $39.8 million in
product sales. This reduction was largely offset by a net
increase across most of our existing products of
$31.2 million and $7.5 million from the April 2009
acquisition of Emo-Farm.
In our Branded Generics Latin America segment,
revenues for the year ended December 31, 2009 increased
$18.6 million (14%) to $155.2 million from
$136.6 million in 2008. Product sales from the existing
business grew by a net $34.8 million across substantially
all products primarily from the improvement of trading
relationships with the major wholesalers in Mexico. Revenues
attributable to the July 2009 acquisition of Tecnofarma
contributed $12.1 million in 2009. These increases were
partially offset by a decrease of $28.3 million due to the
depreciation of foreign currencies, particularly the Mexican
Peso, relative to the U.S. Dollar in 2009.
Specialty Pharmaceuticals Service and Alliance
Revenue: Service and alliance revenue in the
Specialty Pharmaceuticals segment for the year ended
December 31, 2009 consists of (in thousands):
|
|
|
|
|
Service revenue
|
|
$
|
22,389
|
|
Specialty pharmaceuticals alliance revenue:
|
|
|
|
|
Royalties
|
|
|
11,230
|
|
1% clindamycin and 5% benzoyl peroxide gel profit share
|
|
|
18,073
|
|
License payments
|
|
|
6,817
|
|
GSK Collaboration
|
|
|
14,519
|
|
|
|
|
|
|
Total specialty pharmaceuticals alliance revenue
|
|
|
50,639
|
|
|
|
|
|
|
Total specialty pharmaceuticals service and alliance revenue
|
|
$
|
73,028
|
|
|
|
|
|
|
Beginning in January 2009, we receive revenue from contract
research services performed by Dow in the areas of dermatology
and topical medication. The services are primarily focused on
contract research for external development and clinical research
in areas such as formulations development, in vitro
drug penetration studies, analytical sciences and consulting
in the areas of labeling and regulatory affairs.
Beginning in January 2009, we receive royalties from patent
protected formulations developed by Dow and licensed to third
parties. These royalties were $11.2 million in 2009.
Beginning in the third quarter of 2009, we receive profit
sharing payments equal to a majority portion of the net profits
on the sale of 1% clindamycin and 5% benzoyl peroxide gel by
Mylan, which totaled $18.1 million in 2009. In 2009, we
received $6.8 million in initial fees pursuant to licensing
agreements for various products.
We also earned $14.5 million under the GSK Collaboration
Agreement (as defined below) in 2009 compared to
$4.4 million in 2008.
Alliance Revenue (Ribavirin Royalties
only): Ribavirin royalty revenue was
$46.7 million for the year ended December 31, 2009
compared to $59.4 million in 2008, a decrease of
$12.7 million (21%). We expect ribavirin royalties to
continue to decline in 2010 as royalty payments from
Schering-Plough will continue for European sales
25
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 2010.
Gross Profit Margin: Gross profit margin on
product sales, net of pharmaceutical product amortization, was
64% for the years ended December 31, 2009 and 2008. Product
amortization expense was $60.6 million in 2009 compared to
$43.8 million in 2008. The increase in product amortization
expense is primarily attributable to products acquired within
the Specialty Pharmaceuticals segment in the U.S. in late
2008.
Gross profit margin on product sales (excluding pharmaceutical
product amortization) was 73% for the year ended
December 31, 2009 compared to 72% in 2008. The gross profit
margin in the Specialty Pharmaceuticals segment was relatively
flat in 2009 compared to 2008, reflecting a 1% increase. The
gross profit margin in the Branded Generics Europe
segment decreased to 55% in 2009 compared to 62% in 2008,
primarily due to mix of products, including low margin revenue
from distribution contracts and lower margin OTC sales
attributable to the April 2009 Emo-Farm acquisition. The gross
profit margin in the Branded Generics Latin America
segment increased to 70% in 2009 compared to 66% in 2008. This
increase was primarily due to the negative impact of inventory
reserve provisions of $12.7 million in 2008, offset in part
by lower margin sales attributable to the July 2009 Tecnofarma
acquisition.
The following table sets forth a summary of gross profit by
segment, both excluding and including amortization (discussed
below), for the three years ended December 31, 2009, 2008
and 2007 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Increase
|
|
|
|
Year Ended December 31,
|
|
|
(Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
09/08
|
|
|
08/07
|
|
|
Gross Profit (excluding amortization)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals
|
|
$
|
325,007
|
|
|
$
|
239,695
|
|
|
$
|
260,093
|
|
|
|
36
|
%
|
|
|
(8
|
)%
|
% of product sales
|
|
|
80
|
%
|
|
|
79
|
%
|
|
|
80
|
%
|
|
|
|
|
|
|
|
|
Branded generics Europe
|
|
|
83,852
|
|
|
|
94,397
|
|
|
|
78,640
|
|
|
|
(11
|
)%
|
|
|
20
|
%
|
% of product sales
|
|
|
55
|
%
|
|
|
62
|
%
|
|
|
63
|
%
|
|
|
|
|
|
|
|
|
Branded generics Latin America
|
|
|
109,060
|
|
|
|
90,300
|
|
|
|
106,813
|
|
|
|
21
|
%
|
|
|
(15
|
)%
|
% of product sales
|
|
|
70
|
%
|
|
|
66
|
%
|
|
|
71
|
%
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
(132
|
)
|
|
|
857
|
|
|
|
(555
|
)
|
|
|
NM
|
|
|
|
NM
|
|
% of product sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated gross profit
|
|
$
|
517,787
|
|
|
$
|
425,249
|
|
|
$
|
444,991
|
|
|
|
22
|
%
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of product sales
|
|
|
73
|
%
|
|
|
72
|
%
|
|
|
74
|
%
|
|
|
|
|
|
|
|
|
Amortization product related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals
|
|
$
|
54,772
|
|
|
$
|
38,723
|
|
|
$
|
39,218
|
|
|
|
41
|
%
|
|
|
(1
|
)%
|
Branded generics Europe
|
|
|
2,214
|
|
|
|
1,158
|
|
|
|
933
|
|
|
|
91
|
%
|
|
|
24
|
%
|
Branded generics Latin America
|
|
|
3,628
|
|
|
|
3,920
|
|
|
|
4,495
|
|
|
|
(7
|
)%
|
|
|
(13
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization product related
|
|
$
|
60,614
|
|
|
$
|
43,801
|
|
|
$
|
44,646
|
|
|
|
38
|
%
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit (including amortization)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals
|
|
$
|
270,235
|
|
|
$
|
200,972
|
|
|
$
|
220,875
|
|
|
|
34
|
%
|
|
|
(9
|
)%
|
% of product sales
|
|
|
67
|
%
|
|
|
66
|
%
|
|
|
68
|
%
|
|
|
|
|
|
|
|
|
Branded generics Europe
|
|
|
81,638
|
|
|
|
93,239
|
|
|
|
77,707
|
|
|
|
(12
|
)%
|
|
|
20
|
%
|
% of product sales
|
|
|
54
|
%
|
|
|
61
|
%
|
|
|
62
|
%
|
|
|
|
|
|
|
|
|
Branded generics Latin America
|
|
|
105,432
|
|
|
|
86,380
|
|
|
|
102,318
|
|
|
|
22
|
%
|
|
|
(16
|
)%
|
% of product sales
|
|
|
68
|
%
|
|
|
63
|
%
|
|
|
68
|
%
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
(132
|
)
|
|
|
857
|
|
|
|
(555
|
)
|
|
|
NM
|
|
|
|
NM
|
|
% of product sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated gross profit
|
|
$
|
457,173
|
|
|
$
|
381,448
|
|
|
$
|
400,345
|
|
|
|
20
|
%
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of product sales
|
|
|
64
|
%
|
|
|
64
|
%
|
|
|
66
|
%
|
|
|
|
|
|
|
|
|
NM Not meaningful
26
Gross profit margin on service revenue was 20% for the year
ended December 31, 2009.
Selling, General and Administrative
Expenses: Selling, general and administrative
(SG&A) expenses were $255.8 million in the
year ended December 31, 2009 compared to
$278.0 million in 2008, a decrease of $22.2 million
(8%). As a percent of product sales and service revenue,
SG&A expenses were 35% for the year ended December 31,
2009 and 47% in 2008. The decrease in SG&A expense
primarily reflects the effects of our restructuring initiatives
as well as the favorable impact of foreign currency exchange
rates. These decreases were offset in part by expenses
attributable to our 2009 business acquisitions; a full year of
expense related to our 2008 business acquisitions, all of which
occurred in the fourth quarter; and a $9.2 million increase
in stock-based compensation expense.
Research and Development: Research and
development (R&D) expenses were
$44.0 million in the year ended December 31, 2009
compared to $87.0 million in 2008, a decrease of
$43.0 million (49%). The decrease in R&D expenses was
largely due to $31.0 million of expense offsets
attributable to the GSK Collaboration Agreement, compared to
$10.2 million of offsets in 2008. R&D expenses also
decreased $6.2 million due to cessation of further
independent development work on taribavirin.
Special Charges and Credits Including Acquired In-Process
Research and Development: In the fourth quarter
of 2009, we recorded litigation settlement charges of
$4.4 million, primarily related to the settlement of the
Spear Pharmaceuticals, Inc. matter. See Note 21 of notes to
consolidated financial statements in Item 8 of this Annual
Report on
Form 10-K
for further information.
In June 2009, we entered into an exclusive license agreement
with Endo Pharmaceuticals Inc. that grants us an exclusive
license to develop and commercialize Opana and Opana ER in
Canada, Australia and New Zealand (the Opana
Territory). Regulatory approval must be received prior to
any sale of the licensed products. We recorded a
$1.8 million charge related to the initial license fee in
the second quarter of 2009. In 2009, we acquired rights to other
products in Mexico that are not currently approved for sale, for
an aggregate price of $0.2 million, which was recorded as a
charge in 2009.
In 2008 we incurred IPR&D expense of $185.8 million
related to the acquisition of Dow and $0.5 million related
to the acquisition of Coria for IPR&D assets acquired that
we determined were not yet complete and had no future uses in
their current state. Under the revised accounting standard for
business combinations effective January 1, 2009, acquired
IPR&D is recorded as an intangible asset at its fair value
at the acquisition date. As a result of adopting this revised
standard, we did not record any IPR&D expense in 2009.
Amortization: Amortization expense was
$70.6 million in the year ended December 31, 2009
compared to $50.0 million in 2008, an increase of
$20.6 million (41%). Amortization increased by
$33.0 million in 2009 related to the intangible assets
obtained in our acquisitions of Dow and Coria, comprised of
$17.0 million related to Acanya, which we launched in the
first quarter of 2009, and $16.0 million related to other
acquired intangible assets. This increase was partially offset
by the declining amortization of the rights to the ribavirin
royalty intangible, which was amortized using an accelerated
method and was fully amortized in the third quarter of 2008.
Amortization expense in 2009 and 2008 includes intangible asset
impairment charges of a $0.5 million and $1.6 million,
respectively.
Restructuring, Asset Impairments, Dispositions and
Acquisition-related Costs: In 2009 and 2008 we
incurred $10.1 million and $21.3 million,
respectively, in restructuring, asset impairments, dispositions
and acquisition-related costs, including $6.5 million of
acquisition-related costs.
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. For one-time severance arrangements,
the benefits are detailed in an approved severance plan, which
is specific as to number of employees, 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 at fair value when the contract is terminated. Other
associated costs, such as legal and professional fees, have been
expensed as incurred.
27
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 March 2008, we closed the sale to Invida Pharmaceutical
Holdings Pte. Ltd. (Invida) of certain assets in
Asia 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. During the year ended December 31,
2008, we received proceeds of $37.9 million and recorded a
gain of $34.5 million, net of charges for closing costs, in
this transaction. During the first quarter of 2009, we received
substantially all of the remaining additional proceeds of
$3.4 million from the sale in accordance with net asset
settlement provisions of the sale.
In June 2008, we sold our subsidiaries in Argentina and Uruguay
and recorded a loss on the sale of $2.7 million, in
addition to a $7.9 million impairment charge recorded in
the first quarter of 2008 related to the anticipated sale.
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 $3.5 million in the year ended December 31, 2009
included $2.2 million of employee severance costs for a
total of 38 affected employees who were part of the selling,
general and administrative and research and development
workforce in the United States. The charge also included
$1.3 million of contract cancellation costs and other cash
costs. The net restructuring, asset impairments and dispositions
charge of $21.3 million in the year ended December 31,
2008 included $19.2 million of employee severance costs for
a total of 389 affected employees who were part of the supply,
selling, general and administrative and research and development
workforce in the United States, Mexico, Brazil and the Czech
Republic. The charges also included $10.4 million for
professional service fees related to the strategic review of our
business, $7.7 million of contract cancellation costs and
$0.3 million of other cash costs. Additional amounts
incurred included a stock compensation charge for the
accelerated vesting of the stock options of our former chief
executive officer of $4.8 million, impairment charges
relating to the sale of our subsidiaries in Argentina and
Uruguay and certain fixed assets in Mexico of
$10.8 million, and the loss of $2.6 million in the
sale of our subsidiaries in Argentina and Uruguay, offset in
part by the gain of $34.5 million in the transaction with
Invida.
28
The following table summarizes the restructuring costs recorded
in the years ended December 31, 2009, 2008 and 2007 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Total Incurred
|
|
|
2008 Restructuring Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severances (430 employees cumulatively)
|
|
$
|
2,239
|
|
|
$
|
19,239
|
|
|
$
|
957
|
|
|
$
|
22,435
|
|
Contract cancellation costs, legal and professional fees and
other costs
|
|
|
1,260
|
|
|
|
18,406
|
|
|
|
8,644
|
|
|
|
28,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal: cash charges
|
|
|
3,499
|
|
|
|
37,645
|
|
|
|
9,601
|
|
|
|
50,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation
|
|
|
|
|
|
|
4,778
|
|
|
|
|
|
|
|
4,778
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
10,758
|
|
|
|
|
|
|
|
10,758
|
|
Loss on sale of long-lived assets
|
|
|
|
|
|
|
2,652
|
|
|
|
|
|
|
|
2,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal: non-cash charges
|
|
|
|
|
|
|
18,188
|
|
|
|
|
|
|
|
18,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal: restructuring expenses
|
|
|
3,499
|
|
|
|
55,833
|
|
|
|
9,601
|
|
|
|
68,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on Invida transaction
|
|
|
42
|
|
|
|
(34,538
|
)
|
|
|
|
|
|
|
(34,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructurings, asset impairments and dispositions
|
|
$
|
3,541
|
|
|
$
|
21,295
|
|
|
$
|
9,601
|
|
|
$
|
34,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
Restructuring
In April 2006, we announced a restructuring program (the
2006 Restructuring) which was primarily focused on
our research and development and manufacturing operations. The
objective of the 2006 Restructuring program as it related to
research and development activities was to focus our efforts and
expenditures on retigabine and taribavirin, our two late-stage
projects in development. The 2006 Restructuring was designed to
rationalize our investments in research and development efforts
in line with our financial resources. In December 2006, we sold
our HIV and cancer development programs and certain discovery
and pre-clinical assets to Ardea Biosciences, Inc.
(Ardea), with an option for us to reacquire rights
to commercialize the HIV program outside of the United States
and Canada upon Ardeas completion of Phase IIb trials. In
March 2007, we sold our former headquarters building in Costa
Mesa, California, where our former research laboratories were
located, for net proceeds of $36.8 million.
The objective of the 2006 Restructuring as it related to
manufacturing was to further rationalize our manufacturing
operations to reflect the regional nature of our existing
products and further reduce our excess capacity after
considering the delay in the development of taribavirin. The
impairment charges included the charges related to estimated
future losses expected upon the disposition of specific assets
related to our manufacturing operations in Switzerland and
Puerto Rico. We completed the 2006 Restructuring in June 2007
with the sale of our former manufacturing facilities in Humacao,
Puerto Rico and Basel, Switzerland to Legacy Pharmaceuticals
International.
29
The following table summarizes the restructuring costs recorded
in the year ended December 31, 2007 and cumulatively (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
2007
|
|
|
Total Incurred
|
|
|
2006 Restructuring Program
|
|
|
|
|
|
|
|
|
Employee severances (408 employees cumulatively)
|
|
$
|
3,788
|
|
|
$
|
15,372
|
|
Contract cancellation and other cash costs
|
|
|
2,076
|
|
|
|
3,709
|
|
|
|
|
|
|
|
|
|
|
Subtotal: cash charges
|
|
|
5,864
|
|
|
|
19,081
|
|
|
|
|
|
|
|
|
|
|
Abandoned software and other capital assets
|
|
|
|
|
|
|
22,178
|
|
Write-off of accumulated foreign currency translation adjustments
|
|
|
2,782
|
|
|
|
2,782
|
|
Impairment of manufacturing and research facilities
|
|
|
9,428
|
|
|
|
62,649
|
|
|
|
|
|
|
|
|
|
|
Subtotal: non-cash charges
|
|
|
12,210
|
|
|
|
87,609
|
|
|
|
|
|
|
|
|
|
|
Restructurings, asset impairments and dispositions
|
|
$
|
18,074
|
|
|
$
|
106,690
|
|
|
|
|
|
|
|
|
|
|
Aggregate restructuring charges for the 2008 and 2006
restructuring programs, by reportable segment, were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Specialty pharmaceuticals
|
|
$
|
|
|
|
$
|
(16,755
|
)
|
|
$
|
10,445
|
|
Branded generics Europe
|
|
|
|
|
|
|
(8,011
|
)
|
|
|
|
|
Branded generics Latin America
|
|
|
|
|
|
|
8,328
|
|
|
|
|
|
Unallocated corporate
|
|
|
3,541
|
|
|
|
37,733
|
|
|
|
17,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,541
|
|
|
$
|
21,295
|
|
|
$
|
27,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of Cash Restructuring Payments with Restructuring
Accrual
Cash-related charges in the above tables relate to severance
payments and other costs which have been either paid with cash
expenditures or have been accrued and will be paid with cash in
future quarters. As of December 31, 2008, the restructuring
accrual for the 2006 Restructuring was $0.6 million and
related to ongoing contractual payments to Legacy
Pharmaceuticals International relating to the sale of our former
site in Puerto Rico. These payment obligations ended in June
2009.
As of December 31, 2009, the restructuring accrual for the
2008 Restructuring was $6.4 million and relates primarily
to severance and lease termination penalty costs expected to be
paid primarily during 2010, except for the lease termination
penalty which will be paid in 2011. A summary of accruals and
expenditures of restructuring costs which will be paid in cash
is as follows (in thousands):
|
|
|
|
|
2008 Restructuring: Reconciliation of Cash Payments and
Accruals
|
|
|
|
|
Opening balance, commencement of restructuring
|
|
$
|
|
|
Charges to earnings
|
|
|
9,601
|
|
Cash paid
|
|
|
(1,128
|
)
|
|
|
|
|
|
Restructuring accrual, December 31, 2007
|
|
|
8,473
|
|
Charges to earnings
|
|
|
37,645
|
|
Cash paid
|
|
|
(35,817
|
)
|
|
|
|
|
|
Restructuring accrual, December 31, 2008
|
|
|
10,301
|
|
Charges to earnings
|
|
|
3,499
|
|
Cash paid
|
|
|
(7,356
|
)
|
|
|
|
|
|
Restructuring accrual, December 31, 2009
|
|
$
|
6,444
|
|
|
|
|
|
|
30
The 2008 restructuring initiatives were substantially completed
by the end of the third quarter of 2009. We expect to continue
to recognize costs through 2011 related primarily to the
accretion of lease termination penalty costs.
In 2009, we incurred $6.5 million of costs related to
business acquisitions. These costs include transaction costs
such as broker fees, legal, accounting and other costs directly
related to our 2009 acquisitions and integration and other costs
including contract cancellation costs, severance for employees
of acquired businesses and obligations to employees established
by the former Dow shareholders. In 2008, under the prior
guidance for accounting for business acquisitions, transaction
costs were included in the purchase price of the related
business.
Other Income/Expense, Net, Including Translation and
Exchange: Other income (expense), net including
translation and exchange was expense of $1.5 million for
the year ended December 31, 2009 compared to income of
$2.1 million in 2008. The expense in 2009 related primarily
to the weakening of the U.S. Dollar relative to the British
Pound, the Swiss Franc and the Euro resulting in translation and
exchange losses on foreign currency denominated liabilities in
our U.S. Dollar denominated subsidiaries and losses related
to our joint venture with Meda AB in Canada. In 2008, the amount
represents primarily the effects of translation gains in Europe.
Gain/Loss on Early Extinguishment of Debt: In
2009, we repurchased an aggregate of $173.5 million
principal amount of the 3.0% Notes and 4.0% Notes at a
purchase price of $178.3 million, consisting of cash
consideration aggregating $171.1 million and warrants to
purchase 1,769,265 shares of our common stock at an
exercise price of $31.61 per share, with an estimated fair value
of $7.2 million. For additional information, see
Note 10 of notes to consolidated financial statements in
Item 8 of this Annual Report on
Form 10-K.
The carrying amount, net of unamortized debt issuance costs, of
the 3.0% Notes and 4.0% Notes purchased was
$162.6 million and the estimated fair value of the
3.0% Notes and 4.0% Notes exclusive of the conversion
feature was $155.4 million. The difference between the
carrying amount and the estimated fair value was recognized as a
gain of $7.2 million upon early extinguishment of debt.
Loss on early extinguishment of debt of $13.0 million in
2008 includes a loss of $14.9 million as a result of the
July 2008 redemption of our 7.0% Senior Notes, partially
offset by a $1.9 million gain as a result of the repurchase
of $32.6 million aggregate principal amount of our
3.0% Notes.
Interest Expense and Income: Interest income
decreased $12.8 million during the year ended
December 31, 2009 compared to 2008. The decrease was due to
lower cash balances resulting from our acquisitions, the
purchase of our $300.0 million 7.0% Senior Notes, the
purchase of a portion of our 3.0% Notes and
4.0% Notes, repurchases of our common stock and lower
average interest rates on invested cash. Interest expense
decreased $1.8 million during the year ended
December 31, 2009 compared to 2008, due primarily to
redemption of our $300.0 million 7.0% Senior Notes in
July 2008 and the purchase of a portion of our 3.0% and
4.0% Notes, offset in part by interest expense on our
$365.0 million Senior Notes issued in June 2009.
Income Taxes: In 2009, we recorded a tax
benefit of $58.3 million compared to tax expense in 2008 of
$34.7 million. The 2009 tax benefit amount is primarily
related to the benefit upon release of $102.5 million of
the valuation allowance previously recorded against our net
deferred tax assets, which were primarily comprised of net
operating losses and credits in the U.S. In the fourth
quarter of 2009, we concluded that it was more likely than not
that we would be able to realize the benefits of the majority of
our deferred tax assets. In making this decision, we considered
several factors, including but not limited to, future taxable
income from the scheduling of deferred tax liabilities and
forecasted book and taxable income over the next several years.
In general, we have been profitable for U.S. tax return
purposes over the last two years and our 2009 taxable income
exceeded the allowed current year net operating loss limitation.
Due to the successful integration of recent
U.S. acquisitions we believe that our current and expected
future profitability supports the realization of our deferred
tax assets.
In 2008, we recorded a valuation allowance against the deferred
tax assets associated with the U.S. tax benefits we will
receive as income tax loss carryforwards and credits are offset
against U.S. tax liability in future years. As of
December 31, 2009 the valuation allowance against deferred
tax assets totaled $4.4 million compared to
$123.8 million as of December 31, 2008. The valuation
allowance also had the effect of deferring certain amounts that
would normally impact the effective tax rate. See Note 11
of notes to consolidated financial statements in Item 8 of
this Annual Report on
Form 10-K
for further information.
31
The 2008 tax provision amount is the result of no tax benefits
being recorded for the acquired IPR&D charge, the
U.S. operating losses and credits. Additionally, as a
result of utilizing a portion of our net operating loss
carryforward in 2008, we released a portion of our valuation
allowance against additional capital resulting in an increased
income tax provision.
In February 2010, President Obamas administration proposed
significant changes to the U.S. international tax laws,
including changes that would limit U.S. deductions for
interest expenses related to un-repatriated foreign-source
income and modify the U.S. foreign tax credit rules. We
cannot determine whether these proposals will be enacted into
law or what, if any, changes may be made to such proposals prior
to their being enacted into law. We are currently unable to
predict whether any such new legislation, if and when it becomes
effective, could have a significant adverse impact to our
effective tax rate.
Income/Loss from Discontinued
Operations: Income from discontinued operations
was $6.1 million in 2009 compared to $166.5 million in
2008. The discontinued operations amounts in 2009 relate
primarily to the reversal of a contingent liability accrued in
2008 upon sale of our Infergen operations, which did not meet
the conditions for payment upon expiration of the payment
criteria as of December 31, 2009. The discontinued
operations amounts in 2008 relate primarily to our WEEMEA
business and Infergen operations that were sold in 2008. In
2008, the loss from discontinued operations before income taxes
of the WEEMEA business and Infergen operations was
$1.8 million and $11.4 million, respectively. The
income in 2008 includes the gain on sale of the WEEMEA business
of $158.9 million.
Year
Ended December 31, 2008 Compared to 2007
Product Sales Revenues: Total consolidated
revenues decreased $32.6 million for the year ended
December 31, 2008 compared to 2007. Total product sales
decreased $9.9 million (2%) to $593.2 million in 2008
from $603.1 million in 2007. Product sales in 2008 included
a 3% favorable impact from foreign exchange rate fluctuations,
offset by a 4% reduction in volume and a 1% aggregate decrease
in price. The decline in volume is primarily a result of the
divestment of operations in Asia, Argentina and Uruguay, which
resulted in aggregate revenue decreases of $24.5 million in
2008 compared to 2007. This decline was partially offset by
revenues of $8.2 million in 2008 attributable to our Coria
acquisition. The decrease in sales is also attributable to the
sales decline in Mexico, offset by sales increases in Poland and
Canada.
In our Specialty Pharmaceuticals segment, revenues for the year
ended December 31, 2008 decreased $23.0 million (7%)
to $303.7 million from $326.7 million in 2007. The
decrease in Specialty Pharmaceuticals sales for the year ended
December 31, 2008 was due to a 9% decrease in volume,
partially offset by a 2% increase in price. This decrease
reflects the divestment of operations in Asia, Argentina and
Uruguay, which resulted in aggregate revenue decreases of
$24.5 million in 2008 compared to 2007, partially offset by
revenues of $8.2 million attributable to our Coria
acquisition. The decrease in volume is also attributable to a
decrease in sales of Diastat, Kinerase and Efudex in the United
States.
In our Branded Generics Europe segment, revenues for
the year ended December 31, 2008 increased
$27.7 million (22%) to $152.8 million from
$125.1 million in 2007. Branded Generics - Europe sales in
2008 were impacted by a 14% positive contribution from currency
fluctuations and a 12% increase in volume, offset by a 4%
aggregate reduction in prices. The increase in the value of
currencies in the region relative to the U.S. Dollar
contributed $17.9 million to revenues in the segment in
2008. The increase in volume includes a full year of sales in
2008 from products launched during 2007, resulting in a sales
increase of $3.9 million.
In our Branded Generics Latin America segment,
revenues for the year ended December 31, 2008 decreased
$14.7 million (10%) to $136.6 million from
$151.3 million in 2007. Branded Generics - Latin America
sales in 2008 reflected a 5% decrease in price, a 4% reduction
in volume and a 1% reduction from foreign currency. The decline
in volume in 2008 is due in part to a planned reduction of
shipments to wholesaler customers in Mexico to reduce the amount
of product in the wholesale channel.
Alliance Revenue: Alliance revenue in the year
ended December 31, 2008 included $4.4 million
attributable to the GSK Collaboration Agreement. Alliance
revenue in 2007 included a licensing payment of
$19.2 million
32
which we received from Schering-Plough as a payment for the
license to pradefovir. In 2007, we announced an agreement with
Schering-Plough and Metabasis which returned all pradefovir
rights to Metabasis.
Ribavirin royalties for the year ended December 31, 2008
were $59.4 million compared to $67.2 million for 2007,
a decrease of $7.8 million (12%). Ribavirin royalty
revenues decreased due to Schering-Ploughs global market
share losses in ribavirin sales and Roches discontinuation
of royalty payments to us in June 2007.
Gross Profit Margin: Gross profit margin,
excluding amortization, as a percentage of product sales
decreased to 72% for the year ended December 31, 2008
compared to 74% in 2007. Gross profit margin in 2008 was
negatively impacted by increases in reserves for returns, in
addition to inventory provisions and write offs in Mexico, the
United States and Europe resulting primarily from decisions to
cease promotion of or discontinue certain products, decisions to
discontinue certain manufacturing transfers, and product quality
failures.
Selling, General and Administrative
Expenses: SG&A expenses were
$278.0 million for the year ended December 31, 2008
compared to $292.0 million for 2007, a decrease of
$14.0 million (5%). As a percent of product sales,
SG&A expenses were 47% for the year ended December 31,
2008 and 48% in 2007. The decrease in SG&A expense
primarily reflects the effects of our restructuring initiatives,
including a $10.1 million reduction due to the divestment
of our businesses in Asia, Argentina and Uruguay, in addition to
a reduction in stock-based compensation expense of
$4.5 million in 2008. The savings from our restructuring
initiatives were offset in part by the recognition of an
other-than temporary impairment of $4.8 million in an
investment in a publicly traded investment fund, a
$3.4 million reversal of a tax benefit in Mexico and
$3.5 million of expenses related to our expansion into
additional markets in Central Europe.
Research and Development: R&D expenses
were $87.0 million for the year ended December 31,
2008 compared to $98.0 million for 2007, a reduction of
$11.0 million (11%). The decrease in R&D expenses was
primarily due to $10.2 million of expense offsets
attributable to the GSK Collaboration Agreement (as defined
below), which was effective in October 2008.
Special Charges and Credits Including Acquired In-Process
Research and Development: Acquired IPR&D
expense represents the estimate of the fair value of in-process
technology for projects that, as of the acquisition date, had
not yet reached technological feasibility and had no alternative
future use. In 2008 we incurred IPR&D expense of
$185.8 million related to the acquisition of Dow and
$0.5 million related to the acquisition of Coria for
IPR&D assets acquired that we determined were not yet
complete and had no future uses in their current state. The
major risks and uncertainties associated with the timely and
successful completion of the acquired IPR&D assets consist
of the ability to confirm the safety and efficacy of the product
based upon the data from clinical trials and obtaining the
necessary approval from the FDA.
The IPR&D assets of Dow are comprised of the following
items; IDP-107 for the treatment of acne, IDP-108 for fungal
infections and IDP-115 for rosacea, which were valued at
$107.3 million, $49.0 million and $29.5 million,
respectively. All of these IPR&D assets had not yet
received approval from the FDA as of the acquisition date.
The estimated fair value of the IPR&D assets was determined
based upon the use of a discounted cash flow model for each
asset. The estimated after-tax cash flows were probability
weighted to take into account the stage of completion and the
risks surrounding the successful development and
commercialization of each asset. The cash flows for each asset
were then discounted to a present value using a discount rate of
15%. Material net cash inflows were estimated to begin in 2013
for IDP-107, IDP-108 and IDP-115. Gross margins and expense
levels were estimated to be consistent with Dows
historical results. Solely for the purpose of estimating the
fair value of these assets, we assumed we would incur future
research and development costs of $26.6 million,
$29.6 million and $20.1 million to complete IDP-107,
IDP-108 and IDP-115, respectively.
Amortization: Amortization expense was
$50.0 million for the year ended December 31, 2008
compared to $56.0 million for 2007, a decrease of
$6.0 million (11%). The decrease is the result of the
declining amortization of the rights to the ribavirin royalty
intangible, which was amortized using an accelerated method and
was fully amortized in the third quarter of 2008. Amortization
expense in 2008 includes a $1.6 million intangible asset
impairment charge related to a product sold in the United States.
33
Restructuring Charges and Asset
Impairments: In 2008 and 2007, we incurred
$21.3 million and $27.7 million, respectively, in
restructuring charges relating primarily to severance charges,
contract cancellations and asset impairments. See above for a
detailed discussion of the charges in each year.
Other Income/Expense, Net, Including Translation and
Exchange: Other income, net, including
translation and exchange was income of $2.1 million for the
year ended December 31, 2008 compared to income of
$1.7 million for 2007. In 2008, the amount represents
primarily the effects of translation gains in Europe. In 2007,
the amounts represent primarily the effects of translation gains
and losses in Europe and Latin America. Translation and exchange
gains are primarily related to U.S. Dollar denominated
assets and liabilities at our foreign currency denominated
subsidiaries.
Gain/Loss on Early Extinguishment of
Debt: Loss on early extinguishment of debt in the
year ended December 31, 2008 includes a loss of
$14.9 million as a result of the July 2008 redemption of
our 7.0% Senior Notes and includes 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. This loss was partially offset by a
$1.9 million gain as a result of the November 2008
repurchase of $32.6 million aggregate principal amount of
our 3.0% Notes for an aggregate purchase price of
$29.0 million. The carrying amount, net of unamortized debt
issuance costs, of the 3.0% Notes purchased was
$30.1 million and the estimated fair value exclusive of the
conversion feature was $28.2 million. The difference
between the carrying amount and the estimated fair value was
recognized as a gain of $1.9 million upon early
extinguishment of debt.
Interest Expense and Income: Interest income
decreased $0.5 million during the year ended
December 31, 2008 compared to 2007. Interest expense was
$45.4 million and $56.9 million for the years ended
December 31, 2008 and 2007, respectively, and decreased
$11.5 million during the year ended December 31, 2008
compared to 2007. The decrease was due primarily to lower
interest expense resulting from the July 2008 redemption of the
7.0% Senior Notes, and to a lesser extent to the November
2008 purchase of a portion of the 3.0% Notes.
Income Taxes: In 2008 and 2007, we recorded
tax expense of $34.7 million and $13.5 million,
respectively. The 2008 tax provision amount is the result of no
tax benefits being recorded for the acquired IPR&D charge,
the U.S. operating losses and credits. Additionally, as a
result of utilizing a portion of our net operating loss
carryforward in 2008, we released a portion of our valuation
allowance against additional capital resulting in an increased
income tax provision. The 2007 tax provision amount related
primarily to the fact that no tax benefits were recorded for the
U.S. operating losses and credits.
In 2008 and 2007, we recorded valuation allowances against the
deferred tax assets associated with the U.S. tax benefits
we will receive as income tax loss carryforwards and credits are
offset against U.S. tax liability in future years. As of
December 31, 2008 the valuation allowance against deferred
tax assets totaled $123.8 million compared to
$126.2 million as of December 31, 2007. The valuation
allowance also had the effect of deferring certain amounts that
would normally impact the effective tax rate. See Note 11
of notes to consolidated financial statements in Item 8 of
this Annual Report on
Form 10-K
for further information.
Income/Loss from Discontinued
Operations: Income from discontinued operations
was $166.5 million in 2008 compared to a loss of
$26.8 million in 2007. The discontinued operations amounts
in 2008 and 2007 relate primarily to our WEEMEA business and
Infergen operations that were sold in 2008. In 2008, the loss
from discontinued operations before income taxes of the WEEMEA
business and Infergen operations was $1.8 million and
$11.4 million, respectively. The income in 2008 includes
the gain on sale of the WEEMEA business of $158.9 million.
In 2007, the $31.5 million loss before income taxes from
our Infergen operations was partially offset by income before
income taxes of $17.1 million related to the WEEMEA
business.
34
Sources
and Uses of Cash
Cash and cash equivalents and marketable securities totaled
$81.9 million at December 31, 2009 compared to
$218.8 million at December 31, 2008. The decrease of
$136.9 million primarily resulted from the following:
Uses
of Cash:
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|
|
|
|
$202.4 million paid for the purchase of treasury stock;
|
|
|
|
$171.1 million paid to purchase a portion of the
3.0% Notes and 4.0% Notes. A portion of the purchase
price totaling $35.3 million was attributable to accreted
interest on the debt discount and deferred loan costs. The
$35.3 million has been reflected as payments of accreted
interest on long-term debt in cash flow from operating
activities in continuing operations. The remaining
$135.8 million has been reflected as payments on long-term
debt and notes payable in cash flows from financing activities
in continuing operations;
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|
|
Payments related to recent acquisitions including
$162.4 million related to the acquisition of Dow, including
resolution of contingent consideration, $151.5 million, net
of cash acquired, was paid for the acquisitions of PFI,
Tecnofarma, Emo-Farm and Dr. Renaud, and $13.1 million
of payments were made on the Tecnofarma debt;
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|
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|
$20.0 million of payments were made for capital
expenditures; and
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|
|
|
$13.5 million was paid for liabilities related to the sale
of the WEEMEA business.
|
Sources
of Cash:
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|
|
|
|
Net proceeds of $346.0 million from the issuance of the
Senior Notes (comprised of $365.0 million gross proceeds,
less $11.7 million original issue discount and
$7.3 million underwriters fees);
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|
$183.6 million of cash from operations; and
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|
|
|
$40.4 million of proceeds from stock option exercises and
employee stock purchases.
|
Working capital was $125.1 million at December 31,
2009, compared to $175.5 million at December 31, 2008.
The decrease in working capital of $50.4 million primarily
resulted from the decrease in cash and cash equivalents and
marketable securities and an increase in notes payable and
current portion of long-term debt, offset, in part, by an
increase in net current deferred tax assets, inventory, accounts
receivable and a decrease in accrued liabilities.
Cash provided by operating activities in continuing operations
is expected to be our primary source of funds for operations in
2010. During the year ended December 31, 2009, cash
provided by operating activities in continuing operations
totaled $186.3 million, compared to $200.7 million in
2008. The cash provided by operating activities in continuing
operations for 2009 was primarily a result of net income
adjusted for non-cash charges, offset by the reduction in other
liabilities. The cash provided by operating activities in
continuing operations for 2008 included receipt from GSK of
$125.0 million in upfront fees pursuant to the
Collaboration Agreement (as defined below).
Cash used in investing activities in continuing operations was
$337.5 million for the year ended December 31, 2009,
compared to cash used in investing activities in continuing
operations of $277.2 million in 2008. In 2009, cash used in
investing activities consisted primarily of $162.4 million
paid for liabilities for the acquisition of Dow,
$151.5 million, net of cash acquired, paid for the
acquisitions of PFI, Tecnofarma, Emo-Farm and Dr. Renaud
and capital expenditures of $20.0 million. In 2008, cash
used in investing activities in continuing operations consisted
primarily of the acquisition of businesses and product rights of
$355.3 million, the purchase of investments of
$155.7 million, and capital expenditures of
$16.6 million, offset in part by proceeds from investments
of $200.8 million and proceeds from the sale of businesses
of $48.6 million. Cash provided by investing activities in
discontinued operations in 2008 of $447.1 million consisted
primarily of the net proceeds of $379.3 million from the
sale of the WEEMEA business to Meda and $70.8 million of
cash proceeds received as the initial payment in the sale of our
Infergen operations to Three Rivers Pharmaceuticals, LLC.
Cash provided by financing activities in continuing operations
was $29.9 million in the year ended December 31, 2009,
and primarily consisted of the net proceeds of
$346.0 million for the issuance of the Senior Notes,
proceeds from
35
stock option exercises and employee stock purchases of
$40.4 million, offset in part by the purchase of treasury
stock for $202.4 million and payments on long-term debt and
notes payable of $151.7 million. Cash used in financing
activities in continuing operations in 2008 was
$468.8 million and primarily consisted of payments on
long-term debt and notes payable of $323.8 million and
purchase of treasury stock of $206.5 million, offset in
part by proceeds from stock option exercises and employee stock
purchases of $49.1 million and excess tax deductions from
stock options exercised of $12.3 million.
Liquidity
and Capital Resources
Historically, our primary sources of liquidity have been our
cash flow from operations and issuances of long-term debt
securities. In 2009, cash generated from operations was
sufficient to meet our operating requirements. We believe that
cash generated from operations, along with our existing cash,
will be sufficient to meet our operating requirements at least
through December 31, 2010, to fund capital expenditures and
our clinical development program. We do not have any short-term
debt maturities, other than the $48.9 million principal
amount of our 3.0% Notes maturing in August 2010. Our cash
on hand is sufficient to cover this short-term debt maturity.
However, since part of our business strategy is to expand
through strategic acquisitions, we may seek additional debt
financing or issue additional equity securities or sell assets
to finance future acquisitions or for other purposes.
If GSK terminates the Collaboration Agreement prior to
December 31, 2010, we would be required to refund to GSK up
to $40.0 million of the upfront fee through
December 31, 2009; however, the refundable portion will be
reduced ratably throughout 2010 until it reaches zero at
December 31, 2010.
In October 2009, we paid $115.0 million to the former Dow
common stockholders in order to settle all current and future
income milestone obligations that we had to these stockholders
under the December 2008 Dow merger agreement. Specifically, in
exchange for this payment, we received rights to all future
profit share payments to Dow under Dows 2008 agreement
with Mylan related to sales of IDP-111 and a release by the
former Dow stockholders of their right to receive up to
$235.0 million in milestone payments upon successful
development and commercialization of certain Dow pipeline
products. We further agreed to terminate the indemnification
obligations of the former Dow common stockholders and to release
the $35.0 million escrow account.
We did not declare and did not pay dividends in 2009 or 2008.
Contractual
Obligations
The following table summarizes our contractual obligations as of
December 31, 2009, and the effect such obligations are
expected to have on our liquidity and cash flow in future
periods:
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|
|
|
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|
|
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|
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|
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Less than
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|
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|
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|
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More than
|
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|
Total
|
|
|
1 Year
|
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|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
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|
Long-term debt obligations:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0% Notes (principal amount)
|
|
$
|
48,866
|
|
|
$
|
48,866
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
4.0% Notes (principal amount)
|
|
|
224,960
|
|
|
|
|
|
|
|
|
|
|
|
224,960
|
|
|
|
|
|
8.375% Senior Notes (principal amount)
|
|
|
365,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
365,000
|
|
Interest payments
|
|
|
236,156
|
|
|
|
41,033
|
|
|
|
79,134
|
|
|
|
70,136
|
|
|
|
45,853
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|
Lease obligations
|
|
|
35,263
|
|
|
|
10,633
|
|
|
|
18,639
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|
|
|
2,629
|
|
|
|
3,362
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|
Purchase and other obligations
|
|
|
8,159
|
|
|
|
5,097
|
|
|
|
2,119
|
|
|
|
943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash obligations
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|
$
|
918,404
|
|
|
$
|
105,629
|
|
|
$
|
99,892
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|
|
$
|
298,668
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|
|
$
|
414,215
|
|
|
|
|
|
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We have no material commitments for purchases of property, plant
and equipment.
In addition to the commitments in the table above, we are
required under the terms of various license agreements to make
contingent milestone payments aggregating $19.9 million.
These payments are not included in the table above as the
likelihood and timing of payments, if any, are uncertain. The
table above also excludes an
36
$8.0 million milestone payable to Meda Pharma upon
acceptance of the filing of the NDA for retigabine included in
current liabilities at December 31, 2009.
Due to the uncertainty with respect to the timing of future cash
flows associated with our unrecognized tax benefits at
December 31, 2009, we are unable to make reasonably
reliable estimates of the period of cash settlement with the
respective taxing authorities. Therefore, $13.1 million of
unrecognized tax benefits have been excluded from the
contractual obligations table above. See Note 11 of notes
to consolidated financial statements in Item 8 of this
Annual Report on
Form 10-K
for a discussion of income taxes.
Off-Balance
Sheet Arrangements
We do not use special purpose entities or other off-balance
sheet financing techniques except for operating leases disclosed
in the table contained in the Contractual
Obligations section above. Our 3.0% Notes and
4.0% Notes include conversion features that are considered
as off-balance sheet arrangements under SEC requirements. For
further discussion of the 3.0% and 4.0% Notes, please refer
to Note 10 of notes to consolidated financial statements in
Item 8 of this Annual Report on
Form 10-K.
Foreign
Operations
Approximately 57%, 66% and 65% of our revenues from continuing
operations, which includes royalties, for the years ended
December 31, 2009, 2008 and 2007, respectively, were
generated from operations or otherwise earned outside the United
States. All of our foreign operations are subject to risks
inherent in conducting business abroad, including price and
currency exchange controls, fluctuations in the relative values
of currencies, political instability and restrictive
governmental actions including possible nationalization or
expropriation. Changes in the relative values of currencies may
materially affect our results of operations. For a discussion of
these risks, see Item 1A, Risk Factors in this Annual
Report on
Form 10-K.
Inflation
and Changing Prices
We experience the effects of inflation through increases in the
costs of labor, services and raw materials. We are subject to
price control restriction on our pharmaceutical products in the
majority of countries in which we operate. While we attempt to
raise selling prices in anticipation of inflation, we operate in
some markets which have price controls that may limit our
ability to raise prices in a timely fashion.
Recent
Accounting Pronouncements
Information regarding recent accounting pronouncements is
contained in Note 1 to consolidated financial statements in
Item 8 of this Annual Report on
Form 10-K
Critical
Accounting Estimates
The consolidated financial statements appearing elsewhere in
this document have been prepared in conformity with accounting
principles generally accepted in the United States of America.
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 ongoing basis, we evaluate our estimates,
including those related to product returns, rebates,
collectability of receivables, inventories, intangible assets,
income taxes and contingencies and litigation. The actual
results could differ materially from those estimates.
We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation
of our consolidated financial statements.
Revenue
Recognition
We recognize revenues from product sales when title and risk of
ownership transfers to the customer. Revenues are recorded net
of provisions for rebates, discounts and returns, which are
estimated and recorded at the time of sale. Allowances for
future returns of products sold to our direct and indirect
customers, who include wholesalers,
37
retail pharmacies and hospitals, are calculated as a percent of
sales based on historical return percentages taking into account
additional available information on competitive products and
contract changes. Sales revenue in certain countries is
recognized on a consignment basis.
Our product sales are subject to a variety of deductions,
primarily representing rebates and discounts to government
agencies, wholesalers and managed care organizations. These
deductions represent estimates of the related obligations and,
as such, judgment is required when estimating the impact of
these sales deductions on revenues for a reporting period.
In the United States we record provisions for Medicaid, Medicare
and contract rebates based upon our actual experience ratio of
rebates paid and actual prescriptions written during prior
quarters. We apply the experience ratio to the respective
periods sales to determine the rebate accrual and related
expense. This experience ratio is evaluated regularly and
adjusted if necessary to ensure that the historical trends are
as current as practicable. We adjust the ratio to better match
our current experience or our expected future experience, as
appropriate. In developing this ratio, we consider current
contract terms, such as changes in formulary status and discount
rates. If our ratio is not indicative of future experience, our
results could be materially affected.
Outside of the United States, the majority of our rebates are
contractual or legislatively mandated and our estimates are
based on actual invoiced sales within each period; both of these
elements help to reduce the risk of variations in the estimation
process. Some European countries base their rebates on the
governments unbudgeted pharmaceutical spending and we use
an estimated allocation factor against our actual invoiced sales
to project the expected level of reimbursement. We obtain third
party information that helps us to monitor the adequacy of these
accruals. If our estimates are not indicative of actual
unbudgeted spending, our results could be materially affected.
The sensitivity of our estimates can vary by program, type of
customer and geographic location. However, estimates associated
with U.S. Medicaid and contract rebates are most at-risk
for material adjustment because of the extensive time delay
between the recording of the accrual and its ultimate
settlement. This interval can range up to one year. Because of
this time lag, in any given quarter, our adjustments to actual
can incorporate revisions of several prior quarters. Significant
changes in estimate related to prior periods are discussed
following the table below.
We record sales incentives as a reduction of revenues at the
time the related revenues are recorded or when the incentive is
offered, whichever is later. We estimate the cost of our sales
incentives based on our historical experience with similar
incentives programs.
We use third-party data to estimate the level of product
inventories, expiration dating and product demand at our major
wholesalers. Actual results could be materially different from
our estimates, resulting in future adjustments to revenue. We
conduct a review of the current methodology and assess the
adequacy of the allowance for returns on a quarterly basis,
adjusting for changes in assumptions, historical results and
business practices, as necessary.
38
The following table summarizes deductions from gross sales and
related accruals for the three years ended December 31,
2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
|
|
|
|
|
|
|
|
|
Changes in
|
|
|
|
|
|
|
Balance at
|
|
|
Related to
|
|
|
|
|
|
|
|
|
Estimates
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Current Period
|
|
|
Credits and
|
|
|
|
|
|
Related to Prior
|
|
|
End of
|
|
|
|
Year
|
|
|
Sales
|
|
|
Payments
|
|
|
Acquisitions
|
|
|
Years
|
|
|
Year
|
|
|
|
(In thousands)
|
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Return Accruals
|
|
$
|
48,640
|
|
|
$
|
41,361
|
|
|
$
|
(26,559
|
)
|
|
$
|
1,519
|
|
|
$
|
756
|
|
|
$
|
65,717
|
|
Rebates
|
|
|
17,224
|
|
|
|
50,769
|
|
|
|
(39,237
|
)
|
|
|
9
|
|
|
|
|
|
|
|
28,765
|
|
Discounts
|
|
|
1,953
|
|
|
|
20,968
|
|
|
|
(20,949
|
)
|
|
|
|
|
|
|
|
|
|
|
1,972
|
|
Chargebacks
|
|
|
4,925
|
|
|
|
31,378
|
|
|
|
(30,492
|
)
|
|
|
|
|
|
|
|
|
|
|
5,811
|
|
IMA Fees
|
|
|
1,772
|
|
|
|
15,131
|
|
|
|
(14,286
|
)
|
|
|
|
|
|
|
|
|
|
|
2,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales Deduction Accruals
|
|
$
|
74,514
|
|
|
$
|
159,607
|
|
|
$
|
(131,523
|
)
|
|
$
|
1,528
|
|
|
$
|
756
|
|
|
$
|
104,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Return Accruals
|
|
$
|
33,170
|
|
|
$
|
28,166
|
|
|
$
|
(24,462
|
)
|
|
$
|
4,484
|
|
|
$
|
7,282
|
|
|
$
|
48,640
|
|
Rebates
|
|
|
16,972
|
|
|
|
23,032
|
|
|
|
(22,931
|
)
|
|
|
151
|
|
|
|
|
|
|
|
17,224
|
|
Discounts
|
|
|
7,006
|
|
|
|
17,842
|
|
|
|
(23,000
|
)
|
|
|
105
|
|
|
|
|
|
|
|
1,953
|
|
Chargebacks
|
|
|
2,685
|
|
|
|
21,456
|
|
|
|
(20,224
|
)
|
|
|
541
|
|
|
|
467
|
|
|
|
4,925
|
|
IMA Fees
|
|
|
2,446
|
|
|
|
9,187
|
|
|
|
(10,339
|
)
|
|
|
478
|
|
|
|
|
|
|
|
1,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales Deduction Accruals
|
|
$
|
62,279
|
|
|
$
|
99,683
|
|
|
$
|
(100,956
|
)
|
|
$
|
5,759
|
|
|
$
|
7,749
|
|
|
$
|
74,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Return Accruals
|
|
$
|
27,709
|
|
|
$
|
22,302
|
|
|
$
|
(19,221
|
)
|
|
$
|
|
|
|
$
|
2,380
|
|
|
$
|
33,170
|
|
Rebates
|
|
|
19,845
|
|
|
|
23,246
|
|
|
|
(24,718
|
)
|
|
|
|
|
|
|
(1,401
|
)
|
|
|
16,972
|
|
Discounts
|
|
|
4,352
|
|
|
|
22,095
|
|
|
|
(19,441
|
)
|
|
|
|
|
|
|
|
|
|
|
7,006
|
|
Chargebacks
|
|
|
4,059
|
|
|
|
14,807
|
|
|
|
(16,181
|
)
|
|
|
|
|
|
|
|
|
|
|
2,685
|
|
IMA Fees
|
|
|
2,907
|
|
|
|
8,325
|
|
|
|
(8,786
|
)
|
|
|
|
|
|
|
|
|
|
|
2,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales Deduction Accruals
|
|
$
|
58,872
|
|
|
$
|
90,775
|
|
|
$
|
(88,347
|
)
|
|
$
|
|
|
|
$
|
979
|
|
|
$
|
62,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales return accruals are recorded based on historical
experience, estimated customer inventory levels and forecasted
sales patterns. Rebates include various managed care sales
rebate and other incentive programs, the largest of which
relates to Medicaid and Medicare. Discounts include cash
discounts that are provided to customers that pay within a
specific period and volume discounts. The provision for cash
discounts is estimated based upon invoice billings, utilizing
historical customer payment experience. Chargebacks represent
amounts payable in the future to a wholesaler for the difference
between the invoice prices paid to us by our wholesale customers
for a particular product and the negotiated contract price that
the wholesalers customer pays for that product. Our
chargeback provision and related reserve varies with changes in
product mix, changes in customer pricing and changes to
estimated wholesaler inventories. Inventory Management Agreement
(IMA) Fees are deductions from gross sales, recorded
pursuant to agreements with certain of our wholesale customers.
We estimate product returns at the time of sale based on
historical patterns and rates of return of our products. This
estimation methodology relies upon a historical model to
calculate sales return accruals, with a comparison to historical
experience, including the historical rate of actual returns.
These comparisons are reviewed quarterly, with adjustments made
when trends are identified. A more detailed review of our
returns model is undertaken on an annual basis.
As part of our review of our returns reserve in the third
quarter of 2008, we recognized that recent experience of actual
product returns in the United States was higher than had
previously been estimated under our methodology for certain
products. As a result of this review of our returns reserve, we
adjusted our reserve for product returns. This adjustment
resulted in an increase of $7.3 million in 2008 resulting
most notably from returns of Diastat and Migranal.
39
Diastat in 2005 experienced two changes in product
characteristics which included longer dating (average shelf life
at the time of sale approximately doubled) along with the
replacement of four fixed dosage products with two variable
dosage products. As a result, we reduced our estimated rates of
future product returns for prospective sales. In 2008, we began
to experience actual returns on these products which were higher
than estimated using our methodology resulting in a revision of
the previous estimate of returns reserves. In addition, Migranal
has been sold in two new trade sizes since its acquisition in
2005 with the returns estimate for these launches utilizing the
returns experience of the previous trade sizes. In 2008, the
more recent trade size product experienced a higher level of
returns than estimated using our methodology which resulted in
an adjustment in the returns reserve.
As part of our review of our returns reserve in the third
quarter of 2007, we recognized that we had experienced higher
actual product returns in the United States and certain other
countries than had been previously estimated. As a result of
this review of our returns reserve, we adjusted our reserve for
product returns. This adjustment resulted in an increase of
$2.8 million in our returns reserve in the third quarter of
2007, resulting most notably from returns of Permax and Cesamet
in the United States. Approximately $0.4 million of this
amount relates to our discontinued operations in Western Europe.
We earn ribavirin royalties as a result of sales of products by
Schering-Plough. Ribavirin royalties are earned at the time the
products subject to the royalty are sold by the third party and
are reduced by an estimate for discounts and rebates that will
be paid in subsequent periods for those products sold during the
current period. We rely on a limited amount of financial
information provided by Schering-Plough to estimate the amounts
due to us under the royalty agreements.
Sales
Incentives
In the U.S. market, our current practice is to offer sales
incentives primarily in connection with launches of new products
or changes of existing products where demand has not yet been
established. We monitor and restrict sales in the
U.S. market in order to limit wholesaler purchases in
excess of their ordinary-course-of-business inventory levels. We
operate IMAs with major wholesalers in the United States.
However, specific events such as the case of sales incentives
described above or seasonal demand (e.g. antivirals during an
outbreak) may justify larger purchases by wholesalers. We may
offer sales incentives primarily in international markets, where
typically no right of return exists except for goods damaged in
transit, product recalls or replacement of existing products due
to packaging or labeling changes. Our revenue recognition policy
on these types of purchases and on incentives in international
markets is consistent with the policies described above.
Collaboration
Agreement
In October 2008, we closed the Collaboration Agreement with GSK
to develop and commercialize retigabine, a
first-in-class
neuronal potassium channel opener for treatment of adult
epilepsy patients with refractory partial onset seizures and its
backup compounds. Pursuant to the terms of the Collaboration
Agreement, we granted co-development rights and worldwide
commercialization rights to GSK.
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). Our share of such expenses
in the Collaboration Territory is limited to
$100.0 million, provided that GSK will be entitled to
credit our share of any such expenses in excess of such amount
against future payments owed to us under the Collaboration
Agreement. Following the launch of a retigabine product, we will
share equally in the profits of retigabine in the Collaboration
Territory. In addition, we granted GSK an exclusive license to
develop and commercialize retigabine in countries outside of the
Collaboration Territory and certain backup compounds to
retigabine worldwide. GSK will be responsible for all expenses
outside of the Collaboration Territory and will solely fund the
development of any backup compound. We will receive up to a 20%
royalty on net sales of retigabine outside of the Collaboration
Territory. In addition, if backup compounds are developed and
commercialized by GSK, GSK will pay us royalties of up to 20% of
net sales of products based upon such backup compounds.
Pursuant to the Collaboration Agreement, GSK paid us
$125.0 million in upfront fees in October 2008. GSK has the
right to terminate the Collaboration Agreement at any time prior
to the receipt of the approval by the FDA of a NDA for a
retigabine product, which right may be irrevocably waived at any
time by GSK. The period of time prior to such termination or
waiver is referred to as the Review Period. If GSK
terminates the Collaboration Agreement prior to
40
December 31, 2010, we would be required to refund to GSK a
portion of the upfront fee. In February 2009, the Collaboration
Agreement was amended to, among other matters, reduce the
maximum amount that we would be required to refund to GSK to
$40.0 million through December 31, 2009, with
additional ratable reductions during 2010 until reaching zero at
December 31, 2010. Unless otherwise terminated, the
Collaboration Agreement will continue on a
country-by-country
basis until GSK has no remaining payment obligations with
respect to such country.
Under terms of the Collaboration Agreement, GSK has agreed to
pay us up to an additional $545.0 million based upon the
achievement of certain regulatory, commercialization and sales
milestones and the development of additional indications for
retigabine. GSK has also agreed to pay us up to an additional
$150.0 million if certain regulatory and commercialization
milestones are achieved for backup compounds to retigabine.
The Collaboration Agreement contains multiple elements and
requires evaluation pursuant to ASC
605-25. The
Collaboration Agreement includes a provision for us to
participate on a joint steering committee. We evaluated the
facts and circumstances of the Collaboration Agreement to
determine whether our participation is protective of our
interests or if it constitutes a deliverable to be included in
our evaluation of the arrangement under ASC
605-25. We
concluded the participation in the joint steering committee is a
deliverable until certain regulatory approval is obtained. In
addition, we determined that completion of our development and
pre-commercialization efforts during the time prior to the
launch of a retigabine product (the Pre-Launch
Period) is also a deliverable under the Collaboration
Agreement. As a result, we recognize alliance revenue during the
Pre-Launch Period as we complete our performance obligations
using the proportional performance model, which requires us to
determine and measure the completion of our expected development
and pre-commercialization costs, in addition to our
participation in the joint steering committee. We will also
record a credit to our development and pre-commercialization
costs from the upfront payment based upon our proportional
performance against our expected development and
pre-commercialization costs during the Pre-Launch Period. The
determination of such credit to our development and
pre-commercialization costs is limited to the amount that is no
longer potentially refundable to GSK should they elect to
terminate the Collaboration Agreement. The difference between
the upfront payment of $125.0 million and our expected
development and pre-commercialization costs is being recognized
as alliance revenue based upon the proportional performance
model during the Pre-Launch Period. Determination of our
expected development and pre-commercialization costs and
measurement of our completion of those costs requires the use of
managements judgment. Significant factors considered in
our evaluation of our expected development and
pre-commercialization costs include, but are not limited to, our
experience, along with GSKs experience, in completing
clinical trials and costs of completing similar development and
commercialization programs. We expect to complete our research
and development and pre-commercialization obligations in effect
during the Pre-Launch Period by the first quarter of 2011.
Impairment
of Property, Plant and Equipment
We evaluate the carrying value of property, plant and equipment
when conditions indicate a potential impairment. We determine
whether there has been impairment by comparing the anticipated
undiscounted future cash flows expected to be generated by the
property, plant and equipment with its carrying value. If the
undiscounted cash flows are less than the carrying value, the
amount of the asset impairment, if any, is then determined by
comparing the carrying value of the property, plant and
equipment with its fair value. Fair value is generally based on
a discounted cash flows analysis, independent appraisals or
preliminary offers from prospective buyers.
Valuation
of Intangible Assets
We periodically review intangible assets for impairment using an
undiscounted net cash flows approach. We determine whether there
has been impairment by comparing the anticipated undiscounted
future operating cash flows of the products associated with the
intangible asset with its carrying value. If the undiscounted
operating cash flows are less than the carrying value, the
amount of the asset impairment, if any, will be determined by
comparing the value of each intangible asset with its fair
value. Fair value is generally based on a discounted cash flows
analysis.
We use a discounted cash flow model to value intangible assets
acquired and for the assessment of impairment. The discounted
cash flow model requires assumptions about the timing and amount
of future cash inflows and outflows, risk, the cost of capital,
and terminal values. Each of these factors can significantly
affect the value of the intangible asset.
41
The estimates of future cash flows, based on reasonable and
supportable assumptions and projections, require
managements judgment. Any changes in key assumptions about
our businesses and their prospects, or changes in market
conditions, could result in an impairment charge. Some of the
more significant estimates and assumptions inherent in the
intangible asset impairment estimation process include: the
timing and amount of projected future cash flows; the discount
rate selected to measure the risks inherent in the future cash
flows; and the assessment of the assets life cycle and the
competitive trends impacting the asset, including consideration
of any technical, legal or regulatory factors.
We recorded an impairment charge of $0.5 million, which is
included in amortization expense for the year ended
December 31, 2009. Certain patents, with a carrying value
of $29.9 million at December 31, 2009, owned by Dow
and licensed to Galderma are being challenged by a third party,
Tolmar, Inc. If the challenge is successful, the intangible
asset associated with these patents could be impaired in the
future. See Note 21 of notes to consolidated financial
statements in Item 8 of this Annual Report on
Form 10-K.
Valuation
of Goodwill
We evaluate the recoverability of goodwill at least annually and
also in the event of an impairment indicator. The evaluation is
based on a two-step impairment test. The first step compares the
fair value of the reporting unit with its carrying amount
including goodwill. If the carrying amount exceeds fair value,
then the second step of the impairment test is performed to
measure the amount of any impairment loss. Fair value is
computed based on estimated future cash flows discounted at a
rate that approximates our cost of capital. Such estimates are
subject to change, and we may be required to recognize
impairment losses in the future. Our analysis of recoverability
of goodwill performed in the fourth quarter of 2009 did not
result in an impairment charge.
Purchase
Price Allocation Including Acquired In-Process Research and
Development
The purchase prices for the Dr. Renaud, PFI, Tecnofarma,
Emo-Farm, Dow, DermaTech and Coria acquisitions were allocated
to the tangible and identifiable intangible assets acquired and
liabilities assumed based on their estimated fair values at the
acquisition date. Such a valuation requires significant
estimates and assumptions, including but not limited to:
determining the timing and expected costs to complete the
in-process projects; projecting regulatory approvals; estimating
future cash flows from product sales resulting from completed
products and in-process projects; and developing appropriate
discount rates and probability rates by project. We believe the
fair values assigned to the assets acquired and liabilities
assumed are based on reasonable assumptions, however, these
assumptions may be incomplete or inaccurate, and unanticipated
events and circumstances may occur.
We value IPR&D acquired in a business combination based on
an approach consistent with the AICPA Practice Aid, Assets
Acquired in Business Combinations to be Used in Research and
Development Activities: A Focus in Software, Electronic Devices
and Pharmaceutical Industries. The amounts expensed as
acquired IPR&D in 2008 represents an estimate of the fair
value of purchased in-process technology for projects that, as
of the acquisition date, had not yet reached technological
feasibility and had no alternative future use. The data used to
determine fair value requires significant judgment. The
estimated fair values were based on our use of a discounted cash
flow model. For each project, the estimated after-tax cash flows
were probability weighted to take account of the stage of
completion and the risks surrounding the successful development
and commercialization. The assumed tax rates are our estimate of
the effective tax rates that will apply to the expected cash
flows. These cash flows were then discounted to a present value
using discount rates between 14% and 22%. The discount rates
represent our weighted-average cost of capital for each of the
acquisitions. See Note 3 of notes to consolidated financial
statements in Item 8 of this Annual Report on
Form 10-K
for a discussion of acquisitions.
The major risks and uncertainties associated with the timely and
successful completion of these projects include the uncertainty
of our ability to confirm the safety and efficacy of product
candidates based on the data from clinical trials and of
obtaining necessary regulatory approvals. In addition, no
assurance can be given that the underlying assumptions we used
to forecast the cash flows or the timely and successful
completion of these projects will materialize as estimated. For
these reasons, among others, actual results may vary
significantly from the estimated results.
42
Contingencies
We are exposed to contingencies in the ordinary course of
business, such as legal proceedings and business-related claims,
which range from product and environmental liabilities to tax
matters. We record accruals for such contingencies when it is
probable that a liability will be incurred and the amount of
loss can be reasonably estimated. The estimates are refined each
accounting period, as additional information is known. See
Note 21 of notes to consolidated financial statements in
Item 8 of this Annual Report on
Form 10-K
for a discussion of contingencies.
Income
Taxes
Our income tax returns are subject to audit in various
jurisdictions. Existing and future audits by, or other disputes
with, tax authorities may not be resolved favorably for us and
could have a material adverse effect on our reported effective
tax rate and after-tax cash flows. We record liabilities for
uncertain tax positions, which involves significant management
judgment. New laws and new interpretations of laws and rulings
by tax authorities may affect the liability for uncertain tax
positions. Due to the subjectivity and complex nature of the
underlying issues, actual payments or assessments may differ
from our estimates. To the extent that our estimates differ from
amounts eventually assessed and paid our income and cash flows
can be materially and adversely affected.
We assess whether it is more likely than not that we will
realize the tax benefits associated with our deferred tax assets
and establish a valuation allowance for assets that are not
expected to result in a realized tax benefit. A significant
amount of judgment is used in this process, including
preparation of forecasts of future taxable income and evaluation
of tax planning initiatives. If we revise these forecasts or
determine that certain planning events will not occur, an
adjustment to the valuation allowance will be made to tax
expense in the period such determination is made.
|
|
Item 7A.
|
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, the Australian Dollar and the Canadian
Dollar. During 2009 and 2008, we entered into various forward
currency contracts to a) reduce our exposure to forecasted
Japanese Yen denominated royalty revenue, b) hedge our net
investment in our Polish and Brazilian subsidiaries,
c) 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 December 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
December 31, 2009 and 2008, the fair value of our
derivatives was (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31. 2009
|
|
|
Notional/
|
|
Assets (Liabilities)
|
|
|
Contract
|
|
Carrying
|
|
Fair
|
Description
|
|
Amount
|
|
Value
|
|
Value
|
|
Undesignated hedges
|
|
$
|
29,721
|
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
Net investment derivative contracts
|
|
$
|
24,640
|
|
|
$
|
231
|
|
|
$
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31. 2008
|
|
|
Notional/
|
|
Assets (Liabilities)
|
|
|
Contract
|
|
Carrying
|
|
Fair
|
Description
|
|
Amount
|
|
Value
|
|
Value
|
|
Undesignated hedges
|
|
$
|
3,916
|
|
|
$
|
157
|
|
|
$
|
157
|
|
Net investment derivative contracts
|
|
$
|
18,779
|
|
|
$
|
13
|
|
|
$
|
13
|
|
43
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
$638.8 million principal amount of fixed rate debt as of
December 31, 2009 that requires U.S. Dollar repayment.
To the extent that we require, as a source of debt repayment,
earnings and cash flow from some of our units located in foreign
countries, we are subject to risk of changes in the value of
certain currencies relative to the U.S. Dollar.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Quarterly
Financial Data
Following is a summary of quarterly financial data for the years
ended December 31, 2009 and 2008 (in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(Unaudited)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
177,923
|
|
|
$
|
191,698
|
|
|
$
|
220,318
|
|
|
$
|
240,522
|
|
Gross profit on product sales (excluding amortization)
|
|
|
113,136
|
|
|
|
124,115
|
|
|
|
130,234
|
|
|
|
150,302
|
|
Income from continuing operations(a)
|
|
|
30,798
|
|
|
|
33,037
|
|
|
|
37,634
|
|
|
|
156,150
|
|
Income (loss) from discontinued operations, net of tax(b)
|
|
|
398
|
|
|
|
(175
|
)
|
|
|
(354
|
)
|
|
|
6,256
|
|
Net income attributable to Valeant
|
|
|
31,195
|
|
|
|
32,860
|
|
|
|
37,280
|
|
|
|
162,406
|
|
Basic income per share attributable to Valeant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Valeant
|
|
$
|
0.37
|
|
|
$
|
0.40
|
|
|
$
|
0.46
|
|
|
$
|
1.95
|
|
Income (loss) from discontinued operations attributable to
Valeant
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
0.08
|
|
Net income per share attributable to Valeant
|
|
$
|
0.38
|
|
|
$
|
0.40
|
|
|
$
|
0.46
|
|
|
$
|
2.03
|
|
Diluted income per share attributable to Valeant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Valeant
|
|
$
|
0.37
|
|
|
$
|
0.39
|
|
|
$
|
0.45
|
|
|
$
|
1.89
|
|
Income (loss) from discontinued operations attributable to
Valeant
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
0.07
|
|
Net income per share attributable to Valeant
|
|
$
|
0.37
|
|
|
$
|
0.39
|
|
|
$
|
0.44
|
|
|
$
|
1.96
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
151,983
|
|
|
$
|
153,556
|
|
|
$
|
168,424
|
|
|
$
|
183,014
|
|
Gross profit on product sales (excluding amortization)
|
|
|
103,455
|
|
|
|
90,877
|
|
|
|
110,482
|
|
|
|
120,435
|
|
Income (loss) from continuing operations(c)
|
|
|
2,506
|
|
|
|
(52,015
|
)
|
|
|
(7,262
|
)
|
|
|
(150,597
|
)
|
Income (loss) from discontinued operations, net of tax(b)
|
|
|
3,293
|
|
|
|
(26,313
|
)
|
|
|
210,154
|
|
|
|
(20,586
|
)
|
Net income (loss) attributable to Valeant
|
|
|
5,797
|
|
|
|
(78,330
|
)
|
|
|
202,891
|
|
|
|
(171,185
|
)
|
Basic income (loss) per share attributable to Valeant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to Valeant
|
|
$
|
0.03
|
|
|
$
|
(0.58
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(1.82
|
)
|
Income (loss) from discontinued operations attributable to
Valeant
|
|
|
0.03
|
|
|
|
(0.29
|
)
|
|
|
2.39
|
|
|
|
(0.25
|
)
|
Net income (loss) per share attributable to Valeant
|
|
$
|
0.06
|
|
|
$
|
(0.87
|
)
|
|
$
|
2.31
|
|
|
$
|
(2.07
|
)
|
Diluted income (loss) per share attributable to Valeant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to Valeant
|
|
$
|
0.03
|
|
|
$
|
(0.58
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(1.82
|
)
|
Income (loss) from discontinued operations attributable to
Valeant
|
|
|
0.03
|
|
|
|
(0.29
|
)
|
|
|
2.39
|
|
|
|
(0.25
|
)
|
Net income (loss) per share attributable to Valeant
|
|
$
|
0.06
|
|
|
$
|
(0.87
|
)
|
|
$
|
2.31
|
|
|
$
|
(2.07
|
)
|
|
|
|
(a) |
|
In the fourth quarters of 2009, we recorded an income tax
benefit of $97.8 million, which includes the release of
valuation allowance against deferred tax assets of
$102.5 million. |
|
(b) |
|
Discontinued operations in 2009 and 2008 related primarily to
our WEEMEA business and Infergen operations. |
|
(c) |
|
In the fourth quarter of 2008, we incurred IPR&D expense
related to the Dow and Coria acquisitions, of
$185.8 million and $0.5 million, respectively. |
44
VALEANT
PHARMACEUTICALS INTERNATIONAL
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
|
|
|
|
|
|
|
Page
|
|
|
|
|
46
|
|
Financial statements:
|
|
|
|
|
|
|
|
48
|
|
For the years ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
49
|
|
|
|
|
50
|
|
|
|
|
51
|
|
|
|
|
52
|
|
Financial statement schedule for the years ended
December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
113
|
|
All other schedules are omitted because they are not applicable
or the required information is shown in the consolidated
financial statements or notes thereto.
45
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Valeant Pharmaceuticals International:
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Valeant Pharmaceuticals International
and its subsidiaries at December 31, 2009 and 2008, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2009 in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
accompanying financial statement schedule presents fairly, in
all material respects, the information set forth therein when
read in conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements and the financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Managements Annual Report
on Internal Control over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these
financial statements, on the financial statement schedule, and
on the Companys internal control over financial reporting
based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
As discussed in Note 1 to the consolidated financial
statements, the Company changed the manner in which it accounts
for business combinations, certain convertible debt instruments
and the manner in which it accounts for noncontrolling interests
in a subsidiary effective January 1, 2009.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
46
As described in Managements Annual Report on Internal
Control Over Financial Reporting appearing under Item 9A,
management has excluded Private Formula International Holdings
Party Ltd. (PFI), EMO-FARM Ltd (Emo-Farm),
Tecnofarma S.A. de C.V. (Tecnofarma), and
Laboratoire Dr. Renaud (Dr Renaud) from its
assessment of internal control over financial reporting as of
December 31, 2009 because they were acquired by the Company
in purchase business combinations during 2009. We have also
excluded PFI, Emo-Farm, Tecnofarma and Dr Renaud from our audit
of internal control over financial reporting. The total assets
and total revenues of PFI, Emo-Farm, Tecnofarma and Dr Renaud,
wholly-owned subsidiaries, represent 6%, 3%, 4%, and 2% and, 1%,
1%, 1% and 0%, of the related consolidated financial statement
amounts as of and for the year ended December 31, 2009.
/s/ PricewaterhouseCoopers
LLP
Orange County, California
February 23, 2010
47
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except par value data)
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
68,080
|
|
|
$
|
199,582
|
|
Marketable securities
|
|
|
13,785
|
|
|
|
19,193
|
|
Accounts receivable, net
|
|
|
171,008
|
|
|
|
144,509
|
|
Inventories, net
|
|
|
105,900
|
|
|
|
72,972
|
|
Prepaid expenses and other current assets
|
|
|
16,589
|
|
|
|
17,605
|
|
Current deferred tax assets, net
|
|
|
77,268
|
|
|
|
16,179
|
|
Income taxes receivable
|
|
|
3,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
456,214
|
|
|
|
470,040
|
|
Property, plant and equipment, net
|
|
|
126,811
|
|
|
|
90,228
|
|
Deferred tax assets, net
|
|
|
37,637
|
|
|
|
14,850
|
|
Goodwill
|
|
|
195,350
|
|
|
|
114,634
|
|
Intangible assets, net
|
|
|
470,346
|
|
|
|
467,795
|
|
Other assets
|
|
|
19,121
|
|
|
|
28,385
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
849,265
|
|
|
|
715,892
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,305,479
|
|
|
$
|
1,185,932
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$
|
37,405
|
|
|
$
|
41,638
|
|
Accrued liabilities
|
|
|
215,932
|
|
|
|
231,450
|
|
Notes payable and current portion of long-term debt
|
|
|
48,462
|
|
|
|
666
|
|
Deferred revenue
|
|
|
21,612
|
|
|
|
15,415
|
|
Income taxes payable
|
|
|
6,720
|
|
|
|
2,497
|
|
Current deferred tax liabilities, net
|
|
|
358
|
|
|
|
2,446
|
|
Current liabilities for uncertain tax positions
|
|
|
646
|
|
|
|
478
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
331,135
|
|
|
|
294,590
|
|
Long-term debt, less current portion
|
|
|
552,127
|
|
|
|
398,136
|
|
Deferred revenue
|
|
|
|
|
|
|
11,841
|
|
Deferred tax liabilities, net
|
|
|
7,728
|
|
|
|
812
|
|
Liabilities for uncertain tax positions
|
|
|
13,115
|
|
|
|
53,425
|
|
Other liabilities
|
|
|
30,195
|
|
|
|
175,380
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
603,165
|
|
|
|
639,594
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
934,300
|
|
|
|
934,184
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 200,000 shares
authorized; 77,350 (December 31, 2009) and 81,753
(December 31, 2008) shares outstanding (after
deducting shares in treasury of 25,466 as of December 31,
2009 and 18,688 as of December 31, 2008)
|
|
|
774
|
|
|
|
818
|
|
Additional capital
|
|
|
986,393
|
|
|
|
1,138,575
|
|
Accumulated deficit
|
|
|
(642,043
|
)
|
|
|
(905,784
|
)
|
Accumulated other comprehensive income
|
|
|
26,035
|
|
|
|
18,122
|
|
|
|
|
|
|
|
|
|
|
Total Valeant stockholders equity
|
|
|
371,159
|
|
|
|
251,731
|
|
Noncontrolling interest
|
|
|
20
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
371,179
|
|
|
|
251,748
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,305,479
|
|
|
$
|
1,185,932
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
710,761
|
|
|
$
|
593,165
|
|
|
$
|
603,051
|
|
Service revenue
|
|
|
22,389
|
|
|
|
|
|
|
|
|
|
Alliances
|
|
|
97,311
|
|
|
|
63,812
|
|
|
|
86,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
830,461
|
|
|
|
656,977
|
|
|
|
689,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization)
|
|
|
192,974
|
|
|
|
167,916
|
|
|
|
158,060
|
|
Cost of services
|
|
|
17,836
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
255,782
|
|
|
|
278,019
|
|
|
|
292,001
|
|
Research and development costs, net
|
|
|
43,977
|
|
|
|
86,967
|
|
|
|
97,957
|
|
Special charges and credits including acquired in-process
research and development
|
|
|
6,351
|
|
|
|
186,300
|
|
|
|
|
|
Restructuring, asset impairments, dispositions and
acquisition-related costs
|
|
|
10,068
|
|
|
|
21,295
|
|
|
|
27,675
|
|
Amortization expense
|
|
|
70,640
|
|
|
|
49,973
|
|
|
|
55,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
597,628
|
|
|
|
790,470
|
|
|
|
631,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
232,833
|
|
|
|
(133,493
|
)
|
|
|
57,825
|
|
Other income (expense), net including translation and exchange
|
|
|
(1,455
|
)
|
|
|
2,063
|
|
|
|
1,659
|
|
Gain (loss) on early extinguishment of debt
|
|
|
7,221
|
|
|
|
(12,994
|
)
|
|
|
|
|
Interest income
|
|
|
4,321
|
|
|
|
17,129
|
|
|
|
17,584
|
|
Interest expense
|
|
|
(43,571
|
)
|
|
|
(45,385
|
)
|
|
|
(56,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
199,349
|
|
|
|
(172,680
|
)
|
|
|
20,145
|
|
Provision (benefit) for income taxes
|
|
|
(58,270
|
)
|
|
|
34,688
|
|
|
|
13,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
257,619
|
|
|
|
(207,368
|
)
|
|
|
6,610
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
6,125
|
|
|
|
166,548
|
|
|
|
(26,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
263,744
|
|
|
|
(40,820
|
)
|
|
|
(20,186
|
)
|
Less: Net income attributable to noncontrolling interest
|
|
|
3
|
|
|
|
7
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Valeant
|
|
$
|
263,741
|
|
|
$
|
(40,827
|
)
|
|
$
|
(20,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share attributable to Valeant:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to Valeant
|
|
$
|
3.15
|
|
|
$
|
(2.37
|
)
|
|
$
|
0.07
|
|
Income (loss) from discontinued operations attributable to
Valeant
|
|
|
0.07
|
|
|
|
1.90
|
|
|
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to Valeant
|
|
$
|
3.22
|
|
|
$
|
(0.47
|
)
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share attributable to Valeant:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to Valeant
|
|
$
|
3.07
|
|
|
$
|
(2.37
|
)
|
|
$
|
0.07
|
|
Income (loss) from discontinued operations attributable to
Valeant
|
|
|
0.07
|
|
|
|
1.90
|
|
|
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to Valeant
|
|
$
|
3.14
|
|
|
$
|
(0.47
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share computation Basic
|
|
|
81,781
|
|
|
|
87,480
|
|
|
|
93,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share computation Diluted
|
|
|
83,970
|
|
|
|
87,480
|
|
|
|
93,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Balance at January 1, 2007
|
|
|
94,416
|
|
|
$
|
944
|
|
|
$
|
1,334,161
|
|
|
$
|
(843,208
|
)
|
|
$
|
17,940
|
|
|
$
|
20
|
|
|
$
|
509,857
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,188
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,188
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,791
|
|
|
|
|
|
|
|
66,791
|
|
Pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,471
|
)
|
|
|
|
|
|
|
(4,471
|
)
|
Unrealized loss on marketable equity securities and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,082
|
|
Exercise of stock options
|
|
|
1,283
|
|
|
|
12
|
|
|
|
14,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,429
|
|
Employee stock purchase plan
|
|
|
78
|
|
|
|
2
|
|
|
|
857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
859
|
|
Share repurchase
|
|
|
(6,491
|
)
|
|
|
(65
|
)
|
|
|
(99,492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99,557
|
)
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
12,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,419
|
|
Stock compensation in discontinued operations
|
|
|
|
|
|
|
|
|
|
|
1,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,040
|
|
Net effect of adopting new accounting standard for uncertain tax
positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,561
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,561
|
)
|
Equity attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
89,286
|
|
|
|
893
|
|
|
|
1,263,402
|
|
|
|
(864,957
|
)
|
|
|
80,210
|
|
|
|
23
|
|
|
|
479,571
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,827
|
)
|
|
|
|
|
|
|
|
|
|
|
(40,827
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66,228
|
)
|
|
|
|
|
|
|
(66,228
|
)
|
Pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,671
|
|
|
|
|
|
|
|
2,671
|
|
Unrealized gain on marketable equity securities and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,469
|
|
|
|
|
|
|
|
1,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102,915
|
)
|
Exercise of stock options and issuance of other stock awards
|
|
|
3,496
|
|
|
|
35
|
|
|
|
48,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,444
|
|
Employee stock purchase plan
|
|
|
74
|
|
|
|
1
|
|
|
|
753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
754
|
|
Share repurchase
|
|
|
(11,427
|
)
|
|
|
(114
|
)
|
|
|
(206,403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(206,517
|
)
|
Issuance of treasury shares
|
|
|
324
|
|
|
|
3
|
|
|
|
5,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,410
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
5,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,064
|
|
Stock compensation in discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(845
|
)
|
Tax benefit related to convertible debt
|
|
|
|
|
|
|
|
|
|
|
11,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,286
|
|
Tax benefit related to stock options
|
|
|
|
|
|
|
|
|
|
|
12,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,303
|
|
Extinguishment of debt and related equity
|
|
|
|
|
|
|
|
|
|
|
(801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(801
|
)
|
Equity attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
81,753
|
|
|
|
818
|
|
|
|
1,138,575
|
|
|
|
(905,784
|
)
|
|
|
18,122
|
|
|
|
17
|
|
|
|
251,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263,741
|
|
|
|
|
|
|
|
|
|
|
|
263,741
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,792
|
|
|
|
|
|
|
|
7,792
|
|
Pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
|
|
|
|
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
271,654
|
|
Exercise of stock options and issuance of other stock awards
|
|
|
2,372
|
|
|
|
24
|
|
|
|
40,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,125
|
|
Employee withholding taxes related to equity awards
|
|
|
|
|
|
|
|
|
|
|
(7,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,102
|
)
|
Employee stock purchase plan
|
|
|
3
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
Share repurchase
|
|
|
(6,950
|
)
|
|
|
(70
|
)
|
|
|
(202,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(202,378
|
)
|
Issuance of treasury shares
|
|
|
172
|
|
|
|
2
|
|
|
|
3,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,580
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
16,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,121
|
|
Extinguishment of debt and related equity
|
|
|
|
|
|
|
|
|
|
|
(22,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,084
|
)
|
Tax benefit related to convertible debt
|
|
|
|
|
|
|
|
|
|
|
11,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,575
|
|
Tax benefit related to stock options
|
|
|
|
|
|
|
|
|
|
|
684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
684
|
|
Warrants issued
|
|
|
|
|
|
|
|
|
|
|
7,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,168
|
|
Equity attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
77,350
|
|
|
$
|
774
|
|
|
$
|
986,393
|
|
|
$
|
(642,043
|
)
|
|
$
|
26,035
|
|
|
$
|
20
|
|
|
$
|
371,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
263,744
|
|
|
$
|
(40,820
|
)
|
|
$
|
(20,186
|
)
|
Income (loss) from discontinued operations
|
|
|
6,125
|
|
|
|
166,548
|
|
|
|
(26,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
257,619
|
|
|
|
(207,368
|
)
|
|
|
6,610
|
|
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by operating activities in
continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
86,381
|
|
|
|
66,480
|
|
|
|
71,634
|
|
Provision for losses on accounts receivable and inventory
|
|
|
2,911
|
|
|
|
21,665
|
|
|
|
6,488
|
|
Stock compensation expense
|
|
|
16,121
|
|
|
|
5,064
|
|
|
|
12,419
|
|
Excess tax deduction from stock options exercised
|
|
|
(1,735
|
)
|
|
|
(12,303
|
)
|
|
|
|
|
Translation and exchange (gains) losses, net
|
|
|
1,019
|
|
|
|
(2,063
|
)
|
|
|
(1,659
|
)
|
Impairment charges and other non-cash items
|
|
|
14,966
|
|
|
|
9,242
|
|
|
|
30,035
|
|
Payments of accreted interest on long-term debt
|
|
|
(35,338
|
)
|
|
|
(6,115
|
)
|
|
|
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
186,300
|
|
|
|
|
|
Deferred income taxes
|
|
|
(97,653
|
)
|
|
|
(23,663
|
)
|
|
|
18,122
|
|
(Gain) loss on extinguishment of debt
|
|
|
(7,221
|
)
|
|
|
954
|
|
|
|
|
|
Change in assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,508
|
|
|
|
11,038
|
|
|
|
23,440
|
|
Inventories
|
|
|
(13,193
|
)
|
|
|
(22,369
|
)
|
|
|
7,609
|
|
Prepaid expenses and other assets
|
|
|
2,885
|
|
|
|
9,517
|
|
|
|
(7,839
|
)
|
Trade payables and accrued liabilities
|
|
|
6,144
|
|
|
|
49,111
|
|
|
|
(9,768
|
)
|
Income taxes
|
|
|
1,297
|
|
|
|
32,842
|
|
|
|
(57,350
|
)
|
Other liabilities
|
|
|
(49,390
|
)
|
|
|
82,323
|
|
|
|
824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from operating activities in continuing operations
|
|
|
186,321
|
|
|
|
200,655
|
|
|
|
100,565
|
|
Cash flow from operating activities in discontinued operations
|
|
|
(2,768
|
)
|
|
|
9,759
|
|
|
|
(8,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
183,553
|
|
|
|
210,414
|
|
|
|
92,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(20,047
|
)
|
|
|
(16,575
|
)
|
|
|
(29,140
|
)
|
Proceeds from sale of assets
|
|
|
760
|
|
|
|
971
|
|
|
|
38,627
|
|
Proceeds from sale of businesses
|
|
|
3,342
|
|
|
|
48,575
|
|
|
|
2,453
|
|
Proceeds from investments
|
|
|
135,937
|
|
|
|
200,802
|
|
|
|
35,248
|
|
Purchase of investments
|
|
|
(129,089
|
)
|
|
|
(155,653
|
)
|
|
|
(72,518
|
)
|
Acquisition of businesses, license rights and product lines
|
|
|
(328,442
|
)
|
|
|
(355,303
|
)
|
|
|
(22,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities in continuing operations
|
|
|
(337,539
|
)
|
|
|
(277,183
|
)
|
|
|
(47,850
|
)
|
Cash flow from investing activities in discontinued operations
|
|
|
(4,941
|
)
|
|
|
447,101
|
|
|
|
8,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(342,480
|
)
|
|
|
169,918
|
|
|
|
(39,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt and notes payable
|
|
|
(151,718
|
)
|
|
|
(323,804
|
)
|
|
|
(3,494
|
)
|
Proceeds from issuance of long-term debt and notes payable
|
|
|
348,982
|
|
|
|
118
|
|
|
|
1,799
|
|
Stock option exercises and employee stock purchases
|
|
|
40,387
|
|
|
|
49,054
|
|
|
|
15,288
|
|
Payments of employee withholding taxes related to equity awards
|
|
|
(7,099
|
)
|
|
|
|
|
|
|
|
|
Excess tax deduction from stock options exercised
|
|
|
1,735
|
|
|
|
12,303
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(202,378
|
)
|
|
|
(206,517
|
)
|
|
|
(99,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities in continuing operations
|
|
|
29,909
|
|
|
|
(468,846
|
)
|
|
|
(85,964
|
)
|
Cash flow from financing activities in discontinued operations
|
|
|
|
|
|
|
(43
|
)
|
|
|
(7,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
29,909
|
|
|
|
(468,889
|
)
|
|
|
(93,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(2,484
|
)
|
|
|
(21,226
|
)
|
|
|
23,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(131,502
|
)
|
|
|
(109,783
|
)
|
|
|
(16,214
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
199,582
|
|
|
|
309,365
|
|
|
|
325,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
68,080
|
|
|
|
199,582
|
|
|
|
309,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents classified as part of discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(21,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents of continuing operations
|
|
$
|
68,080
|
|
|
$
|
199,582
|
|
|
$
|
287,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
51
VALEANT
PHARMACEUTICALS INTERNATIONAL
(all
amounts in thousands, except share and per share amounts, unless
otherwise indicated)
|
|
1.
|
Organization
and Summary of Significant Accounting Policies
|
In these financial statements and this annual report,
we, us, our,
Valeant and the Company refer to Valeant
Pharmaceuticals International and its subsidiaries.
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),
revenue from our Dow Pharmaceutical Sciences, Inc.
(Dow) subsidiarys agreement with Mylan (as
defined below), and revenues associated with the Collaboration
and License Agreement with GSK (as defined in Note 4
below). We also generate alliance revenue and service revenue
from the development of dermatological products by Dow.
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.
Cash and Cash Equivalents: Cash equivalents
include short-term commercial paper, time deposits and money
market funds which, at the time of purchase, have maturities of
three months or less. For purposes of the consolidated
statements of cash flows, we consider highly liquid investments
with a maturity of three months or less at the time of purchase
to be cash equivalents. The carrying amount of these assets
approximates fair value due to the short-term maturity of these
investments.
Marketable Securities: Marketable securities
include short-term commercial paper and corporate bonds which,
at the time of purchase, have maturities of greater than three
months. Marketable 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, 2009 and 2008, the fair value of
these marketable securities approximated cost. At
December 31, 2008, corporate bonds are categorized as
available for sale and are carried at fair value.
Allowance for Doubtful Accounts: We evaluate
the collectability of accounts receivable on a regular basis.
The allowance is based upon various factors including the
financial condition and payment history of major customers, an
overall review of collections experience on other accounts and
economic factors or events expected to affect our future
collections experience.
Inventories: Inventories, which include
material, direct labor and factory overhead, are stated at the
lower of cost or market. Cost is determined on a
first-in,
first-out (FIFO) basis. Inventories consist of
currently marketed products and certain products awaiting
regulatory approval. We evaluate the carrying value of
inventories on a regular basis, taking into account such factors
as historical and anticipated future sales compared with
quantities on hand, the price we expect to obtain for products
in their respective markets compared with historical cost and
the remaining shelf life of goods on hand. In evaluating the
recoverability of inventories produced in preparation for
product launches, we consider the probability that revenue will
be obtained from the future sale of the related inventory
together with the status of the product within the regulatory
approval process.
Property, Plant and Equipment: Property, plant
and equipment are stated at cost. We primarily use the
straight-line method for depreciating property, plant and
equipment over their estimated useful lives. Buildings are
depreciated up to 40 years, machinery and equipment are
depreciated from 3-20 years, furniture and fixtures from
2-13 years and leasehold improvements and capital leases
are amortized over their useful lives, limited to the life of
the related lease. We follow the policy of capitalizing
expenditures that materially increase the lives of the related
assets and charge maintenance and repairs to expense. Upon sale
or retirement, the costs and related accumulated depreciation or
amortization are eliminated from the respective accounts and the
resulting gain or loss is included in income. From time to time,
if there is an indication of possible asset impairment, we
evaluate the carrying value of property, plant and equipment. We
determine if there has been asset impairment by comparing the
anticipated
52
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
undiscounted future cash flows expected to be generated by the
property, plant and equipment with its carrying value. If the
undiscounted cash flows are less than the carrying value, the
amount of the asset impairment, if any, is determined by
comparing the carrying value of the property, plant and
equipment with its fair value. Fair value is generally based on
a discounted cash flows analysis, appraisals or preliminary
offers from prospective buyers. In the years ended
December 31, 2008 and 2007, we recorded asset impairment
charges of $2.9 million and $9.4 million,
respectively, on certain of our fixed assets. See Note 2
for details regarding these impairment charges. There were no
asset impairment charges in the year ended December 31,
2009.
Acquired In-Process Research and
Development: Prior to the January 1, 2009
adoption of the revised standard of accounting for business
combinations, we charged the costs associated with acquired
in-process research and development (IPR&D) to
expense. These amounts represent an estimate of the fair value
of purchased in-process technology for projects that, as of the
acquisition date, had not yet reached technological feasibility
and had no alternative future use. The estimation of fair value
requires significant judgment. Differences in those judgments
would have the impact of changing our allocation of purchase
price to goodwill, which is an intangible asset that is not
amortized. The major risks and uncertainties associated with the
timely and successful completion of IPR&D projects consist
of the ability to confirm the safety and efficacy of the
technology based on the data from clinical trials and obtaining
necessary regulatory approvals. In addition, no assurance can be
given that the underlying assumptions used to forecast the cash
flows or the timely and successful completion of such projects
will materialize as estimated. For these reasons, among others,
actual results may vary significantly from the estimated results.
Goodwill and Intangible Assets: Our intangible
assets comprise customer relationships, product marketing
rights, related patents and trademarks for pharmaceutical
products, and rights under the ribavirin license agreements. The
product rights primarily relate to either 1) mature
pharmaceutical products and
over-the-counter
products without patent protection, or 2) patented
products. The mature products display a stable and consistent
revenue stream over a relatively long period of time. The
patented products generally have steady growth rates up until
the point of patent expiration when revenues decline due to the
introduction of generic competition. We amortize the mature
products and
over-the-counter
products using the straight-line method over the estimated
remaining life of the product (ranging from 5-30 years for
current products) where the pattern of revenues is generally
flat over the remaining life. We amortize patented products
using the straight-line method over the remaining life of the
patent because the revenues are generally growing until patent
expiration.
We amortized the license rights for ribavirin on an accelerated
basis because of the significant decline in royalties which
started in 2003 upon the expiration of a U.S. patent;
amortization was completed in the third quarter of 2008.
Certain intangible assets acquired in 2008 were determined to
have indefinite lives. Intangible assets with indefinite lives
are not amortized but are tested for impairment annually.
Goodwill and indefinite-lived intangible assets are tested for
impairment annually and also in the event of an impairment
indicator. The annual impairment test is a fair value test,
which includes assumptions such as growth and discount rates. We
recorded an intangible asset impairment charge, included in
amortization expense, of $0.5 million in 2009 for a
customer relationship intangible related to a clinical research
facility that we plan to close in 2010. We recorded an
intangible asset impairment charge, included in amortization
expense, of $1.6 million in 2008 related to a product sold
in the United States. We recorded asset impairment charges for
intangible assets of $0.3 million and $1.1 million in
2008 and 2007, respectively, related to two products in Spain,
which is included in loss from discontinued operations.
Discontinued Operations: The results of
operations related to our product rights in Infergen and our
business operations located in the Western and Eastern Europe,
Middle East and Africa (the WEEMEA business) have
been reflected as discontinued operations in our consolidated
financial statements. For more details regarding our
discontinued operations see Note 6.
53
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue Recognition: We recognize revenues
from product sales when title and risk of ownership transfers to
the customer. Sales revenue in certain countries is recognized
on a consignment basis. We record revenues net of provisions for
rebates, discounts and returns, which are established at the
time of sale. We calculate allowances for future returns of
products sold to our direct and indirect customers, who include
wholesalers, retail pharmacies and hospitals, as a percent of
sales based on our historical return percentages taking into
account additional available information on competitive products
and contract changes. Where we do not have data sharing
agreements, we use third-party data to estimate the level of
product inventories, expiration dating, and product demand at
our major wholesalers and in retail pharmacies. We have data
sharing agreements with the three largest wholesalers in the
U.S. Based upon this information, adjustments are made to
the allowance accrual if deemed necessary. Actual results could
be materially different from our estimates, resulting in future
adjustments to revenue. We review our current methodology and
assess the adequacy of the allowance for returns on a quarterly
basis, adjusting for changes in assumptions, historical results
and business practices, as necessary.
In the United States, we record provisions for Medicaid,
Medicare and contract rebates based upon our actual experience
ratio of rebates paid and actual prescriptions written during
prior quarters. We apply the experience ratio to the respective
periods sales to determine the rebate accrual and related
expense. This experience ratio is evaluated regularly and
compared with industry data and claims made by states and other
contract organizations to ensure that the historical trends are
representative of current experience and that our accruals are
adequate.
Our reserve for rebates, product returns and allowances is
included in accrued liabilities and was $94.5 million and
$66.0 million at December 31, 2009 and 2008,
respectively.
We earn ribavirin royalties as a result of our license of
product rights and technologies to Schering-Plough. Ribavirin
royalties are earned at the time the products subject to the
royalty are sold by Schering-Plough. We rely on a limited amount
of financial information provided by Schering-Plough to estimate
the amounts due to us under the royalty agreements.
We earn profit share revenue as a result of our license of
product rights to Mylan Pharmaceuticals Inc.
(Mylan). Profit share revenue is earned at the time
the related product is sold by Mylan. See Note 3 for
additional information regarding profit share revenue.
Stock-Based Compensation: We recognize
compensation expense for the fair value of all share-based
incentive programs including employee stock options and our
employee stock purchase plan. In order to estimate the fair
value of stock options and other share-based incentive awards we
use the Black-Scholes option valuation model and other valuation
models. 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 17.
Income Taxes: 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.
Foreign Currency Translation: The assets and
liabilities of our foreign operations are translated at end of
period exchange rates. Revenues and expenses are translated at
the average exchange rates prevailing during the period. The
effects of unrealized exchange rate fluctuations on translating
foreign currency assets and liabilities into U.S. Dollars
are accumulated as a separate component of stockholders
equity.
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
54
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
in the fair value of the hedged item through earnings or
recognized in other comprehensive income until the hedged item
is recognized in earnings.
Accumulated Other Comprehensive Income: The
components of accumulated other comprehensive income at year end
were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Foreign currency translation adjustments
|
|
$
|
27,069
|
|
|
$
|
19,278
|
|
Defined benefit pension plan liabilities
|
|
|
(1,035
|
)
|
|
|
(1,156
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$
|
26,035
|
|
|
$
|
18,122
|
|
|
|
|
|
|
|
|
|
|
Per Share Information: We compute basic
earnings per share by dividing income or loss available to
common stockholders 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. We
adjust income available to common stockholders in these
computations to reflect any changes in income or loss that would
result from the issuance of the dilutive common shares.
Out of Period Adjustments: In 2008, we
recorded an adjustment related to value-added tax in Mexico that
increased selling, general and administrative expenses and
reduced income from continuing operations before income taxes by
approximately $1.8 million, comprised of approximately
$0.4 million, $0.4 million and $1.0 million
related to 2002, 2003 and 2004, respectively. This correction
was to write off unrecoverable value-added tax receivables
arising in the years affected. Also in 2008, we recorded
adjustments related to stock compensation expense and foreign
taxes that affected cost of goods sold, research and development
expenses and selling, general and administrative expenses, and
that in the aggregate increased income from continuing
operations before income taxes by approximately
$1.9 million related to 2007 and 2006. These corrections
were a reversal of stock compensation expense to adjust our
historical estimated forfeiture rate for actual forfeitures
which occurred in 2006 and 2007, and a foreign tax error
recorded in 2007. Correcting the stock compensation error
increased income from continuing operations before income taxes
by $3.6 million and correcting the foreign tax error
decreased income from continuing operations before income taxes
by $1.7 million. Correcting the stock compensation error
also increased income from discontinued operations by
$0.1 million.
Because these errors, both individually and in the aggregate,
were not material to any of the prior years or current
years financial statements, we recorded the correction of
these errors in the 2008 financial statements.
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.
Recently
Adopted Accounting Standards:
In the third quarter of 2009, we adopted the Financial
Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) (collectively, the
Codification), which establishes the Codification as
the source of authoritative accounting principles recognized by
the FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) in the United
States. The historical GAAP hierarchy was eliminated and the
Codification became the only level of authoritative GAAP, other
than guidance issued by the SEC. The FASB will not issue new
standards in the form of Statements, FASB Staff Positions or
Emerging Issues Task Force (EITF) Abstracts.
Instead, it will issue Accounting Standards Updates
(ASUs). ASUs will serve to update the Codification,
provide background information about the guidance and provide
the bases for conclusions on change(s) in the Codification. The
55
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Codification was effective for financial statements issued for
interim and annual periods ending after September 15, 2009.
The adoption of the Codification did not have a material impact
on our consolidated financial statements. However, references to
specific accounting standards in the notes to our consolidated
financial statements have been changed to refer to the
appropriate section of the Codification.
In December 2007, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 160,
Noncontrolling Interests in Consolidated Financial
Statements-an amendment of ARB No. 51, which was
primarily codified into ASC 810. This guidance 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, the guidance
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. The adoption of this guidance in
the first quarter of 2009 changed the presentation format of our
consolidated statements of operations and consolidated balance
sheets but did not have an impact on net income or equity
attributable to Valeant stockholders.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations, which was
primarily codified into ASC 805. This standard 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. This standard 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 nature and financial effects of the
business combination. Among other requirements, this standard
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. This
standard was effective for fiscal years beginning on or after
December 15, 2008. ASC 805 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 this standard as of
January 1, 2009. This new standard has been applied for
each of our acquisitions in 2009. See Note 3.
In December 2007, the FASB ratified the consensus reached by the
EITF in EITF Issue
No. 07-1,
Accounting for Collaborative Arrangements, which was
primarily codified into ASC 808. This guidance defines
collaborative arrangements and establishes reporting
requirements for transactions between participants in a
collaborative arrangement and between participants in the
arrangement and third parties. This guidance 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. This guidance was 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 this
guidance on January 1, 2009. The adoption of this guidance
did not have a material impact on our consolidated financial
statements.
In February 2008, the FASB issued Staff Position
No. FAS 157-2,
Effective Date of FASB Statement No. 157, which was
primarily codified into ASC
820-10-55.
This guidance provided a one year deferral of the effective date
of ASC 820 for certain non-financial assets and non-financial
liabilities until interim periods for fiscal years beginning
after November 15, 2008. The adoption of the provisions of
ASC 820 for non-financial assets and non-financial liabilities
in the first quarter of 2009 did not have a material impact on
our financial position, cash flows or results of operations.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133, which was primarily codified into ASC 815.
This guidance 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, and (iii) how derivative instruments and
related hedged items affect an entitys financial position,
financial performance
56
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and cash flows. We adopted this guidance on January 1,
2009. The adoption of the standard did not have a material
impact on our consolidated financial statements.
In April 2008, the FASB issued Staff Position
No. FAS 142-3,
Determination of the Useful Life of Intangible Assets,
which was primarily codified into ASC 350. This guidance amends
the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a
recognized intangible asset in order to improve the consistency
between the useful life of a recognized intangible asset and the
period of expected cash flows used to measure the fair value of
the asset under ASC 805. We adopted this guidance on
January 1, 2009. The adoption of the standard did not have
a material effect on our consolidated financial statements.
In May 2008, the FASB issued Staff Position No. APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement), which was primarily codified into ASC
470-20. ASC
470-20
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. ASC
470-20
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 ASC
470-20 on
January 1, 2009. The guidance was applied retrospectively
to all periods presented. ASC
470-20 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 an original principal amount of
$240.0 million. The adoption of ASC
470-20
resulted in an increase in additional capital of
$70.0 million as of January 1, 2009, in addition to
the impact on our consolidated statements of operations
summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Interest expense
|
|
$
|
(10,242
|
)
|
|
$
|
(14,899
|
)
|
|
$
|
(14,002
|
)
|
Loss on early extinguishment of debt
|
|
|
(13,175
|
)
|
|
|
(1,439
|
)
|
|
|
|
|
Net loss attributable to Valeant
|
|
|
(23,417
|
)
|
|
|
(16,338
|
)
|
|
|
(14,002
|
)
|
Basic loss per share attributable to Valeant
|
|
|
(0.29
|
)
|
|
|
(0.19
|
)
|
|
|
(0.15
|
)
|
Dilunted loss per share attributable to Valeant
|
|
|
(0.28
|
)
|
|
|
(0.19
|
)
|
|
|
(0.15
|
)
|
See Note 10 for additional information regarding our
implementation of ASC
470-20.
In December 2008, the FASB issued Staff Position
No. FAS 132(R)-1, Employers Disclosures about
Postretirement Benefit Plan Assets, which was primarily
codified into ASC 715. This standard provides additional
guidance regarding an employers disclosures about plan
assets of a defined benefit pension or other postretirement
plan. This standard requires an employer to disclose information
about how investment allocation decisions are made and the
investment policies and strategies that support those decisions,
major categories of plan assets, the inputs and valuation
techniques used to develop fair value measurements of plan
assets and significant concentrations of credit risk within plan
assets. The disclosures about plan assets are to be provided for
fiscal years ending after December 15, 2009. We adopted
this guidance effective January 1, 2009 and have provided
the additional disclosures required in Note 12.
In April 2009, the FASB issued Staff Position
No. FAS 115-2
and
FAS 124-2,
Recognition and Presentation of
Other-Than-Temporary
Impairments, which was primarily codified into ASC 320. This
standard 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. The
standard was effective for interim reporting periods ending
after June 15, 2009. We adopted this guidance in the second
quarter of 2009. The adoption did not have a material impact on
our consolidated financial statements.
57
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In April 2009, the FASB issued Staff Position
No. FAS 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial
Instruments, which was primarily codified into ASC 825. This
standard extends disclosures about fair value of financial
instruments in interim reporting periods. Such disclosures were
previously required only in annual financial statements. The
standard was effective for interim reporting periods ending
after June 15, 2009. We adopted this guidance in the second
quarter of 2009.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events, which was codified into ASC 855. This
standard establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but
before financial statements are issued or are available to be
issued. In particular, it sets forth the following: (i) the
period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial
statements; (ii) the circumstances under which an entity
should recognize events or transactions occurring after the
balance sheet date in its financial statements; and
(iii) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet
date. This standard does not apply to subsequent events or
transactions that are within the scope of other applicable
U.S. GAAP that provide different guidance on the accounting
treatment for subsequent events or transactions. This guidance
was effective for interim or annual reporting periods ending
after June 15, 2009. We adopted the standard in the second
quarter of 2009. In accordance with this standard, we evaluated
subsequent events through February 23, 2010, the issuance
date of these financial statements. We determined there were no
subsequent events which required recognition or disclosure in
these consolidated financial statements.
In August 2009, the FASB issued ASU
No. 2009-05,
which provided amendments to ASC 820 for the fair value
measurement of liabilities. ASU
2009-05
provides clarification that in circumstances in which a quoted
price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value
using certain techniques. ASU
2009-05 also
clarifies that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or
adjustment to other inputs relating to the existence of a
restriction that prevents the transfer of a liability. ASU
2009-05 also
clarifies that both a quoted price in an active market for the
identical liability at the measurement date and the quoted price
for the identical liability when traded as an asset in an active
market when no adjustments to the quoted price of the asset are
required are Level 1 fair value measurements. The new
guidance was effective for interim and annual periods beginning
after August 27, 2009, and applies to all fair-value
measurements of liabilities required by GAAP. We adopted this
guidance on October 1, 2009. The adoption of this guidance
did not have a material impact on our consolidated financial
statements.
New
Accounting Standards Not Yet Adopted:
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R), which
was primarily codified into ASC 810. This standard changes the
consolidation guidance applicable to a variable interest entity
(VIE). It also amends the guidance governing the
determination of whether an enterprise is the primary
beneficiary of a VIE, and is, therefore, required to consolidate
an entity, by requiring a qualitative analysis rather than a
quantitative analysis. The qualitative analysis will include,
among other things, consideration of who has the power to direct
the activities of the entity that most significantly impact the
entitys economic performance and who has the obligation to
absorb losses or the right to receive benefits of the VIE that
could potentially be significant to the VIE. This standard also
requires continuous reassessments of whether an enterprise is
the primary beneficiary of a VIE. This standard also requires
enhanced disclosures about an enterprises involvement with
a VIE. This guidance will be effective as of the beginning of
interim and annual reporting periods beginning after
November 15, 2009. We are currently assessing the impact
that the adoption of this guidance may have on our consolidated
financial statements.
In October 2009, the FASB issued ASU
2009-13,
which amends the revenue guidance under ASC 605. ASU
2009-13
requires entities to allocate revenue in an arrangement using
estimated selling prices of the delivered goods and services
based on a selling price hierarchy. This guidance eliminates the
residual method of revenue allocation and requires revenue to be
allocated using the relative selling price method. ASU
2009-13 is
effective for fiscal
58
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
years ending after June 15, 2010, and may be applied
prospectively for revenue arrangements entered into or
materially modified after the date of adoption or
retrospectively for all revenue arrangements for all periods
presented. We are currently evaluating the impact this standard
update may have on our consolidated financial statements.
Reclassification: Certain prior year amounts
were reclassified to conform to current year presentation.
|
|
2.
|
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. For one-time severance arrangements,
the benefits are detailed in an approved severance plan, which
is specific as to number of employees, 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 at fair value when the contract is terminated. Other
associated costs, such as legal and professional fees, have been
expensed as incurred.
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 March 2008, we closed the sale to Invida Pharmaceutical
Holdings Pte. Ltd. (Invida) of certain assets in
Asia 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. During the year ended December 31,
2008, we received proceeds of $37.9 million and recorded a
gain of $34.5 million, net of charges for closing costs, in
this transaction. During the first quarter of 2009, we received
substantially all of the remaining additional proceeds of
$3.4 million from the sale in accordance with net asset
settlement provisions of the sale.
In June 2008, we sold our subsidiaries in Argentina and Uruguay
and recorded a loss on the sale of $2.7 million, in
addition to a $7.9 million impairment charge recorded in
the first quarter of 2008 related to the anticipated sale.
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 $3.5 million in the year ended December 31, 2009
included $2.2 million of employee severance costs for a
total of 38 affected employees who were part of the selling,
general and administrative and research and development
workforce in the
59
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
United States. The charge also included $1.3 million
of contract cancellation costs and other cash costs. The net
restructuring, asset impairments and dispositions charge of
$21.3 million in the year ended December 31, 2008
included $19.2 million of employee severance costs for a
total of 389 affected employees who were part of the supply,
selling, general and administrative and research and development
workforce in the United States, Mexico, Brazil and the Czech
Republic. The charges also included $10.4 million for
professional service fees related to the strategic review of our
business, $7.7 million of contract cancellation costs and
$0.3 million of other cash costs. Additional amounts
incurred included a stock compensation charge for the
accelerated vesting of the stock options of our former chief
executive officer of $4.8 million, impairment charges
relating to the sale of our subsidiaries in Argentina and
Uruguay and certain fixed assets in Mexico of
$10.8 million, and the loss of $2.6 million in the
sale of our subsidiaries in Argentina and Uruguay, offset in
part by the gain of $34.5 million in the transaction with
Invida.
The following table summarizes the restructuring costs recorded
in the years ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Total Incurred
|
|
|
2008 Restructuring Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severances (430 employees cumulatively)
|
|
$
|
2,239
|
|
|
$
|
19,239
|
|
|
$
|
957
|
|
|
$
|
22,435
|
|
Contract cancellation costs, legal and professional fees and
other costs
|
|
|
1,260
|
|
|
|
18,406
|
|
|
|
8,644
|
|
|
|
28,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal: cash charges
|
|
|
3,499
|
|
|
|
37,645
|
|
|
|
9,601
|
|
|
|
50,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation
|
|
|
|
|
|
|
4,778
|
|
|
|
|
|
|
|
4,778
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
10,758
|
|
|
|
|
|
|
|
10,758
|
|
Loss on sale of long-lived assets
|
|
|
|
|
|
|
2,652
|
|
|
|
|
|
|
|
2,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal: non-cash charges
|
|
|
|
|
|
|
18,188
|
|
|
|
|
|
|
|
18,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal: restructuring expenses
|
|
|
3,499
|
|
|
|
55,833
|
|
|
|
9,601
|
|
|
|
68,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on Invida transaction
|
|
|
42
|
|
|
|
(34,538
|
)
|
|
|
|
|
|
|
(34,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructurings, asset impairments and dispositions
|
|
$
|
3,541
|
|
|
$
|
21,295
|
|
|
$
|
9,601
|
|
|
$
|
34,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the year ended December 31, 2008, we recorded inventory
obsolescence charges of $21.0 million resulting primarily
from decisions to cease promotion of or discontinue certain
products, decisions to discontinue certain manufacturing
transfers and product quality failures. These inventory
obsolescence charges were recorded in cost of goods sold.
2006
Restructuring
In April 2006, we announced a restructuring program (the
2006 Restructuring) which was primarily focused on
our research and development and manufacturing operations. The
objective of the 2006 Restructuring program as it related to
research and development activities was to focus our efforts and
expenditures on retigabine and taribavirin, our two late-stage
projects in development. The 2006 Restructuring was designed to
rationalize our investments in research and development efforts
in line with our financial resources. In December 2006, we sold
our HIV and cancer development programs and certain discovery
and pre-clinical assets to Ardea Biosciences, Inc.
(Ardea), with an option for us to reacquire rights
to commercialize the HIV program outside of the United States
and Canada upon Ardeas completion of Phase IIb trials. In
March 2007, we sold our former headquarters building in Costa
Mesa, California, where our former research laboratories were
located, for net proceeds of $36.8 million.
The objective of the 2006 Restructuring as it related to
manufacturing was to further rationalize our manufacturing
operations to reflect the regional nature of our existing
products and further reduce our excess
60
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
capacity after considering the delay in the development of
taribavirin. The impairment charges included the charges related
to estimated future losses expected upon the disposition of
specific assets related to our manufacturing operations in
Switzerland and Puerto Rico. We completed the 2006 Restructuring
in June 2007 with the sale of our former manufacturing
facilities in Humacao, Puerto Rico and Basel, Switzerland to
Legacy Pharmaceuticals International.
The following table summarizes the restructuring costs recorded
in the year ended December 31, 2007 and cumulatively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
2007
|
|
|
Total Incurred
|
|
|
2006 Restructuring Program
|
|
|
|
|
|
|
|
|
Employee severances (408 employees cumulatively)
|
|
$
|
3,788
|
|
|
$
|
15,372
|
|
Contract cancellation and other cash costs
|
|
|
2,076
|
|
|
|
3,709
|
|
|
|
|
|
|
|
|
|
|
Subtotal: cash charges
|
|
|
5,864
|
|
|
|
19,081
|
|
|
|
|
|
|
|
|
|
|
Abandoned software and other capital assets
|
|
|
|
|
|
|
22,178
|
|
Write-off of accumulated foreign currency translation adjustments
|
|
|
2,782
|
|
|
|
2,782
|
|
Impairment of manufacturing and research facilities
|
|
|
9,428
|
|
|
|
62,649
|
|
|
|
|
|
|
|
|
|
|
Subtotal: non-cash charges
|
|
|
12,210
|
|
|
|
87,609
|
|
|
|
|
|
|
|
|
|
|
Restructurings, asset impairments and dispositions
|
|
$
|
18,074
|
|
|
$
|
106,690
|
|
|
|
|
|
|
|
|
|
|
Aggregate restructuring charges for the 2008 and 2006
restructuring programs, by reportable segment, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Specialty pharmaceuticals
|
|
$
|
|
|
|
$
|
(16,755
|
)
|
|
$
|
10,445
|
|
Branded generics Europe
|
|
|
|
|
|
|
(8,011
|
)
|
|
|
|
|
Branded generics Latin America
|
|
|
|
|
|
|
8,328
|
|
|
|
|
|
Unallocated corporate
|
|
|
3,541
|
|
|
|
37,733
|
|
|
|
17,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,541
|
|
|
$
|
21,295
|
|
|
$
|
27,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of Cash Restructuring Payments with Restructuring
Accrual
Cash-related charges in the above tables relate to severance
payments and other costs which have been either paid with cash
expenditures or have been accrued and will be paid with cash in
future quarters. As of December 31, 2008, the restructuring
accrual for the 2006 Restructuring was $0.6 million and
related to ongoing contractual payments to Legacy
Pharmaceuticals International relating to the sale of our former
site in Puerto Rico. These payment obligations ended in June
2009.
61
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2009, the restructuring accrual for the
2008 Restructuring was $6.4 million and relates primarily
to severance and lease termination penalty costs expected to be
paid primarily during 2010, except for the lease termination
penalty which will be paid in 2011. A summary of accruals and
expenditures of restructuring costs which will be paid in cash
is as follows:
|
|
|
|
|
2006 Restructuring: Reconciliation of Cash Payments and
Accruals
|
|
|
|
|
Opening balance, commencement of restructuring
|
|
$
|
|
|
Charges to earnings
|
|
|
13,217
|
|
Cash paid
|
|
|
(9,002
|
)
|
|
|
|
|
|
Restructuring accrual, December 31, 2006
|
|
|
4,215
|
|
Charges to earnings
|
|
|
5,864
|
|
Cash paid
|
|
|
(8,579
|
)
|
|
|
|
|
|
Restructuring accrual, December 31, 2007
|
|
|
1,500
|
|
Cash paid
|
|
|
(875
|
)
|
|
|
|
|
|
Restructuring accrual, December 31, 2008
|
|
|
625
|
|
Cash paid
|
|
|
(625
|
)
|
|
|
|
|
|
Restructuring accrual, December 31, 2009
|
|
$
|
|
|
|
|
|
|
|
2008 Restructuring: Reconciliation of Cash Payments and
Accruals
|
|
|
|
|
Opening balance, commencement of restructuring
|
|
$
|
|
|
Charges to earnings
|
|
|
9,601
|
|
Cash paid
|
|
|
(1,128
|
)
|
|
|
|
|
|
Restructuring accrual, December 31, 2007
|
|
|
8,473
|
|
Charges to earnings
|
|
|
37,645
|
|
Cash paid
|
|
|
(35,817
|
)
|
|
|
|
|
|
Restructuring accrual, December 31, 2008
|
|
|
10,301
|
|
Charges to earnings
|
|
|
3,499
|
|
Cash paid
|
|
|
(7,356
|
)
|
|
|
|
|
|
Restructuring accrual, December 31, 2009
|
|
$
|
6,444
|
|
|
|
|
|
|
The 2008 restructuring initiatives were substantially completed
by the end of the third quarter of 2009. We expect to continue
to recognize costs through 2011 related primarily to the
accretion of lease termination penalty costs.
|
|
3.
|
Acquisitions
and Acquisition-Related Costs
|
Dr. Renaud
Acquisition
On December 15, 2009, we acquired all of the outstanding
stock of Laboratoire Dr. Renaud, a privately-held
cosmeceutical company located in Canada that specializes in
topical formulations, and a related U.S. company (together
Dr. Renaud), for an aggregate purchase price of
$21.5 million in cash, net of cash acquired. As a result of
the acquisition, we gained access to a dermatology sales and
marketing infrastructure in Canada and entered into a lease for
a dermatological manufacturing facility.
62
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We accounted for the acquisition as a business combination. The
purchase price was provisionally allocated to tangible and
intangible assets acquired and liabilities assumed based upon
their estimated fair value as of the date of acquisition. The
allocation of intangible assets and certain liabilities is
provisional pending finalization of valuation of these items.
Amortizing intangible assets aggregating $9.7 million
consist primarily of trade names with an amortization period of
10 years and customer relationships with an amortization
period of five years. The excess of the purchase price over the
estimated fair value of net assets acquired was allocated to
goodwill totaling $10.5 million, which is not deductible
for tax purposes. The following table summarizes the estimated
fair value of the net assets acquired:
|
|
|
|
|
Current assets
|
|
$
|
4,717
|
|
Long-term assets
|
|
|
934
|
|
Identifiable intangible assets
|
|
|
9,749
|
|
Goodwill
|
|
|
10,489
|
|
Current and long-term liabilities
|
|
|
(4,396
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
21,493
|
|
|
|
|
|
|
PFI
Acquisition
On October 6, 2009, we acquired all of the outstanding
stock of Private Formula Holdings International Pty Limited
(PFI), a privately-held company located in Australia
that is engaged in product development, sales and marketing of
premium skincare products primarily in Australia, for
$71.1 million in cash, net of cash acquired, plus the
issuance of 162,500 restricted shares of our common stock valued
at approximately $3.4 million. The valuation of the common
stock issued in connection with the acquisition was based on its
quoted market price at the acquisition date, discounted to
reflect the estimated effect of its trading restrictions. The
acquisition of PFI gives us access to two leading brands in the
Australian and New Zealand prestige skincare and nail treatment
market and access to PFIs established pharmacy and
department store distribution network.
We accounted for the acquisition as a business combination. The
purchase price was allocated to tangible and intangible assets
acquired and liabilities assumed based upon their estimated fair
value as of the date of acquisition. Amortizing intangible
assets aggregating $31.2 million consist primarily of trade
names with a weighted-average amortization period of
27.9 years and customer relationships with an amortization
period of 10 years. The excess of the purchase price over
the estimated fair value of net assets acquired was allocated to
goodwill totaling $37.7 million, of which
$34.6 million is deductible for U.S. tax purposes. The
following table summarizes the estimated fair value of the net
assets acquired:
|
|
|
|
|
Current assets
|
|
$
|
9,403
|
|
Long-term assets
|
|
|
968
|
|
Identifiable intangible assets
|
|
|
31,165
|
|
Goodwill
|
|
|
37,701
|
|
Current and long-term liabilities
|
|
|
(4,765
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
74,472
|
|
|
|
|
|
|
Goodwill represents the excess of the purchase price over the
sum of the amounts assigned to the fair value of assets acquired
less liabilities assumed. The PFI acquisition allows us to
achieve scale within dermatology in the Australian market in
line with our strategic goals, which we believe supports the
amount of goodwill recognized.
Tecnofarma
Acquisition
On July 31, 2009, we acquired all of the outstanding stock
of Tecnofarma S.A. de C.V. (Tecnofarma), a
privately-held company located in Mexico, for a purchase price
of approximately one times sales, plus the
63
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
assumption of debt of approximately $13.0 million.
Tecnofarma is a producer of generic pharmaceuticals with
approximately $33.0 million in annual sales, primarily to
the government and private label markets. The acquisition of
Tecnofarma included the acquisition of manufacturing facilities,
which will allow us to reduce our dependence upon third party
manufacturers in Latin America.
We accounted for the acquisition as a business combination. The
purchase price was allocated to tangible and intangible assets
acquired and liabilities assumed based upon their estimated fair
value as of the date of acquisition. Amortizing intangible
assets aggregating $5.6 million consist primarily of
product registries with a weighted-average amortization period
of 15 years. The excess of the purchase price over the
estimated fair value of net assets acquired was allocated to
goodwill totaling $9.2 million, which is not deductible for
tax purposes. The following table summarizes the estimated fair
value of the net assets acquired:
|
|
|
|
|
Current assets
|
|
$
|
13,645
|
|
Long-term assets
|
|
|
22,820
|
|
Identifiable intangible assets
|
|
|
5,559
|
|
Goodwill
|
|
|
9,240
|
|
Current liabilities
|
|
|
(5,732
|
)
|
Current and long-term debt
|
|
|
(13,200
|
)
|
Other long-term liabilities
|
|
|
(3,569
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
28,763
|
|
|
|
|
|
|
Substantially all of the current and long-term debt was repaid
as of December 31, 2009. The purchase price is subject to
closing adjustments as defined in the purchase agreement.
Purchase price adjustments recorded subsequent to
December 31, 2009 will affect the recorded amount of
goodwill.
Emo-Farm
Acquisition
On April 29, 2009, we acquired all of the outstanding stock
of EMO-FARM sp. z o.o. (Emo-Farm), a privately-held
Polish company, for a purchase price of $28.6 million in
cash, net of cash acquired. Emo-Farm specializes in gel-based
over-the-counter
and cosmetic products. The acquisition of Emo-Farm expanded our
base in Poland into topical products and included the
acquisition of a topical manufacturing facility.
We accounted for the acquisition as a business combination. The
purchase price was allocated to tangible and intangible assets
acquired and liabilities assumed based upon their estimated fair
value as of the date of acquisition. Amortizing intangible
assets aggregating $11.2 million consist primarily of
product registries and customer relationships with
weighted-average amortization periods of 9.2 years and
6.8 years, respectively. The excess of the purchase price
over the estimated fair value of net assets acquired was
allocated to goodwill totaling $9.0 million, which is not
deductible for tax purposes. The following table summarizes the
estimated fair value of the net assets acquired:
|
|
|
|
|
Current assets
|
|
$
|
4,266
|
|
Long-term assets
|
|
|
10,098
|
|
Identifiable intangible assets
|
|
|
11,227
|
|
Goodwill
|
|
|
8,995
|
|
Current and long-term liabilities
|
|
|
(6,001
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
28,585
|
|
|
|
|
|
|
64
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. The Dow acquisition will allow
us to gain additional expertise in formulation and process
development, clinical trial services and compliance related
services.
We acquired Dow for an agreed price of $285.0 million,
subject to certain closing adjustments, plus transaction costs
of $5.4 million. Pursuant to the terms of the acquisition,
in the first half of 2009 we paid $35.0 million, of the
$285.0 million agreed price, into an escrow account for the
benefit of the former Dow common stockholders, subject to any
indemnification claims made by us for a period of eighteen
months following the acquisition closing. The accounting
treatment for the acquisition required the recognition of an
additional $95.9 million of conditional purchase
consideration as of December 31, 2008 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 for future milestones related to certain
pipeline products still in development was included in the
merger agreement.
During 2009, we completed our evaluation of the fair value of
assets acquired and liabilities assumed. The conditional
purchase consideration was reduced from $95.9 million
recorded as of December 31, 2008 to $86.5 million, due
to the reduction in the estimated fair value of the intangible
assets acquired from the preliminary appraisal, reduction in
deferred tax assets and other closing adjustments.
In 2009, we paid $115.0 million to the former Dow common
stockholders in order to settle all current and future income
and milestone obligations that we had to these stockholders
under the merger agreement. Specifically, in exchange for this
payment, we received rights to all future profit share payments
to Dow under Dows 2008 agreement with Mylan related to
sales of 1% clindamycin and 5% benzoyl peroxide gel
(IDP-111), for which 90% was required to be paid to
these former Dow common stockholders under the original merger
agreement, and a release by these former Dow common stockholders
of their right to receive up to $235.0 million in milestone
payments upon a successful commercialization of Dow pipeline
products currently under development. We further agreed to
terminate the indemnification obligations of the former Dow
common stockholders and to release the $35.0 million escrow
account. The $27.6 million paid in excess of the
conditional purchase consideration liability of
$86.5 million was treated as an additional cost of the
acquisition and resulted in the recognition of goodwill, which
is not deductible for tax purposes.
The following table summarizes the estimated fair value of the
net assets acquired as adjusted in 2009:
|
|
|
|
|
Current assets
|
|
$
|
14,464
|
|
Identifiable intangible assets
|
|
|
181,100
|
|
In-process research and development
|
|
|
185,800
|
|
Goodwill
|
|
|
27,587
|
|
Other assets
|
|
|
5,857
|
|
Current and long-term liabilities
|
|
|
(9,936
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
404,872
|
|
|
|
|
|
|
65
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 generates royalty revenue. Customer
relationships are from Dows contract research services.
The weighted-average amortization period for the 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recorded a charge of $185.8 million for IPR&D
assets acquired that we determined were not yet complete and had
no future uses in their current state. The major risks and
uncertainties associated with the timely and successful
completion of the acquired IPR&D assets consist of the
ability to confirm the safety and efficacy of the product based
upon the data from clinical trials and obtaining the necessary
approval from the FDA.
The IPR&D assets are comprised of the following items;
IDP-107 for the treatment of acne, IDP-108 for fungal infections
and IDP-115 for rosacea, which were valued at
$107.3 million, $49.0 million and $29.5 million,
respectively. All of these in-process research and development
assets had not yet received approval from the FDA as of the
acquisition date. IDP-107 is an oral treatment for moderate to
severe inflammatory acne. IDP-108 is an investigational topical
drug for nail, hair and skin fungal infections. IDP-115 is a
topical treatment for rosacea.
The estimated fair value of the IPR&D assets was determined
based upon the use of a discounted cash flow model for each
asset. The estimated after-tax cash flows were probability
weighted to take into account the stage of completion and the
risks surrounding the successful development and
commercialization of each asset. The cash flows for each asset
were then discounted to a present value using a discount rate of
15%. Material net cash inflows were estimated to begin in 2013
for IDP-107, IDP-108 and IDP-115. Gross margins and expense
levels were estimated to be consistent with Dows
historical results. Solely for the purpose of estimating the
fair value of these assets, we assumed we would incur future
research and development costs of $26.6 million,
$29.6 million and $20.1 million to complete IDP-107,
IDP-108 and IDP-115, respectively.
DermaTech
Acquisition
On November 14, 2008, we completed the purchase of all of
the outstanding common stock of DermaTech Pty Ltd.
(DermaTech), a privately held healthcare company,
based in Australia that develops, manufactures and markets
dermatology products. The DermaTech acquisition purchase price
was allocated to tangible and intangible assets acquired and
liabilities assumed based upon their estimated fair value at the
acquisition date. The purchase price is summarized below:
|
|
|
|
|
Cash consideration, net of cash acquired
|
|
$
|
14,865
|
|
Transaction costs
|
|
|
603
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
15,468
|
|
|
|
|
|
|
66
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The excess of the purchase price over the estimated fair value
of net assets acquired was allocated to goodwill. The goodwill
acquired is not deductible for tax purposes. The following table
summarizes the estimated fair value of the net assets acquired:
|
|
|
|
|
Current and long-term assets
|
|
$
|
3,426
|
|
Identifiable intangible assets
|
|
|
8,260
|
|
Goodwill
|
|
|
4,962
|
|
Current and long-term liabilities
|
|
|
(1,180
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
15,468
|
|
|
|
|
|
|
In 2009, we adjusted the fair value assigned to assets acquired
and liabilities assumed primarily due to a reduction of
$2.5 million to the acquired goodwill and deferred tax
liabilities.
The acquired intangible assets consisted principally of trade
names and customer relationships. The weighted-average
amortization period as of the acquisition date for such
intangible assets acquired is outlined in the table below:
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
|
|
|
|
Intangible
|
|
|
Weighted-Average
|
|
|
|
Assets
|
|
|
Amortization
|
|
|
|
Acquired
|
|
|
Period
|
|
|
Trade names
|
|
$
|
5,653
|
|
|
|
Indefinite
|
|
Customer relationships
|
|
|
2,211
|
|
|
|
10.0 years
|
|
Licensed products
|
|
|
396
|
|
|
|
6.4 years
|
|
|
|
|
|
|
|
|
|
|
Total identifiable intangible assets
|
|
$
|
8,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coria
Acquisition
On October 15, 2008, we completed the purchase of all of
the outstanding common stock of Coria Laboratories, Ltd.
(Coria), a privately held healthcare company that
develops, manufactures and markets dermatology products in the
United States. As a result of the acquisition, we acquired an
assembled sales force and a suite of dermatology products which
enhanced our existing product base.
The Coria acquisition purchase price was allocated to tangible
and intangible assets acquired and liabilities assumed based
upon their estimated fair value at the acquisition date. The
following table summarizes the purchase price:
|
|
|
|
|
Cash consideration, net of cash acquired
|
|
$
|
96,292
|
|
Transaction costs
|
|
|
607
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
96,899
|
|
|
|
|
|
|
67
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The excess of the purchase price over the fair value of net
assets acquired was allocated to goodwill. The goodwill acquired
is not deductible for tax purposes. The following table
summarizes the fair value of the net assets acquired:
|
|
|
|
|
Current assets
|
|
$
|
12,097
|
|
Identifiable intangible assets
|
|
|
74,900
|
|
In-process research and development
|
|
|
500
|
|
Goodwill
|
|
|
15,319
|
|
Other assets
|
|
|
3,260
|
|
Current liabilities
|
|
|
(8,322
|
)
|
Deferred tax liabilities
|
|
|
(855
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
96,899
|
|
|
|
|
|
|
In 2009, we adjusted the fair value assigned to assets acquired
and liabilities assumed primarily due to a revision in the
estimated useful life for the acquired intangible asset for
CeraVe from an indefinite life to 30 years, which resulted
in a reduction of $16.7 million to the acquired goodwill
and deferred tax liabilities.
The acquired intangible assets consisted of developed technology
for approved indications of currently marketed products. The
acquired intangible assets principally relate to the CeraVe,
Cloderm and Atralin products. 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 technology-CeraVe
|
|
$
|
42,700
|
|
|
|
30 years
|
|
Developed technology-all other products
|
|
|
32,200
|
|
|
|
6.4 years
|
|
|
|
|
|
|
|
|
|
|
Total identifiable intangible assets
|
|
$
|
74,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill represents the excess of the purchase price over the
sum of the amounts assigned to the fair value of assets acquired
less liabilities assumed. The Coria acquisition will allow us to
gain additional expertise and intellectual property for the next
generation of patented delivery technology, an expanded and
complimentary product mix and an assembled sales force, which we
believe supports the amount of goodwill recognized.
The results of operations for each of the acquisitions discussed
above are included in the consolidated statements of operations
from their respective acquisition dates. The following unaudited
pro forma results of operations for the year ended
December 31, 2008, assume the Dow acquisition had occurred
on January 1, 2008 and for the year ended December 31,
2007, assume the acquisition had occurred on January 1,
2007. These pro forma results include charges for IPR&D of
$185.8 million related to the Dow acquisition. The pro
forma adjustments have no impact on the effective income tax
rate used due to the valuation allowance on deferred tax assets
in the United States.
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2008
|
|
2007
|
|
|
(Unaudited)
|
|
Product sales
|
|
$
|
593,165
|
|
|
$
|
603,051
|
|
Alliance revenue
|
|
$
|
80,423
|
|
|
$
|
101,841
|
|
Service revenue
|
|
$
|
38,763
|
|
|
$
|
29,184
|
|
Loss from continuing operations
|
|
$
|
(241,075
|
)
|
|
$
|
(224,481
|
)
|
Net loss attributable to Valeant
|
|
$
|
(74,534
|
)
|
|
$
|
(251,277
|
)
|
Basic net loss per share attributable to Valeant
|
|
$
|
(0.85
|
)
|
|
$
|
(2.70
|
)
|
Diluted net loss per share attributable to Valeant
|
|
$
|
(0.85
|
)
|
|
$
|
(2.70
|
)
|
68
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The pro forma information is not necessarily indicative of the
actual results that would have been achieved had the Dow
acquisition occurred on the dates indicated, or the results that
may be achieved in the future.
We do not consider the historical results of operations of
Dr. Renaud, PFI, Tecnofarma, Emo-Farm, DermaTech or Coria
to be material to our historical consolidated results of
operations, either individually or in the aggregate.
Accordingly, the supplemental pro forma information presented
above does not include any adjustments related to these
acquisitions.
With respect to each of the business acquisitions discussed
above, we believe the fair values assigned to the assets
acquired and liabilities assumed were based upon reasonable
assumptions. Our allocations of the purchase prices are largely
dependent on discounted cash flow analyses of projects and
products of the acquired companies. The major risks and
uncertainties associated with the timely and successful
completion of these projects consist of the ability to confirm
the safety and efficacy of the compound based on the data from
clinical trials and obtaining necessary regulatory approvals. In
addition, we cannot provide assurance that the underlying
assumptions used to forecast the cash flows or the timely and
successful completion of such projects will materialize as we
estimated. For these reasons, among others, our actual results
may vary significantly from the estimated results.
Acquisition-related
Costs
We incurred the following acquisition-related costs during the
year ended December 31, 2009:
|
|
|
|
|
Transaction costs
|
|
$
|
4,013
|
|
Integration costs and other
|
|
|
2,514
|
|
|
|
|
|
|
Total acquisition-related costs
|
|
$
|
6,527
|
|
|
|
|
|
|
Transaction costs include broker fees, legal, accounting and
other costs directly related to our 2009 business acquisitions.
Integration costs and other includes contract cancellation
costs, severance for employees of acquired businesses and
obligations to employees established by the former Dow
shareholders. These expenses are included in restructuring,
asset impairments, dispositions and acquisition-related costs in
the statements of operations.
Asset
Purchase in Australia
On May 1, 2009, we acquired intellectual property,
trademarks and inventory related to certain dermatology products
approved for sale in Australia and New Zealand for cash of
approximately $7.3 million, including transaction costs. We
accounted for the acquisition as a purchase of assets. The
purchase price was allocated to product rights of
$6.5 million and inventories of $0.8 million. The
weighted-average useful life of the product rights was
determined to be approximately 15.7 years.
|
|
4.
|
Collaboration
Agreement
|
In October 2008, we closed a worldwide License and Collaboration
Agreement (the Collaboration Agreement) with Glaxo
Group Limited, a wholly-owned subsidiary of GlaxoSmithKline plc
(GSK), to collaborate with GSK to develop and
commercialize retigabine, a
first-in-class
neuronal potassium channel opener for treatment of adult
epilepsy patients with refractory partial onset seizures and its
backup compounds. We received $125.0 million in upfront
fees from GSK upon the closing. Pursuant to the terms of the
Collaboration Agreement, we granted co-development rights and
worldwide commercialization rights to GSK.
We agreed to share equally with GSK the development and
pre-commercialization expenses of retigabine in the United
States, Australia, New Zealand, Canada and Puerto Rico (the
Collaboration Territory) and GSK will develop and
commercialize retigabine in the rest of the world. Our share of
such expenses in the Collaboration Territory is limited to
$100.0 million, provided that GSK will be entitled to
credit our share of any such expenses in excess of such amount
against future payments owed to us under the Collaboration
Agreement. The difference
69
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
between the upfront payment of $125.0 million and our
expected development and pre-commercialization expenses under
the Collaboration Agreement is being recognized as alliance
revenue over the period prior to the launch of a retigabine
product (the Pre-Launch Period). We recognize
alliance revenue during the Pre-Launch Period as we complete our
performance obligations using the proportional performance
model, which requires us to determine and measure the completion
of our expected development and pre-commercialization costs
during the Pre-Launch Period, in addition to our participation
in the joint steering committee. We expect to complete our
research and development and pre-commercialization obligations
in effect during the Pre-Launch Period by the first quarter of
2011.
GSK has the right to terminate the Collaboration Agreement at
any time prior to the receipt of the approval by the FDA of a
new drug application (NDA) for a retigabine product,
which right may be irrevocably waived at any time by GSK. The
period of time prior to such termination or waiver is referred
to as the Review Period. If GSK terminates the
Collaboration Agreement prior to December 31, 2010, we
would be required to refund to GSK a portion of the upfront fee.
In February 2009, the Collaboration Agreement was amended to,
among other matters, reduce the maximum amount of the upfront
fee that we would be required to refund to GSK to
$40.0 million through December 31, 2009, with
additional ratable reductions in the amount of the required
refund during 2010 until reaching zero at December 31,
2010. During the years ended December 31, 2009 and 2008,
the combined research and development expenses and
pre-commercialization expenses incurred under the Collaboration
Agreement by us and GSK were $65.3 million and
$13.1 million, respectively, as outlined in the table
below. We recorded a charge of $1.2 million and a credit of
$4.1 million in the years ended December 31, 2009 and
2008, respectively, against our share of the expenses to
equalize our expenses with GSK, pursuant to the terms of the
Collaboration Agreement.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Valeant research and development costs
|
|
$
|
31,191
|
|
|
$
|
10,193
|
|
Valeant selling, general and administrative
|
|
|
228
|
|
|
|
483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,419
|
|
|
|
10,676
|
|
GSK expenses
|
|
|
33,841
|
|
|
|
2,394
|
|
|
|
|
|
|
|
|
|
|
Total spending for Collaboration Agreement
|
|
$
|
65,260
|
|
|
$
|
13,070
|
|
|
|
|
|
|
|
|
|
|
Equalization charge (credit)
|
|
$
|
1,211
|
|
|
$
|
(4,141
|
)
|
|
|
|
|
|
|
|
|
|
Our rights to retigabine are subject to an Asset Purchase
Agreement between Meda Pharma GmbH & Co. KG
(Meda Pharma), the successor to Viatris
GmbH & Co. KG, and Xcel Pharmaceuticals, Inc.
(Xcel), which was acquired by Valeant in 2005 (the
Meda Pharma Agreement). Under the terms of the Meda
Pharma Agreement, we are required to pay Meda Pharma a milestone
payment of $8.0 million upon acceptance of the filing of an
NDA, which occurred on December 29, 2009, and
$6.0 million upon approval of the NDA for retigabine. We
are also required to pay royalty rates which, depending on the
geographic market and sales levels, vary from 3% to 8% of net
sales. Under the Collaboration Agreement with GSK, these
milestones and royalties will be treated in the Collaboration
Territory as an operating expense and shared by GSK and Valeant
pursuant to the profit sharing percentage then in effect. In the
rest of the world, we will be responsible for the payment of
these royalties to Meda Pharma from the royalty payments we
receive from GSK. We are required to make additional milestone
payments to Meda Pharma of up to $5.3 million depending on
certain licensing activity. As a result of entering into the
Collaboration Agreement with GSK, we paid Meda Pharma a
milestone payment of $3.8 million in October 2008 and
accrued an additional milestone of $8.0 million upon
acceptance of the NDA filing in December 2009. An additional
payment of $1.5 million could become due if a certain
indication for retigabine is developed and licensed to GSK.
70
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below outlines the alliance revenue, expenses
incurred, associated credits against the expenses incurred, and
remaining upfront payment for the Collaboration Agreement during
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 2008
|
|
|
(10,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred cost in 2009
|
|
|
|
|
|
|
|
|
|
|
228
|
|
|
|
31,191
|
|
Incurred cost offset in 2009
|
|
|
(32,630
|
)
|
|
|
|
|
|
|
(1,621
|
)
|
|
|
(31,009
|
)
|
Recognize alliance revenue
|
|
|
(14,519
|
)
|
|
|
(14,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release from upfront payment in 2009
|
|
|
(47,149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining upfront payment from GSK
|
|
$
|
66,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equalization payable to GSK
|
|
$
|
(1,211
|
)
|
|
|
|
|
|
|
1,393
|
|
|
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense and revenue
|
|
|
|
|
|
$
|
(14,519
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
33,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
13,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue short-term
|
|
|
20,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining upfront payment from GSK
|
|
$
|
66,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total combined expenses by us and GSK for the Collaboration
Agreement through December 31, 2009 were $78.3 million.
|
|
5.
|
Special
Charges and Credits Including Acquired In-process Research and
Development
|
In June 2009, we entered into an exclusive license agreement
with Endo Pharmaceuticals Inc. that grants us an exclusive
license to develop and commercialize Opana and Opana ER in
Canada, Australia and New Zealand (the Opana
Territory). Regulatory approval must be received prior to
any sale of the licensed products. We recorded a
$1.8 million charge related to the initial license fee in
the second quarter of 2009. Under the terms of the license
agreement, we will pay royalties ranging from 10% to 20% of net
sales, as well as milestone payments upon achievement of certain
sales levels of licensed products in the Opana Territory.
During the second quarter of 2009, we acquired rights to other
products in Mexico that are not currently approved for sale, for
an aggregate price of $0.2 million, which was recorded as a
charge in the second quarter of 2009.
In 2009, we recorded litigation settlement charges of
$4.4 million, primarily related to the settlement of the
Spear Pharmaceuticals, Inc. matter. See Note 21 for
additional information.
We incurred IPR&D expense of $185.8 million and
$0.5 million related to the 2008 acquisitions of Dow and
Coria, respectively. See Note 3 for details of acquired
IPR&D expense.
|
|
6.
|
Discontinued
Operations
|
In September 2008, we sold our WEEMEA business to Meda AB, an
international specialty pharmaceutical company located in
Stockholm, Sweden (Meda). Meda acquired our
operating subsidiaries in those markets, and the rights to all
products and licenses marketed by us in those divested regions
as of the divestiture date. 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
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
71
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
deducting the carrying value of the net assets sold,
transaction-related expenses and income taxes. During the year
ended December 31, 2009, we recorded an additional gain on
the sale of $0.7 million.
In January 2008, we sold our Infergen product rights to Three
Rivers Pharmaceuticals, LLC. We received $70.8 million in
2008 as the initial payment for our Infergen product rights. We
received an additional $5.7 million in 2009, with
additional payments due of $13.5 million as of
December 31, 2009. We recorded a net gain from this
transaction of $39.4 million in 2008 after deducting the
carrying value of the net assets sold from the proceeds
received. In 2009, we reversed a contingent liability accrued in
2008, which did not meet the conditions for payment upon
expiration of the payment criteria as of December 31, 2009.
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 statements of
operations for all periods presented. In addition, any cash
flows related to these discontinued operations are presented
separately in the consolidated statements of cash flows.
Summarized selected financial information for discontinued
operations for the years ended December 31, 2009, 2008 and
2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
WEEMEA Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
|
|
|
$
|
138,831
|
|
|
$
|
182,719
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization)
|
|
|
|
|
|
|
58,444
|
|
|
|
75,034
|
|
Selling, general and administrative
|
|
|
|
|
|
|
66,862
|
|
|
|
79,044
|
|
Research and development costs, net
|
|
|
|
|
|
|
365
|
|
|
|
69
|
|
Restructuring, asset impairments, dispositions and
acquisition-related costs
|
|
|
|
|
|
|
1,309
|
|
|
|
(4,499
|
)
|
Amortization expense
|
|
|
|
|
|
|
14,372
|
|
|
|
15,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
|
|
|
|
141,352
|
|
|
|
165,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
744
|
|
|
|
(347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations before income taxes,
WEEMEA
|
|
|
|
|
|
|
(1,777
|
)
|
|
|
17,142
|
|
Infergen:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
|
|
|
|
|
1,000
|
|
|
|
32,085
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization)
|
|
|
|
|
|
|
2,007
|
|
|
|
24,897
|
|
Selling, general and administrative
|
|
|
|
|
|
|
624
|
|
|
|
27,295
|
|
Research and development costs, net
|
|
|
(8,697
|
)
|
|
|
9,752
|
|
|
|
6,476
|
|
Amortization expense
|
|
|
|
|
|
|
|
|
|
|
4,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
(8,697
|
)
|
|
|
12,383
|
|
|
|
63,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, Infergen
|
|
|
8,697
|
|
|
|
(11,383
|
)
|
|
|
(31,533
|
)
|
Other discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
477
|
|
|
|
1,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations before income taxes
|
|
|
9,174
|
|
|
|
(11,601
|
)
|
|
|
(14,391
|
)
|
Provision for income taxes
|
|
|
3,643
|
|
|
|
20,101
|
|
|
|
11,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
5,531
|
|
|
|
(31,702
|
)
|
|
|
(26,087
|
)
|
Disposal of discontinued operations, net
|
|
|
594
|
|
|
|
198,250
|
|
|
|
(709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net
|
|
$
|
6,125
|
|
|
$
|
166,548
|
|
|
$
|
(26,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the computation of basic and
diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted earnings per share attributable
to Valeant:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to Valeant
|
|
$
|
257,616
|
|
|
$
|
(207,375
|
)
|
|
$
|
6,608
|
|
Income (loss) from discontinued operations
|
|
|
6,125
|
|
|
|
166,548
|
|
|
|
(26,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Valeant
|
|
$
|
263,741
|
|
|
$
|
(40,827
|
)
|
|
$
|
(20,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share attributable to Valeant:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding
|
|
|
81,285
|
|
|
|
87,183
|
|
|
|
92,841
|
|
Vested stock equivalents (not issued)
|
|
|
496
|
|
|
|
297
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share attributable to Valeant
|
|
|
81,781
|
|
|
|
87,480
|
|
|
|
93,029
|
|
Denominator for diluted earnings per share attributable to
Valeant:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
882
|
|
|
|
|
|
|
|
894
|
|
Other dilutive securities
|
|
|
1,307
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
2,189
|
|
|
|
|
|
|
|
947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share attributable to
Valeant
|
|
|
83,970
|
|
|
|
87,480
|
|
|
|
93,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share attributable to Valeant:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to Valeant
|
|
$
|
3.15
|
|
|
$
|
(2.37
|
)
|
|
$
|
0.07
|
|
Income (loss) from discontinued operations
|
|
|
0.07
|
|
|
|
1.90
|
|
|
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to Valeant
|
|
$
|
3.22
|
|
|
$
|
(0.47
|
)
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share attributable to Valeant:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to Valeant
|
|
$
|
3.07
|
|
|
$
|
(2.37
|
)
|
|
$
|
0.07
|
|
Income (loss) from discontinued operations
|
|
|
0.07
|
|
|
|
1.90
|
|
|
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to Valeant
|
|
$
|
3.14
|
|
|
$
|
(0.47
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 3.0% Notes and the 4.0% Notes, discussed in
Note 10, allow us to settle any conversion by remitting to
the note holder the principal amount of the note in cash, while
settling the conversion spread (the excess conversion value over
the accreted value) in shares of our common stock. Only the
conversion spread, which we intend to settle 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 years ended December 31, 2009, 2008 and 2007.
For the year ended December 31, 2008, options to purchase
1,286,715 weighted-average shares of common stock were not
included in the computation of earnings per share because we
incurred a loss from continuing operations and the effect would
have been anti-dilutive.
73
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the years ended December 31, 2009, 2008 and 2007,
options to purchase 925,740, 6,506,317 and 8,989,578
weighted-average shares of common stock, respectively, were also
not included in the computation of earnings per share because
the exercise prices of the options were greater than the average
market price of our common stock and, therefore, the effect
would have been anti-dilutive. For the year ended
December 31, 2009, 622,729 and 664,080 weighted average
shares of common stock related to restricted stock units and
warrants, respectively, were excluded from the computation of
diluted earnings per share, as their effect would have been
anti-dilutive.
|
|
8.
|
Detail of
Certain Accounts
|
The following tables present the details of certain amounts
included in the consolidated balance sheet at December 31,
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Accounts receivable, net:
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
$
|
122,238
|
|
|
$
|
93,796
|
|
Royalties receivable
|
|
|
20,138
|
|
|
|
21,774
|
|
Other receivables
|
|
|
33,398
|
|
|
|
33,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,774
|
|
|
|
148,608
|
|
Allowance for doubtful accounts
|
|
|
(4,766
|
)
|
|
|
(4,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
171,008
|
|
|
$
|
144,509
|
|
|
|
|
|
|
|
|
|
|
Inventories, net:
|
|
|
|
|
|
|
|
|
Raw materials and supplies
|
|
$
|
27,880
|
|
|
$
|
16,742
|
|
Work-in-process
|
|
|
11,013
|
|
|
|
8,506
|
|
Finished goods
|
|
|
78,435
|
|
|
|
61,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,328
|
|
|
|
86,889
|
|
Allowance for inventory obsolescence
|
|
|
(11,428
|
)
|
|
|
(13,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
105,900
|
|
|
$
|
72,972
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
6,299
|
|
|
$
|
1,160
|
|
Buildings
|
|
|
67,412
|
|
|
|
48,748
|
|
Machinery and equipment
|
|
|
119,030
|
|
|
|
93,516
|
|
Furniture and fixtures
|
|
|
22,226
|
|
|
|
19,131
|
|
Leasehold improvements
|
|
|
6,307
|
|
|
|
5,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,274
|
|
|
|
167,668
|
|
Accumulated depreciation and amortization
|
|
|
(102,948
|
)
|
|
|
(87,928
|
)
|
Construction in progress
|
|
|
8,485
|
|
|
|
10,488
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
126,811
|
|
|
$
|
90,228
|
|
|
|
|
|
|
|
|
|
|
Accrued Liabilities:
|
|
|
|
|
|
|
|
|
Accrued returns, rebates and allowances
|
|
$
|
94,482
|
|
|
$
|
66,005
|
|
GSK research and development cost offset
|
|
|
34,467
|
|
|
|
35,581
|
|
Payroll and related items
|
|
|
27,045
|
|
|
|
23,381
|
|
WEEMEA sale-related liabilities
|
|
|
14,908
|
|
|
|
27,575
|
|
Legal and professional fees
|
|
|
11,542
|
|
|
|
9,816
|
|
Accrued research and development costs
|
|
|
9,231
|
|
|
|
10,245
|
|
Interest
|
|
|
2,950
|
|
|
|
3,562
|
|
Accrued royalties payable
|
|
|
2,391
|
|
|
|
2,509
|
|
Dow acquisition payment obligations
|
|
|
|
|
|
|
41,595
|
|
Other
|
|
|
18,916
|
|
|
|
11,181
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
215,932
|
|
|
$
|
231,450
|
|
|
|
|
|
|
|
|
|
|
74
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Other Liabilities:
|
|
|
|
|
|
|
|
|
GSK research and development cost offset
|
|
$
|
13,159
|
|
|
$
|
52,297
|
|
Dow conditional purchase consideration
|
|
|
|
|
|
|
95,854
|
|
Other
|
|
|
17,036
|
|
|
|
27,229
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
$
|
30,195
|
|
|
$
|
175,380
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, construction in progress primarily
includes costs incurred in plant improvements, construction of
manufacturing equipment and computer equipment. At
December 31, 2008, construction in progress primarily
includes costs incurred in plant improvements and construction
of manufacturing equipment.
|
|
9.
|
Intangible
Assets and Goodwill
|
The components of intangible assets at December 31, 2009
and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Average
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Lives (years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Product intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neurology
|
|
|
13
|
|
|
$
|
278,944
|
|
|
$
|
(174,744
|
)
|
|
$
|
104,200
|
|
|
$
|
276,229
|
|
|
$
|
(147,745
|
)
|
|
$
|
128,484
|
|
Dermatology
|
|
|
14
|
|
|
|
318,194
|
|
|
|
(84,875
|
)
|
|
|
233,319
|
|
|
|
275,032
|
|
|
|
(54,906
|
)
|
|
|
220,126
|
|
Other
|
|
|
11
|
|
|
|
97,077
|
|
|
|
(48,813
|
)
|
|
|
48,264
|
|
|
|
72,956
|
|
|
|
(41,970
|
)
|
|
|
30,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product intangibles
|
|
|
13
|
|
|
|
694,215
|
|
|
|
(308,432
|
)
|
|
|
385,783
|
|
|
|
624,217
|
|
|
|
(244,621
|
)
|
|
|
379,596
|
|
Outlicensed technology
|
|
|
10
|
|
|
|
70,000
|
|
|
|
(7,854
|
)
|
|
|
62,146
|
|
|
|
74,000
|
|
|
|
|
|
|
|
74,000
|
|
Customer relationships
|
|
|
7
|
|
|
|
17,285
|
|
|
|
(2,517
|
)
|
|
|
14,768
|
|
|
|
8,242
|
|
|
|
(30
|
)
|
|
|
8,212
|
|
Trade names
|
|
|
Indefinite
|
|
|
|
7,649
|
|
|
|
|
|
|
|
7,649
|
|
|
|
5,987
|
|
|
|
|
|
|
|
5,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
789,149
|
|
|
$
|
(318,803
|
)
|
|
$
|
470,346
|
|
|
$
|
712,446
|
|
|
$
|
(244,651
|
)
|
|
$
|
467,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future amortization of intangible assets at December 31,
2009 is scheduled as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled Future Amortization Expense
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
Product intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neurology
|
|
$
|
24,582
|
|
|
$
|
18,994
|
|
|
$
|
17,894
|
|
|
$
|
16,838
|
|
|
$
|
16,309
|
|
|
$
|
9,583
|
|
|
$
|
104,200
|
|
Dermatology
|
|
|
31,856
|
|
|
|
32,020
|
|
|
|
32,020
|
|
|
|
30,398
|
|
|
|
28,854
|
|
|
|
78,171
|
|
|
|
233,319
|
|
Other
|
|
|
6,264
|
|
|
|
6,801
|
|
|
|
6,692
|
|
|
|
6,522
|
|
|
|
8,008
|
|
|
|
13,977
|
|
|
|
48,264
|
|
Outlicensed technology
|
|
|
8,693
|
|
|
|
8,693
|
|
|
|
7,513
|
|
|
|
7,513
|
|
|
|
6,134
|
|
|
|
23,600
|
|
|
|
62,146
|
|
Customer relationships
|
|
|
4,086
|
|
|
|
3,364
|
|
|
|
2,641
|
|
|
|
1,919
|
|
|
|
1,197
|
|
|
|
1,561
|
|
|
|
14,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
75,481
|
|
|
$
|
69,872
|
|
|
$
|
66,760
|
|
|
$
|
63,190
|
|
|
$
|
60,502
|
|
|
$
|
126,892
|
|
|
$
|
462,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $70.6 million, $50.0 million
and $56.0 million, of which $60.6 million,
$43.8 million and $44.6 million related to
amortization of acquired product intangibles in the years ended
December 31, 2009, 2008 and 2007, respectively.
75
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In 2009, we acquired product rights to a number of branded
generic products in Poland for aggregate consideration of
$4.5 million, of which $1.6 million was cash
consideration. In 2008, we acquired the rights to a number of
branded generic products in Poland for aggregate consideration
of $3.6 million, of which $2.6 million was cash
consideration.
In October 2009, we entered into an agreement to acquire rights
to certain dermatology products in Poland for a purchase price
of approximately $18.0 million. Upon signing we paid
$4.2 million, which is included in other assets at
December 31, 2009, and the remaining balance will be paid
upon closing in 2010.
The changes in the carrying amount of goodwill by segment for
the years ended December 31, 2009 and 2008, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty
|
|
|
Branded Generics
|
|
|
Branded Generics
|
|
|
|
|
|
|
Pharmaceuticals
|
|
|
Europe
|
|
|
Latin America
|
|
|
Total
|
|
|
Balance, December 31, 2007
|
|
$
|
80,346
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
80,346
|
|
Additions
|
|
|
38,391
|
|
|
|
|
|
|
|
|
|
|
|
38,391
|
|
Reductions(a)
|
|
|
(4,543
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,543
|
)
|
Other(b)
|
|
|
440
|
|
|
|
|
|
|
|
|
|
|
|
440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
114,634
|
|
|
|
|
|
|
|
|
|
|
|
114,634
|
|
Additions
|
|
|
76,914
|
|
|
|
8,995
|
|
|
|
9,240
|
|
|
|
95,149
|
|
Reductions(c)
|
|
|
(19,215
|
)
|
|
|
|
|
|
|
|
|
|
|
(19,215
|
)
|
Other(b)
|
|
|
3,272
|
|
|
|
1,413
|
|
|
|
97
|
|
|
|
4,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
175,605
|
|
|
$
|
10,408
|
|
|
$
|
9,337
|
|
|
$
|
195,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Release of deferred tax asset valuation allowance established in
purchase accounting for the 2005 acquisition of Xcel. |
|
(b) |
|
Primarily related to the effect of changes in foreign currency
exchange rates. |
|
(c) |
|
Reversal of deferred tax liabilities recorded in the initial
allocation of purchase price for the acquisitions of Coria and
DermaTech. |
|
|
10.
|
Debt and
lease obligations
|
Senior
Notes
In June 2009, we issued $365.0 million aggregate principal
amount of senior notes (the Senior Notes), which
bear a coupon interest rate of 8.375% and are due June 15,
2016. The Senior Notes were issued at a discounted price of
96.797%, resulting in an effective annual yield of 9.0%. Net
proceeds were $346.0 million, after deducting the
$11.7 million original issue discount and $7.3 million
underwriters fees. Interest is payable in arrears
semi-annually on each June 15 and December 15, commencing
on December 15, 2009. We may redeem some or all of the
Senior Notes on or after June 15, 2012 at fixed redemption
prices as set forth in the indenture. In addition, prior to
June 15, 2012, we may redeem up to 35% of the aggregate
principal amount of the Senior Notes with the proceeds from
certain equity offerings at a redemption price of 108.375% of
the principal amount, plus accrued and unpaid interest, plus
liquidated damages, if any, to the redemption date; provided
that at least 65% of the aggregate principal amount of the
Senior Notes remain outstanding immediately after such
redemption.
The Senior Notes are guaranteed on a senior unsecured basis by
each of our present and future U.S. subsidiaries that
qualify as restricted subsidiaries under the indenture. If we
experience a change of control, we may be required
76
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to offer to purchase the Senior Notes at a purchase price equal
to 101% of the principal amount, plus accrued and unpaid
interest, plus liquidated damages, if any, to the redemption
date. The indenture governing the Senior Notes contains
covenants that will limit our ability and the ability of our
restricted subsidiaries to, among other things: incur additional
debt; pay dividends or make other distributions; repurchase
capital stock; repurchase subordinated debt and make certain
investments; create liens; create restrictions on the payment of
dividends and other amounts to us from restricted subsidiaries;
sell assets or merge or consolidate with or into other
companies; and engage in transactions with affiliates. As of
December 31, 2009, we were in compliance with these
covenants.
The Senior Notes were sold in accordance with Rule 144A of
the Securities Act of 1933, as amended (the Securities
Act) and Regulation S of the Securities Act, and we
are obligated, within 365 days after June 9, 2009, to
file a registration statement with the SEC that will enable the
holders of the Senior Notes to exchange them for publicly
registered notes having substantially the same terms. In the
event we do not file a registration statement within
365 days after June 9, 2009, we will be obligated to
pay liquidated damages consisting of additional interest, up to
a maximum additional interest rate of 1.0% per year. We have not
recorded a liability for any potential additional interest as of
December 31, 2009.
3.0%
and 4.0% Convertible Subordinated Notes
In November 2003, we issued $240.0 million aggregate
principal amount of 3.0% Convertible Subordinated Notes due
2010 (the 3.0% Notes) and $240.0 million
aggregate principal amount of 4.0% Convertible Subordinated
Notes due 2013 (the 4.0% Notes), which were
issued as two series of notes under a single indenture. Interest
on the 3.0% Notes is payable semi-annually on February 16
and August 16 of each year. Interest on the 4.0% Notes is
payable semi-annually on May 15 and November 15 of each year. We
have the right to redeem the 4.0% Notes, in whole or in
part, at their principal amount on or after May 20, 2011.
The 3.0% Notes and 4.0% Notes are convertible into our
common stock at an initial conversion rate of
31.6336 shares per $1,000 principal amount of notes,
subject to adjustment. Upon conversion, we will have the right
to satisfy the conversion obligations by delivery, at our option
in shares of our common stock, in cash or in a combination
thereof. It is our intent to settle the principal amount of the
3.0% Notes and 4.0% Notes in cash. The 3.0% Notes
and 4.0% Notes are subordinated unsecured obligations,
ranking in right of payment behind our senior debt, if any.
ASC 470-20
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.
ASC 470-20
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 ASC
470-20, we
were required to separately account for the debt and equity
components of our 3.0% Notes and our 4.0% Notes.
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.
77
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The unamortized discount for the 3.0% Notes and
4.0% Notes will be amortized through the debt maturity date
of August 16, 2010 and November 15, 2013,
respectively. The effective interest rate on the liability
component of the 3.0% Notes and 4.0% Notes is 7.74%
and 7.78%, respectively. Interest expense for the years ended
December 31, 2009, 2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
3.0% Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount amortization
|
|
$
|
4,406
|
|
|
$
|
9,444
|
|
|
$
|
8,896
|
|
Contractual coupon rate
|
|
$
|
3,300
|
|
|
$
|
7,075
|
|
|
$
|
7,200
|
|
4.0% Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount amortization
|
|
$
|
6,148
|
|
|
$
|
5,905
|
|
|
$
|
5,471
|
|
Contractual coupon rate
|
|
$
|
9,239
|
|
|
$
|
9,600
|
|
|
$
|
9,600
|
|
During the year ended December 31, 2009, we purchased an
aggregate of $173.5 million principal amount of the
3.0% Notes and 4.0% Notes at a purchase price of
$178.3 million, consisting of cash consideration
aggregating $171.1 million and warrants (the
Warrants) to purchase 1,769,265 shares of our
common stock (the Warrant Shares) at an exercise
price of $31.61 per share. The estimated fair value of the
Warrants using the Black-Scholes pricing model was
$7.2 million, which was recorded as permanent equity in our
consolidated balance sheet. The Warrants are fully vested, are
exercisable on a cashless basis only and expire on
August 16, 2010. The number of Warrant Shares and the per
share exercise price are subject to adjustment upon stock splits
and combinations, certain dividends and distributions, rights
offerings, tender offers and consolidations, mergers and sales
or conveyances of all or substantially all of our assets made or
effected by us.
The carrying amount, net of unamortized debt issuance costs, of
the 3.0% Notes and 4.0% Notes purchased was
$162.6 million and the estimated fair value of the Notes
exclusive of the conversion feature was $155.4 million. The
difference between the carrying amount and the estimated fair
value was recognized as a gain of $7.2 million upon early
extinguishment of debt. The difference between the estimated
fair value of $155.4 million and the purchase price of
$178.3 million was $22.9 million and was charged to
additional capital.
In November 2008, we purchased $32.6 million aggregate
principal amount of the 3.0% Notes at an aggregate purchase
price of $29.0 million. The carrying amount of the
3.0% Notes purchased was $30.1 million and the
estimated fair value of the Notes exclusive of the conversion
feature was $28.2 million. The difference between the
carrying amount and the estimated fair value was recognized as a
gain of $1.9 million upon early extinguishment of debt. The
difference between the estimated fair value of
$28.2 million and the purchase price of $29.0 million
was $0.8 million and was charged to additional capital.
A portion of the purchase price was attributable to accreted
interest on the debt discount and deferred loan costs and is
presented in the statement of cash flows as payments of accreted
interest on long-term debt in cash flow from operating
activities in continuing operations.
The conversion price is 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 1,545,807 shares
for the 3.0% Notes and 7,116,295 shares for the
4.0% Notes as of December 31, 2009. The if-converted
value of the 3.0% Notes and that of the 4.0% Notes
exceeded their respective principal amount by $0.3 million
and $1.3 million, respectively, as of December 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 our purchasing a call option on
12,653,440 shares of our common stock at a strike price of
$31.61 and selling a written call option on the identical number
of shares at $39.52. The number of shares covered by the
Convertible Note Hedge is the same number of shares underlying
the conversion of $200.0 million principal amount of the
3.0% Notes and $200.0 million principal amount of the
4.0% Notes. The
78
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. As a result of the
cessation of Valeants common dividend, the strike price on
the Convertible Note Hedge was adjusted during 2007, with the
new strike prices becoming $34.61 and $35.36 for the
3.0% Notes and the 4.0% Notes, respectively.
During the year ended December 31, 2009, corresponding to
the partial redemption of the 3.0% Notes, we also effected
a proportionate partial termination of the Convertible Note
Hedge, reducing the number of shares covered by the Convertible
Note Hedge by 4,780,913 shares. The partial termination of
the Convertible Note Hedge resulted in a $0.8 million
increase in additional capital. As of December 31, 2009,
the number of shares covered by the Convertible Note Hedge was
7,872,527, the same number of shares underlying the conversion
of the remaining balance of $48.9 million principal amount
of the 3.0% Notes and $200.0 million principal amount
of the 4.0% Notes.
Long-term debt and the equity component of the 3.0% Notes
and the 4.0% Notes as of December 31, 2009 and 2008
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
3.0% Notes
|
|
$
|
48,866
|
|
|
$
|
207,360
|
|
Unamortized discount
|
|
|
(1,248
|
)
|
|
|
(13,548
|
)
|
|
|
|
|
|
|
|
|
|
Net carrying value of 3.0% Notes
|
|
|
47,618
|
|
|
|
193,812
|
|
4.0% Notes
|
|
|
224,960
|
|
|
|
240,000
|
|
Unamortized discount
|
|
|
(27,953
|
)
|
|
|
(36,179
|
)
|
|
|
|
|
|
|
|
|
|
Net carrying value of 4.0% Notes
|
|
|
197,007
|
|
|
|
203,821
|
|
8.375% Senior Notes
|
|
|
365,000
|
|
|
|
|
|
Unamortized discount
|
|
|
(11,002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying value of 8.375% Senior Notes
|
|
|
353,998
|
|
|
|
|
|
Other
|
|
|
1,966
|
|
|
|
1,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600,589
|
|
|
|
398,802
|
|
Less: current portion
|
|
|
(48,462
|
)
|
|
|
(666
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
552,127
|
|
|
$
|
398,136
|
|
|
|
|
|
|
|
|
|
|
Equity component of 3.0% Notes
|
|
$
|
45,318
|
|
|
$
|
57,190
|
|
Equity component of 4.0% Notes
|
|
$
|
58,352
|
|
|
$
|
62,167
|
|
The estimated fair value of our 3.0% Notes, 4.0% Notes
and the Senior Notes, based on quoted market prices or on
current interest rates for similar obligations with like
maturities, was approximately $697.8 million and
$409.4 million compared to its carrying value of
$598.6 million and $397.6 million, and principal
amount of $638.8 million and $447.4 million at
December 31, 2009 and 2008, respectively.
7.0% Senior
Notes
In December 2003, we issued $300.0 million aggregate
principal amount of 7.0% Senior Notes due 2011 (the
7.0% Senior Notes). We could, at our option,
redeem some or all of the 7.0% Senior Notes at any time on
or after December 15, 2007, at a redemption price of
103.50%, 101.75% and 100.00% of the principal amount during the
twelve-month period beginning December 15, 2007, 2008 and
2009 and thereafter, respectively. In January 2004, we entered
into an interest rate swap agreement with respect to
$150.0 million in principal amount of the 7.0% Senior
Notes. See Note 14 for a description of the interest rate
swap agreement.
79
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
Aggregate annual maturities of long-term debt are as follows:
|
|
|
|
|
2010
|
|
$
|
49,710
|
|
2011
|
|
|
770
|
|
2012
|
|
|
348
|
|
2013
|
|
|
224,964
|
|
2014
|
|
|
|
|
Thereafter
|
|
|
365,000
|
|
|
|
|
|
|
Total
|
|
$
|
640,792
|
|
|
|
|
|
|
We maintain no lines of credit in the U.S. and have
short-term lines of credit of $0.5 million in the aggregate
outside the U.S., under which there were no amounts outstanding
at December 31, 2009. The lines of credit provide for
short-term borrowings and bear interest at the banks rate
of interest or a variable rate based upon WIBOR (Warsaw
InterBank Offered Rate) or an equivalent index.
Leases
We lease certain administrative and laboratory facilities and
certain automobiles under non-cancelable operating lease
agreements that expire through 2021. Additionally, we lease
certain automobiles and computer software under lease agreements
that qualify as capital leases. The following table summarizes
our lease commitments at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Capital
|
|
|
|
Leases
|
|
|
Leases
|
|
|
2010
|
|
$
|
9,713
|
|
|
$
|
920
|
|
2011
|
|
|
14,324
|
|
|
|
811
|
|
2012
|
|
|
3,145
|
|
|
|
359
|
|
2013
|
|
|
1,793
|
|
|
|
4
|
|
2014
|
|
|
832
|
|
|
|
|
|
Thereafter
|
|
|
3,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33,169
|
|
|
|
2,094
|
|
|
|
|
|
|
|
|
|
|
Amounts representing interest
|
|
|
|
|
|
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
Amounts of lease obligations recorded as debt
|
|
|
|
|
|
$
|
1,966
|
|
|
|
|
|
|
|
|
|
|
Rent expense related to operating lease agreements for the years
ended December 31, 2009, 2008 and 2007 was
$10.7 million, $7.9 million and $9.9 million,
respectively.
80
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of income (loss) from continuing operations
before income taxes for each of the years ended
December 31, 2009, 2008 and 2007 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Domestic
|
|
$
|
70,567
|
|
|
$
|
(282,258
|
)
|
|
$
|
(79,559
|
)
|
Foreign
|
|
|
128,782
|
|
|
|
109,578
|
|
|
|
99,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
199,349
|
|
|
$
|
(172,680
|
)
|
|
$
|
20,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax (benefit) provision from continuing operations
for each of the years ended December 31, 2009, 2008 and
2007 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
8,656
|
|
|
$
|
3,782
|
|
|
$
|
(17,981
|
)
|
State
|
|
|
3,512
|
|
|
|
216
|
|
|
|
397
|
|
Foreign
|
|
|
31,261
|
|
|
|
43,468
|
|
|
|
27,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,429
|
|
|
|
47,466
|
|
|
|
9,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(99,523
|
)
|
|
|
(11,408
|
)
|
|
|
168
|
|
State
|
|
|
(2,795
|
)
|
|
|
(1,657
|
)
|
|
|
28
|
|
Foreign
|
|
|
619
|
|
|
|
287
|
|
|
|
3,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101,699
|
)
|
|
|
(12,778
|
)
|
|
|
3,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(58,270
|
)
|
|
$
|
34,688
|
|
|
$
|
13,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our effective tax rate from continuing operations differs from
the applicable United States statutory federal income tax rate
due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Statutory rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
Foreign source income taxes at other effective rates
|
|
|
0
|
%
|
|
|
4
|
%
|
|
|
154
|
%
|
Unremitted earnings
|
|
|
0
|
%
|
|
|
−26
|
%
|
|
|
0
|
%
|
Tax credits
|
|
|
−3
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Change in valuation allowance
|
|
|
−51
|
%
|
|
|
7
|
%
|
|
|
−124
|
%
|
Prepaid amortization
|
|
|
0
|
%
|
|
|
−4
|
%
|
|
|
0
|
%
|
Net operating loss and uncertain tax positions
|
|
|
−11
|
%
|
|
|
1
|
%
|
|
|
0
|
%
|
State tax and other, net
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
2
|
%
|
Effect of IPR&D, not deductible for tax
|
|
|
0
|
%
|
|
|
−38
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective rate
|
|
|
−29
|
%
|
|
|
−20
|
%
|
|
|
67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our effective tax rate for the year ended December 31, 2009
was significantly affected by the release of the valuation
allowance recorded against our net deferred tax assets,
primarily related to our net operating losses, foreign credits
and research and development credits in the United States.
Additionally, as a result of releasing the valuation allowance
on our net operating losses in 2009, we recorded a tax benefit
against additional capital relating to deductions on our
Convertible Note Hedge. Our effective tax rates for the years
ended December 31, 2008 and
81
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2007 were significantly affected by recording valuation
allowances to recognize the uncertainty of realizing the
benefits of net operating losses and credits in the United
States and certain foreign locations. Additionally, our tax rate
was impacted in 2008 by acquisition-related IPR&D expense
totaling $186.3 million, which provided no tax benefits,
and by the change in our position regarding unremitted earnings
of foreign subsidiaries. Additionally, as a result of utilizing
a portion of our net operating loss carryforward in 2008, we
released a portion of our valuation allowance against additional
capital relating to deductions for windfall stock options and
the Convertible Note Hedge resulting in an increased income tax
provision.
As of December 31, 2009, a valuation allowance of
$4.4 million is recorded against state capital loss
carryovers and certain foreign net operating losses that we
determined more likely than not could not be utilized. Ultimate
realization of the benefit of the California capital losses is
dependent upon us generating sufficient capital gains in the
United States prior to their expiration in 2010 as well as
taxable income within certain foreign countries. We have
determined it is more likely than not that we would not generate
enough capital gains in the foreseeable future to utilize our
existing state capital losses in the carryover period.
We continue to provide U.S. tax on the unremitted earnings
of our foreign subsidiaries. As of December 31, 2009, all
repatriated earnings from our foreign subsidiaries are being
offset by U.S. operating losses and credits.
At December 31, 2009 a valuation allowance of
$1.6 million had been recorded to offset U.S. deferred
tax assets, related to state capital loss carryovers. During
2009 we determined that it was no longer necessary to record a
valuation allowance against U.S. deferred tax assets other
than certain state capital loss carryovers. Of the
U.S. valuation allowance released, $4.9 million was
recorded against additional capital and we finalized purchase
accounting for certain tax attributes, resulting in a decrease
of valuation allowance of $18.5 million and an equal
increase in goodwill. In addition, $7.4 million of tax
benefits resulting from the current year deduction for stock
options and the convertible note hedge were recorded against
additional capital.
Included in the consolidated accumulated deficit at
December 31, 2008 is approximately $319.1 million of
accumulated earnings of foreign operations that would be subject
to U.S. income or foreign withholdings taxes, if and when
repatriated. The associated foreign taxes on our foreign
earnings could be available as a credit in the U.S. on such
taxes.
As of December 31, 2007, we experienced a change in
ownership as defined under Internal Revenue Code
section 382 and as a result certain limitations apply on
the utilization of net operating losses and credits.
Additionally, our use of the tax attributes of Coria and Dow
will be subject to similar limitations. We do not expect such
limitations to have a material effect on the utilization of such
net operating losses.
During 2009, the IRS examination of the U.S. income tax
returns for the years ended December 31, 2005 and 2006 was
resolved. As a result, the 2009 provision for income taxes was
reduced by $1.0 million related to interest and penalties.
In addition, the following accounts were affected; income taxes
payable decreased $2.3 million, income tax liability for
uncertain tax positions decreased $40.0 million and net
deferred tax assets decreased $40.9 million.
82
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The primary components of our net deferred tax asset at
December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
NOL and capital loss carryforwards
|
|
$
|
51,326
|
|
|
$
|
77,008
|
|
Inventory and other reserves
|
|
|
52,938
|
|
|
|
30,899
|
|
Tax credit carryforwards
|
|
|
47,703
|
|
|
|
47,309
|
|
Intangibles
|
|
|
50,708
|
|
|
|
42,485
|
|
Deferred gain
|
|
|
25,557
|
|
|
|
48,445
|
|
Other
|
|
|
15,396
|
|
|
|
28,567
|
|
Valuation allowance
|
|
|
(4,447
|
)
|
|
|
(123,756
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset, net of valuation allowance
|
|
|
239,181
|
|
|
|
150,957
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Loan discount, net of deferred loan costs
|
|
|
(14,197
|
)
|
|
|
(18,936
|
)
|
Fixed assets and other
|
|
|
(11,376
|
)
|
|
|
(981
|
)
|
Intangibles
|
|
|
(106,789
|
)
|
|
|
(103,269
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liability
|
|
|
(132,362
|
)
|
|
|
(123,186
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
106,819
|
|
|
$
|
27,771
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, we had U.S. federal and state
net operating losses of approximately $99.9 million and
$208.7 million, respectively, which begin to expire in the
year 2027 and 2015, respectively. We also had a state capital
loss of $28.7 million that will begin to expire in 2010. We
also had U.S. federal and state credits (including
$119.4 million of foreign taxes relating to foreign
unremitted earnings) of $160.5 million and
$3.0 million that will begin to expire in 2015. Included in
the $99.9 million federal net operating loss carryforward
is approximately $5.4 million related to windfall benefits
from non-qualified stock option exercises of which the entire
amount will impact equity when realized. Such windfall benefits
have been excluded from the recorded amount of deferred tax
asset for net operating losses.
Tax benefits associated with the exercise of employee stock
options and with the convertible note hedge (see
Note 10) were not recognized in years prior to 2008
due to the provisions of accounting standards for share-based
payments and the valuation allowance. These amounts were
included in our net operating losses for tax reporting purposes.
During 2009, $4.9 million of the valuation allowance was
released with the associated tax benefit being credited to
additional capital. The employee stock option deductions and
convertible note hedge deductions generated in 2009 were
utilized during the year with the tax impact being credited to
additional capital. We currently apply the tax law ordering
approach.
We adopted the guidance for accounting for uncertainty in income
taxes on January 1, 2007. A reconciliation of the beginning
and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance at January 1
|
|
$
|
53,978
|
|
|
$
|
131,558
|
|
|
$
|
141,226
|
|
Increase due to current year tax positions
|
|
|
1,327
|
|
|
|
371
|
|
|
|
1,302
|
|
Increase due to prior year tax positions
|
|
|
2,761
|
|
|
|
|
|
|
|
10,786
|
|
Decrease due to prior year tax positions
|
|
|
(1,743
|
)
|
|
|
(8,071
|
)
|
|
|
|
|
Settlements
|
|
|
(35,643
|
)
|
|
|
(69,880
|
)
|
|
|
(21,521
|
)
|
Lapse of statute of limitations
|
|
|
(1,764
|
)
|
|
|
|
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
18,916
|
|
|
$
|
53,978
|
|
|
$
|
131,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The total amount of unrecognized tax benefits that, if
recognized, would affect the effective tax rate is approximately
$15.4 million. We do not believe that it is reasonably
possible that any unrecognized tax benefits will be settled
within the next twelve months as a result of concluding various
tax matters.
Our continuing practice is to recognize interest and penalties
related to income tax matters in income tax expense. Interest
and penalties included in income tax expense for the years ended
December 31, 2009 and 2008 was a credit of
$0.2 million and $8.2 million, respectively, due to
the resolution of certain tax audits. As of December 31,
2009 and 2008, we had approximately $2.9 million and
$4.9 million, respectively, of accrued interest and
penalties related to uncertain tax positions.
We are currently under audit by the IRS for the 2007 and 2008
tax years. During 2009, the IRS examination of the
U.S. income tax returns for the years ended
December 31, 2005 and 2006 was resolved. All years prior to
2007 are closed under the statute of limitations in the United
States. In 2008, the IRS examination of the U.S. income tax
returns for the years ended December 31, 2002 through 2004
was resolved. Our significant subsidiaries are open to tax
examinations for years ending in 2002 and later.
|
|
12.
|
Pension
and Postretirement Employee Benefit Plans
|
We operate a 401(k) defined contribution retirement plan for our
employees in the United States. Under this plan employees are
allowed to contribute up to 50% of their income and we match
such contributions with 50% of the amount contributed up to 3%
of salary. Our contributions to this defined contribution plan
were $0.9 million, $1.0 million and $1.2 million
in the years ended December 31, 2009, 2008 and 2007,
respectively.
Outside the United States certain groups of our employees are
covered by defined benefit retirement and post-employment plans.
We recognize the net over-funded or under-funded financial
position of our defined benefit retirement plans in our balance
sheet. The difference between the overall funded status of each
plan and the amounts of assets and liabilities recorded in our
financial statements is charged to accumulated other
comprehensive income and represents pension costs and benefits
that will be recorded in the income statement in future years
under currently effective pension accounting rules.
84
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Below is a summary of the activity in our defined benefit
pension plans which have projected pension obligations in excess
of plan assets for the years ended December 31, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Changes in benefit obligation:
|
|
|
|
|
|
|
|
|
Balance at beginning of the year
|
|
$
|
4,387
|
|
|
$
|
5,666
|
|
Service cost
|
|
|
505
|
|
|
|
567
|
|
Interest cost
|
|
|
347
|
|
|
|
399
|
|
Plan settlements and curtailments
|
|
|
(1,794
|
)
|
|
|
(583
|
)
|
Total benefits paid
|
|
|
(1,317
|
)
|
|
|
(3,445
|
)
|
Transfer in due to business acquisition
|
|
|
1,221
|
|
|
|
|
|
Actuarial (gains) losses
|
|
|
1,551
|
|
|
|
2,697
|
|
Currency exchange and other
|
|
|
139
|
|
|
|
(914
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of the year
|
|
$
|
5,039
|
|
|
$
|
4,387
|
|
|
|
|
|
|
|
|
|
|
Changes in plan assets:
|
|
|
|
|
|
|
|
|
Balance at beginning of the year
|
|
$
|
415
|
|
|
$
|
638
|
|
Actual return on plan assets
|
|
|
14
|
|
|
|
32
|
|
Employer contributions
|
|
|
3,008
|
|
|
|
3,298
|
|
Plan settlements
|
|
|
(1,794
|
)
|
|
|
|
|
Benefits paid from plan assets
|
|
|
(1,317
|
)
|
|
|
(3,445
|
)
|
Currency exchange and other
|
|
|
16
|
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of the year
|
|
$
|
342
|
|
|
$
|
415
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations in excess of plan assets
|
|
$
|
4,697
|
|
|
$
|
3,972
|
|
|
|
|
|
|
|
|
|
|
Below is a summary of the activity in our defined benefit
pension plans which have plan assets in excess of projected
pension obligations for the years ended December 31, 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Changes in benefit obligation:
|
|
|
|
|
|
|
|
|
Balance at beginning of the year
|
|
$
|
3,454
|
|
|
$
|
4,886
|
|
Interest cost
|
|
|
238
|
|
|
|
245
|
|
Total benefits paid
|
|
|
(584
|
)
|
|
|
(175
|
)
|
Actuarial losses (gains)
|
|
|
224
|
|
|
|
(668
|
)
|
Currency exchange and other
|
|
|
542
|
|
|
|
(834
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of the year
|
|
$
|
3,874
|
|
|
$
|
3,454
|
|
|
|
|
|
|
|
|
|
|
Changes in plan assets:
|
|
|
|
|
|
|
|
|
Balance at beginning of the year
|
|
$
|
3,555
|
|
|
$
|
5,400
|
|
Actual return on plan assets
|
|
|
502
|
|
|
|
(786
|
)
|
Employer contributions
|
|
|
|
|
|
|
|
|
Benefits paid from plan assets
|
|
|
(584
|
)
|
|
|
(175
|
)
|
Currency exchange and other
|
|
|
561
|
|
|
|
(884
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of the year
|
|
$
|
4,034
|
|
|
$
|
3,555
|
|
|
|
|
|
|
|
|
|
|
Plan assets in excess of projected benefit obligations
|
|
$
|
160
|
|
|
$
|
101
|
|
|
|
|
|
|
|
|
|
|
85
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The weighted-average actuarial assumptions related to the
determination of pension liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Discount rate
|
|
|
7.87
|
%
|
|
|
7.70
|
%
|
Salary increase rate
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
The funded status of the defined benefit pension plans at
December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Surplus on plans with assets in excess of obligations
|
|
$
|
160
|
|
|
$
|
101
|
|
Deficit on plans with obligations in excess of assets
|
|
|
(4,697
|
)
|
|
|
(3,972
|
)
|
|
|
|
|
|
|
|
|
|
Net surplus/(deficit)
|
|
$
|
(4,537
|
)
|
|
$
|
(3,871
|
)
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 and 2008, the accumulated benefit
obligations of our defined benefit pension plans totaled
$8.4 million and $7.6 million, respectively, including
$4.5 million and $4.1 million, respectively, for plans
with accumulated benefit obligations in excess of plan assets.
Amounts recognized in our consolidated balance sheet and in
accumulated other comprehensive income at December 31, 2009
and 2008 that are related to defined benefit pension plans are
as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
$
|
160
|
|
|
$
|
101
|
|
Current liabilities
|
|
|
(322
|
)
|
|
|
(232
|
)
|
Non-current liabilities
|
|
|
(4,375
|
)
|
|
|
(3,740
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(4,537
|
)
|
|
$
|
(3,871
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive
income:
|
|
|
|
|
|
|
|
|
Transition obligation
|
|
$
|
(3
|
)
|
|
$
|
(22
|
)
|
Prior service cost
|
|
|
(172
|
)
|
|
|
(185
|
)
|
Net actuarial loss
|
|
|
(860
|
)
|
|
|
(950
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(1,035
|
)
|
|
$
|
(1,157
|
)
|
|
|
|
|
|
|
|
|
|
Changes in plan assets and benefit obligations recognized in
accumulated other comprehensive income during 2009 and 2008 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of the year
|
|
$
|
(1,157
|
)
|
|
$
|
(1,292
|
)
|
Actuarial (losses)/gains
|
|
|
220
|
|
|
|
(300
|
)
|
Effect of exchange rate changes and other
|
|
|
(98
|
)
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
Balance at end of the year
|
|
$
|
(1,035
|
)
|
|
$
|
(1,157
|
)
|
|
|
|
|
|
|
|
|
|
86
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pension expense related to these plans in 2009, 2008 and 2007
included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Service cost
|
|
$
|
505
|
|
|
$
|
567
|
|
|
$
|
785
|
|
Interest cost
|
|
|
586
|
|
|
|
644
|
|
|
|
506
|
|
Expected return on plan assets
|
|
|
(254
|
)
|
|
|
(361
|
)
|
|
|
(366
|
)
|
Amortization of net transition obligation
|
|
|
19
|
|
|
|
25
|
|
|
|
24
|
|
Amortization of prior service cost
|
|
|
21
|
|
|
|
28
|
|
|
|
31
|
|
Amortization of net loss
|
|
|
97
|
|
|
|
65
|
|
|
|
83
|
|
Net settlement and curtailment costs
|
|
|
1,635
|
|
|
|
2,326
|
|
|
|
1,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
2,609
|
|
|
$
|
3,294
|
|
|
$
|
2,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average actuarial assumptions related to the
determination of pension expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Discount rate
|
|
|
7.70
|
%
|
|
|
6.91
|
%
|
|
|
6.75
|
%
|
Expected return on plan assets
|
|
|
6.74
|
%
|
|
|
6.74
|
%
|
|
|
6.87
|
%
|
Salary increase rate
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
The expected rate of return on plan assets is derived with the
assistance of our investment advisors and is based on the asset
allocation mix and historical returns, taking into account
current and expected market conditions for mutual fund
investments and based on the government yields for 10 year
term bonds for investments in government bonds.
The objective of the pension plan investment policy is to grow
assets in relation to liabilities, while managing the risk of a
decrease in plan assets. The Canadian plan assets are invested
in a specialized mutual fund with a diversified mix of Canadian,
U.S. and Global equities, Canadian fixed income bonds and
cash. The primary objective of the fund is to earn a reasonable
rate of interest and dividend income, as well as moderate
capital appreciation. The Mexican plan assets are invested in an
investment fund consisting primarily of Mexican government bonds
and cash with the objective of earning a reasonable rate of
return while preserving capital and maintaining liquidity.
The fair value of pension plan assets at December 31, 2009,
utilizing the fair value hierarchy discussed in Note 15, is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Mutual fund
|
|
$
|
|
|
|
$
|
4,034
|
|
|
$
|
|
|
Non-U.S. government and corporate bonds
|
|
|
|
|
|
|
257
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
85
|
|
|
|
|
|
|
|
|
|
The amounts of pension costs included in accumulated other
comprehensive income which are expected to be recorded in income
in 2010 are as follows:
|
|
|
|
|
Unrecognized net transition obligation
|
|
$
|
(19
|
)
|
Unrecognized prior service cost
|
|
|
(22
|
)
|
Unrecognized net actuarial loss
|
|
|
(91
|
)
|
|
|
|
|
|
Total
|
|
$
|
(132
|
)
|
|
|
|
|
|
We expect to contribute approximately $0.3 million to our
defined benefit pension plans in 2010.
87
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The benefits expected to be paid from our pension benefit plans
in the years ending December 31 are as follows:
|
|
|
|
|
2010
|
|
$
|
994
|
|
2011
|
|
|
964
|
|
2012
|
|
|
841
|
|
2013
|
|
|
908
|
|
2014
|
|
|
928
|
|
2015 2019
|
|
|
3,652
|
|
|
|
13.
|
Supplemental
Cash Flow Disclosures
|
The following table sets forth the amounts of interest and
income taxes paid related to continuing operations during 2009,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Interest paid
|
|
$
|
30,223
|
|
|
$
|
28,516
|
|
|
$
|
37,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accreted interest paid
|
|
$
|
35,338
|
|
|
$
|
6,115
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
33,298
|
|
|
$
|
36,743
|
|
|
$
|
57,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2009, we issued 162,500 restricted shares of our common
stock as part of the consideration in the acquisition of PFI
(see Note 3).
|
|
14.
|
Derivatives
and Hedging Activities
|
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.
Interest Rate Swap Agreement: In January 2004,
we entered into an interest rate swap agreement with respect to
$150.0 million principal amount of the 7.0% Senior
Notes (the Interest Rate Swap), with the objective
of initially lowering our effective interest rate by exchanging
fixed rate payments for floating rate payments. The Interest
Rate Swap was designated as a fair value hedge and was deemed
perfectly effective. The Interest Rate Swap was terminated in
July 2008 in connection with the redemption of the
7.0% Senior Notes (see Note 10).
In connection with our April 2009 acquisition of Emo-Farm, we
acquired an interest rate swap with a notional amount of
7.5 million Polish Zloty (approximately $2.3 million).
This interest rate swap was terminated in August 2009.
Foreign Currency Hedge Transactions: Our
significant foreign currency exposure relates to the Polish
Zloty, the Mexican Peso, the Australian Dollar, and the Canadian
Dollar in 2009. We utilize cash flow, fair value 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. During 2008 and 2009, we entered into various
forward currency contracts to a) reduce our exposure to
forecasted 2008 and 2009 Euro and Japanese Yen denominated
royalty revenue, b) hedge our net investment in our Polish
and Brazilian subsidiaries, c) reduce our exposure to
various currencies as a result of repetitive short-term
intercompany investments and
88
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
obligations and d) reduce our Canadian subsidiarys
exposure to its investment in U.S. Dollar denominated
securities. In the aggregate, as a result of all of these
activities, an unrealized gain of $0.2 million was recorded
in the financial statements at December 31, 2009.
A more detailed description of these activities follows:
Beginning in March 2004, we entered into a series of forward
contracts to reduce exposure to variability in the Euro compared
to the U.S. Dollar (the Cash Flow Hedges). The
Cash Flow Hedges cover the Euro and Japanese Yen denominated
royalty payments on forecasted Euro and Japanese Yen royalty
revenue. The Cash Flow Hedges were designated as cash flow
hedges and were consistent with our risk management policy,
which allows for the hedging of risk associated with
fluctuations in foreign currency for anticipated future
transactions. The Cash Flow Hedges were determined to be fully
effective as a hedge in reducing the risk of the underlying
transactions. We recorded losses of $1.2 million related to
the Cash Flow Hedges in earnings for the year ended
December 31, 2008. There are no Cash Flow Hedges
outstanding at December 31, 2009 or 2008.
Polish Zloty contracts are utilized to hedge currency exposure
(the Poland Net Investment Hedge). The Poland Net
Investment Hedge has been determined to be fully effective in
reducing the risk of currency rate fluctuations with the Polish
Zloty.
Various currency contracts are utilized to hedge currency
exposure between intercompany flows denominated in foreign
currencies. We have chosen not to seek hedge accounting
treatment as these contracts are short term (less than
30 days in duration) and offset matching intercompany
exposures in selected Valeant subsidiaries.
Brazilian Real contracts are utilized to hedge currency exposure
in our Brazilian subsidiary (the Brazil Hedge). We
have chosen not to seek hedge accounting treatment for the
Brazil Hedge as any gain or loss on these contracts offset
closely any gain or loss on matching intercompany exposures in
our Brazil subsidiary.
At December 31, 2009 and 2008, there were no outstanding
Canadian Dollar contracts utilized to hedge currency exposure
for our Canadian subsidiary. Contracts outstanding during 2008
had related to an investment denominated in U.S. Dollars
(the Fair Value Hedge). The Fair Value Hedge was
determined to be fully effective in reducing the risk of
currency rate fluctuations with the Canadian Dollar.
The table below summarizes the fair value and balance sheet
location of our outstanding derivatives at December 31,
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
|
Balance
|
|
|
|
Balance
|
|
|
|
|
Notional
|
|
Sheet
|
|
Fair
|
|
Sheet
|
|
Fair
|
Description
|
|
Amount
|
|
Location
|
|
Value
|
|
Location
|
|
Value
|
|
Undesignated hedges
|
|
$
|
29,721
|
|
|
|
Other assets
|
|
|
$
|
330
|
|
|
|
Accrued liabilities
|
|
|
$
|
(334
|
)
|
Net investment derivative contracts
|
|
|
24,640
|
|
|
|
Other assets
|
|
|
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
89
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 gain 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 to changes in
the fair value of our derivative instruments for the year ended
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
Cash
|
|
|
|
|
Investment
|
|
Flow
|
|
|
Undesignated
|
|
Derivative
|
|
Derivative
|
Description
|
|
Hedges
|
|
Contracts
|
|
Contracts
|
|
Loss recognized in currency translation adjustment in other
comprehensive income
|
|
$
|
|
|
|
$
|
(2,192
|
)
|
|
$
|
|
|
Loss recognized in royalty income
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
Loss recognized in exchange gain / loss
|
|
|
(5,184
|
)
|
|
|
|
|
|
|
|
|
See Note 15 for additional information about the fair value
of our derivative instruments.
|
|
15.
|
Fair
Value Measurements
|
ASC 820 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. ASC 820 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. ASC 820 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.
90
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table provides the assets and liabilities carried
at fair value measured on a recurring basis as of
December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (Liabilities)
|
|
|
2009
|
|
2008
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Available-for-sale
securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,646
|
|
|
$
|
|
|
|
$
|
|
|
Undesignated hedges
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
157
|
|
|
|
|
|
Net investment derivative contracts
|
|
|
|
|
|
|
231
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
Available-for-sale
securities are measured at fair value using quoted market prices
and are classified within Level 1 of the valuation
hierarchy.
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 each. During
the first quarter of 2009 and the year ended December 31,
2008, we recorded $1.5 million and $4.8 million,
respectively, in charges for the
other-than-temporary
impairment of the investment fund due to sustained declines in
the value of the fund. As of December 31, 2009, this
investment was sold and we recorded a net gain on sale of
$0.2 million in the year ended December 31, 2009.
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. ASC 820 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.
|
Concentrations
of Credit Risk
|
We are exposed to concentrations of credit risk related to our
cash deposits and marketable securities. We place our cash and
cash equivalents with respected financial institutions. Our cash
and cash equivalents and marketable securities totaled
$81.9 million and $218.8 million at December 31,
2009 and 2008, respectively, and consisted of time deposits,
commercial paper and money market funds through less than ten
major financial institutions.
Other financial instruments that potentially subject us to
credit risk principally consist of royalties receivable from
Schering-Plough and trade receivables. Royalties receivable from
Schering-Plough totaled $8.9 million and $16.4 million
at December 31, 2009 and 2008, respectively. Concentrations
of credit risk from trade receivables are limited due to the
number of customers comprising our customer base, and their
dispersion across geographic areas. At December 31, 2009,
accounts receivable balances from two major customers were
$19.7 million and $15.4 million, representing 16% and
13%, respectively, of trade receivables, net. At
December 31, 2008, the accounts receivable balances from
two major customers were $20.7 million and
$13.2 million, representing 22% and 14%, respectively, of
trade receivables, net. Ongoing credit evaluations of
customers financial condition are performed and,
generally, no collateral is required. We maintain reserves for
potential credit losses and such losses, in the aggregate, have
not exceeded managements estimates.
|
|
17.
|
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.
91
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. In May 2009, our board of directors increased the
authorization to $500.0 million, over a period ending in
May 2011. Under the program, purchases may be made from time to
time on the open market, in privately negotiated transactions,
pursuant to tender offers or otherwise, including pursuant to
one or more trading plans, at times and in amounts as we see
appropriate. The 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 and regulatory requirements and alternate
investment opportunities. The securities repurchase program may
be modified or discontinued at any time.
During the year ended December 31, 2009, we purchased
$173.5 million aggregate principal amount of our
3.0% Notes and 4.0% Notes for $178.3 million,
consisting of cash consideration aggregating $171.1 million
and warrants to purchase 1,769,265 shares of our common
stock at an exercise price of $31.61 per share (see
Note 10). In total, we have purchased $206.1 million
aggregate principal amount of our 3.0% Notes and
4.0% Notes at a purchase price of $207.3 million as of
December 31, 2009, including cash and warrants. During the
year ended December 31, 2009, we purchased
6,949,932 shares of our common stock for a total of
$202.4 million. As of December 31, 2009, we have
repurchased an aggregate 7,248,893 shares of our common
stock for $208.5 million under this program.
Equity Incentive Plan: In May 2006, our
stockholders approved our 2006 Equity Incentive Plan (the
Incentive Plan), which is an amendment and
restatement of our 2003 Equity Incentive Plan. The number of
shares of common stock authorized for issuance under the
Incentive Plan was 22,304,000 in the aggregate. At
December 31, 2009, 6,892,000 shares remain available
for grant. The Incentive Plan provides for the grant of
incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock awards, restricted stock
unit awards and stock bonuses to our key employees, officers,
directors, consultants and advisors. We issue new shares for
stock option exercises and restricted stock grants. Options
granted under the Incentive Plan must have an exercise price
that is not less than 100% of the fair market value of the
common stock on the date of grant and a term not exceeding
10 years. Under the Incentive Plan, other than with respect
to options and stock appreciation rights awards, shares may be
issued as awards for which a participant pays less than the fair
market value of the common stock on the date of grant.
Generally, options vest ratably over a four-year period from the
date of grant.
92
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth information relating to the
Incentive Plan (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares under option, January 1, 2007
|
|
|
13,351
|
|
|
$
|
18.28
|
|
Granted
|
|
|
1,094
|
|
|
$
|
15.12
|
|
Exercised
|
|
|
(1,241
|
)
|
|
$
|
11.63
|
|
Canceled
|
|
|
(2,312
|
)
|
|
$
|
21.11
|
|
|
|
|
|
|
|
|
|
|
Shares under option, December 31, 2007
|
|
|
10,892
|
|
|
$
|
18.13
|
|
Granted
|
|
|
1,354
|
|
|
$
|
13.12
|
|
Exercised
|
|
|
(3,323
|
)
|
|
$
|
13.55
|
|
Canceled
|
|
|
(2,679
|
)
|
|
$
|
20.27
|
|
|
|
|
|
|
|
|
|
|
Shares under option, December 31, 2008
|
|
|
6,244
|
|
|
$
|
18.57
|
|
Granted
|
|
|
883
|
|
|
$
|
29.61
|
|
Exercised
|
|
|
(2,072
|
)
|
|
$
|
19.36
|
|
Canceled
|
|
|
(220
|
)
|
|
$
|
19.71
|
|
|
|
|
|
|
|
|
|
|
Shares under option, December 31, 2009
|
|
|
4,835
|
|
|
$
|
20.20
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
7,846
|
|
|
$
|
18.26
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008
|
|
|
4,381
|
|
|
$
|
20.45
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
2,792
|
|
|
$
|
19.98
|
|
|
|
|
|
|
|
|
|
|
Awards available for grant at December 31, 2007
|
|
|
5,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards available for grant at December 31, 2008
|
|
|
10,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards available for grant at December 31, 2009
|
|
|
6,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The schedule below reflects the number of outstanding and
exercisable options as of December 31, 2009 (in thousands,
except per share and life data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
Number
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
|
Remaining
|
|
Range of Exercise Prices
|
|
of Shares
|
|
|
Price
|
|
|
of Shares
|
|
|
Price
|
|
|
Life (years)
|
|
|
$ 8.12 - $15.47
|
|
|
1,636
|
|
|
$
|
12.86
|
|
|
|
660
|
|
|
$
|
12.95
|
|
|
|
7.33
|
|
$15.73 - $23.92
|
|
|
1,924
|
|
|
$
|
20.08
|
|
|
|
1,389
|
|
|
$
|
20.72
|
|
|
|
5.09
|
|
$24.42 - $37.41
|
|
|
1,275
|
|
|
$
|
29.78
|
|
|
|
743
|
|
|
$
|
24.82
|
|
|
|
4.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,835
|
|
|
|
|
|
|
|
2,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of options granted in 2009, 2008 and 2007 was
estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Average life of option (years)
|
|
|
5.2
|
|
|
|
5.7
|
|
|
|
5.7
|
|
Stock price volatility
|
|
|
37% - 39%
|
|
|
|
36% - 39%
|
|
|
|
35% - 37%
|
|
Expected dividend per share
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
Risk-free interest rate
|
|
|
1.82 - 2.84%
|
|
|
|
3.23 - 3.91%
|
|
|
|
4.15 - 4.76%
|
|
Weighted-average fair value of options
|
|
$
|
9.18
|
|
|
$
|
5.28
|
|
|
$
|
6.21
|
|
The aggregate intrinsic value of the stock options that are
outstanding and exercisable at December 31, 2009 was
$58.9 million and $33.0 million, respectively. The
weighted-average life of options outstanding and exercisable at
December 31, 2009 is 5.7 and 4.0 years, respectively.
During the years ended December 31, 2009, 2008 and 2007,
stock options with an aggregate intrinsic value of
$10.0 million, $18.4 million and $7.2 million,
respectively, were exercised. Intrinsic value is the in
the money valuation of the options or the difference
between market and exercise prices. The fair value of options
that vested in the years ended December 31, 2009, 2008 and
2007, as determined using the Black-Scholes valuation model, was
$3.6 million, $12.7 million and $14.4 million,
respectively.
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 on
stock options in the three months ended December 31, 2007
from 5% to 35%. As described in Note 1, during 2008, we
recorded a correction to adjust our historical estimated
forfeiture rate for actual forfeitures which took place in 2006
and 2007. The correction recorded in 2008 resulted in a
$3.7 million decrease in stock compensation expense
comprising a $0.7 million reduction in cost of goods sold,
a $1.7 million reduction in selling, general and
administrative expenses, a $1.2 million reduction in
research and development expenses and a $0.1 increase in income
from discontinued operations. The estimated forfeiture rate for
our CEO is zero.
Also in 2008, we recognized a change in estimate related to our
estimated forfeiture rate for share-based payments of
$2.8 million. This change in estimate related to
forfeitures which occurred in the second quarter of 2008
resulted in a $0.2 million reduction in cost of goods sold,
a $2.6 million reduction in selling, general and
administrative expenses and an insignificant reduction in
research and development expenses.
Restricted Stock Units: During 2009, 2008 and
2007, we granted certain executives of the company performance
based restricted stock units which vest based upon both service
and certain stock price appreciation conditions. During 2009,
2008 and 2007, we granted certain executives and employees of
the company time-vested restricted stock units which vest based
upon service conditions. During 2008, we granted certain
executives and employees of the company restricted stock units
which vest based upon both service conditions and either the
achievement of certain stock price appreciation conditions or
the achievement of certain strategic initiatives. The key
assumptions used in determining the fair value of restricted
stock units include: stock price volatility of 37%
39% and risk-free interest rates of 1.82% 2.29%.
On November 30, 2009, a restricted stock unit award was
modified in connection with an amendment to our CEOs
employment agreement. As a result, 407,498 restricted stock
units vested.
In 2009 and 2008, certain of our employees who purchased shares
of our common stock were granted restricted stock units to match
the number of shares purchased, up to a maximum aggregate number
of restricted stock units based upon a proportion of their
salary. These restricted stock units vest equally in each of the
four years following the date of grant, provided the employee
remains employed by us on the vesting date.
94
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Prior to May 12, 2009, non-employee members of our board of
directors received compensation in the form of restricted stock
units, cash retainers and meeting fees for each meeting they
attended during the year. Beginning May 12, 2009,
non-employee members of our board of directors receive an annual
fee, paid quarterly, which may be paid 100% in cash, 50% in cash
and 50% in restricted stock units or 100% in restricted stock
units, as elected by the director. During 2009, 2008 and 2007,
we granted our non-employee directors 68,339, 63,518 and 63,132
restricted stock units, respectively. The restricted stock units
granted to non-employee directors in these periods had a fair
value of $1.4 million, $1.0 million and
$1.0 million, respectively. Each restricted stock unit
granted to non-employee directors vests over one year or less,
is entitled to dividend equivalent shares and is exchanged for a
share of our common stock one year after the director ceases to
serve as a member of our Board.
As of December 31, 2009 and December 31, 2008, there
were 2,579,871 and 1,939,603 restricted stock units outstanding,
respectively. A total of 3,790,159 shares could be issued
if all performance and service conditions were met. The
following table sets forth information relating to our
restricted stock unit awards during the years ended
December 31, 2009, 2008 and 2007 (in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant
|
|
|
|
Number of
|
|
|
Date Fair
|
|
|
|
Shares
|
|
|
Value
|
|
|
Nonvested awards at January 1, 2007
|
|
|
113
|
|
|
$
|
17.34
|
|
Granted
|
|
|
679
|
|
|
$
|
14.01
|
|
Vested
|
|
|
(55
|
)
|
|
$
|
16.37
|
|
Forfeited
|
|
|
(59
|
)
|
|
$
|
14.71
|
|
|
|
|
|
|
|
|
|
|
Nonvested awards at December 31, 2007
|
|
|
678
|
|
|
$
|
14.31
|
|
Granted
|
|
|
1,665
|
|
|
$
|
14.54
|
|
Vested
|
|
|
(333
|
)
|
|
$
|
15.24
|
|
Forfeited
|
|
|
(285
|
)
|
|
$
|
15.03
|
|
|
|
|
|
|
|
|
|
|
Nonvested awards at December 31, 2008
|
|
|
1,725
|
|
|
$
|
15.31
|
|
Granted
|
|
|
1,114
|
|
|
$
|
26.33
|
|
Vested
|
|
|
(811
|
)
|
|
$
|
13.31
|
|
Forfeited
|
|
|
(87
|
)
|
|
$
|
17.84
|
|
|
|
|
|
|
|
|
|
|
Nonvested awards at December 31, 2009
|
|
|
1,941
|
|
|
$
|
20.40
|
|
|
|
|
|
|
|
|
|
|
2003 Employee Stock Purchase Plan: The Valeant
Pharmaceuticals International 2003 Employee Stock Purchase Plan
(the 2003 ESPP) provided eligible employees with an
opportunity to purchase common stock at a price equal to 85% of
the lesser of the fair market value of common stock at the
beginning or end of each semi-annual stock purchase period.
Under the 2003 ESPP, shares were issued each May 10 and
November 10. There were 7,000,000 shares of common
stock initially reserved for issuance under the 2003 ESPP, plus
an annual increase on the first day of our fiscal year,
commencing on January 1, 2005. The 2003 ESPP was terminated
effective November 11, 2008. During the years ended
December 31, 2008 and 2007, 73,503 and 78,267 shares
of common stock were issued for proceeds of $0.8 million
and $0.9 million, respectively.
2009 Stock Purchase Plan: Effective
July 1, 2009, eligible employees may purchase common stock
under the 2009 Stock Purchase Plan (the 2009 SPP) at
a price equal to the fair market value of our common stock on
the purchase date. Shares are purchased on the
10th
trading day of each January, April, July and October beginning
October 2009. There are 1,200,000 shares of our common
stock reserved for issuance under the 2009 SPP. Employees
receive restricted stock units (Matching Units)
equal to 50% of the number of shares of common stock purchased
on each purchase date. During the year ended December 31,
2009, 2,816 shares of common stock were
95
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
issued for proceeds of $0.1 million. The Matching Units
vest on the third anniversary of the date the Matching Units are
granted. During the year ended December 31, 2009, 1,391
Matching Units were granted.
A summary of stock compensation expense in continuing operations
for our stock incentive plans is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Employee stock options
|
|
$
|
4,617
|
|
|
$
|
(2,364
|
)
|
|
$
|
10,211
|
|
Employee stock purchase plan
|
|
|
|
|
|
|
182
|
|
|
|
224
|
|
Phantom and restricted stock units
|
|
|
11,504
|
|
|
|
7,246
|
|
|
|
1,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
16,121
|
|
|
$
|
5,064
|
|
|
$
|
12,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense in continuing operations was charged
to the following accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cost of goods sold
|
|
$
|
132
|
|
|
$
|
(859
|
)
|
|
$
|
555
|
|
Selling, general and administrative
|
|
|
15,705
|
|
|
|
6,545
|
|
|
|
11,087
|
|
Research and development costs
|
|
|
284
|
|
|
|
(622
|
)
|
|
|
777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
16,121
|
|
|
$
|
5,064
|
|
|
$
|
12,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the above amounts we recorded stock compensation
expense in discontinued operations related to employee stock
options of $(0.8) million and $1.0 million, in 2008
and 2007, respectively.
Future stock compensation expense for restricted stock units and
stock option incentive awards outstanding at December 31,
2009 is as follows:
|
|
|
|
|
2010
|
|
$
|
16,529
|
|
2011
|
|
|
9,269
|
|
2012
|
|
|
4,871
|
|
2013
|
|
|
2,401
|
|
Thereafter
|
|
|
467
|
|
|
|
|
|
|
|
|
$
|
33,537
|
|
|
|
|
|
|
Dividends: We did not declare and did not pay
dividends in 2009, 2008 or 2007.
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.
Additionally, we generate alliance revenue, including royalties
from the sale of ribavirin by Schering-Plough, revenue from
Mylan pursuant to an agreement with Dow, and revenues associated
with the Collaboration Agreement with GSK. We also generate
alliance revenue and service revenue from the development of
dermatological products from our Dow subsidiary, as well as
payments received from licensing of certain other products (see
Note 20).
96
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables set forth the amounts of segment revenues,
operating income, non-cash charges and capital expenditures for
the years ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals product sales
|
|
$
|
403,865
|
|
|
$
|
303,723
|
|
|
$
|
326,682
|
|
Specialty pharmaceuticals service and alliance revenue(1)
|
|
|
73,028
|
|
|
|
4,374
|
|
|
|
19,200
|
|
Branded generics Europe product sales
|
|
|
151,650
|
|
|
|
152,804
|
|
|
|
125,070
|
|
Branded generics Latin America product sales
|
|
|
155,246
|
|
|
|
136,638
|
|
|
|
151,299
|
|
Alliances (ribavirin royalties only)
|
|
|
46,672
|
|
|
|
59,438
|
|
|
|
67,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues
|
|
$
|
830,461
|
|
|
$
|
656,977
|
|
|
$
|
689,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals
|
|
$
|
165,920
|
|
|
$
|
3,778
|
|
|
$
|
14,846
|
|
Branded generics Europe
|
|
|
37,650
|
|
|
|
45,262
|
|
|
|
41,908
|
|
Branded generics Latin America
|
|
|
55,300
|
|
|
|
25,751
|
|
|
|
36,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258,870
|
|
|
|
74,791
|
|
|
|
92,972
|
|
Alliances
|
|
|
46,672
|
|
|
|
59,438
|
|
|
|
67,252
|
|
Corporate
|
|
|
(56,290
|
)
|
|
|
(60,127
|
)
|
|
|
(74,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
249,252
|
|
|
|
74,102
|
|
|
|
85,500
|
|
Special charges and credits including acquired in-process
research and development
|
|
|
(6,351
|
)
|
|
|
(186,300
|
)
|
|
|
|
|
Restructuring, asset impairments, dispositions and
acquisition-related costs
|
|
|
(10,068
|
)
|
|
|
(21,295
|
)
|
|
|
(27,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated segment operating income (loss)
|
|
|
232,833
|
|
|
|
(133,493
|
)
|
|
|
57,825
|
|
Interest income
|
|
|
4,321
|
|
|
|
17,129
|
|
|
|
17,584
|
|
Interest expense
|
|
|
(43,571
|
)
|
|
|
(45,385
|
)
|
|
|
(56,923
|
)
|
Gain (loss) on early extinguishment of debt
|
|
|
7,221
|
|
|
|
(12,994
|
)
|
|
|
|
|
Other income (expense), net including translation and exchange
|
|
|
(1,455
|
)
|
|
|
2,063
|
|
|
|
1,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
$
|
199,349
|
|
|
$
|
(172,680
|
)
|
|
$
|
20,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals
|
|
$
|
66,983
|
|
|
$
|
45,747
|
|
|
$
|
53,377
|
|
Branded generics Europe
|
|
|
9,593
|
|
|
|
9,985
|
|
|
|
7,737
|
|
Branded generics Latin America
|
|
|
6,327
|
|
|
|
7,224
|
|
|
|
6,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,903
|
|
|
|
62,956
|
|
|
|
67,979
|
|
Corporate
|
|
|
3,478
|
|
|
|
3,524
|
|
|
|
3,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
86,381
|
|
|
$
|
66,480
|
|
|
$
|
71,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals
|
|
$
|
7,183
|
|
|
$
|
5,288
|
|
|
$
|
4,649
|
|
Branded generics Europe
|
|
|
7,592
|
|
|
|
7,063
|
|
|
|
12,080
|
|
Branded generics Latin America
|
|
|
2,938
|
|
|
|
4,085
|
|
|
|
10,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,713
|
|
|
|
16,436
|
|
|
|
27,120
|
|
Corporate
|
|
|
2,334
|
|
|
|
139
|
|
|
|
2,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,047
|
|
|
$
|
16,575
|
|
|
$
|
29,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Specialty pharmaceuticals service and alliance revenue consists
of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Service revenue
|
|
$
|
22,389
|
|
|
$
|
|
|
|
$
|
|
|
1% clindamycin and 5% benzoyl peroxide gel (IDP-111) profit share
|
|
|
18,073
|
|
|
|
|
|
|
|
|
|
Other royalties
|
|
|
11,230
|
|
|
|
|
|
|
|
|
|
License payments
|
|
|
6,817
|
|
|
|
|
|
|
|
19,200
|
|
GSK Collaboration
|
|
|
14,519
|
|
|
|
4,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty pharmaceuticals services and alliance revenue
|
|
$
|
73,028
|
|
|
$
|
4,374
|
|
|
$
|
19,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and asset impairment charges and IPR&D are
not included in the applicable segments as management excludes
these items in assessing the financial performance of these
segments, primarily due to their non-operational nature. Stock
and stock option compensation is considered a corporate cost
since the amount of such charges depends on corporate-wide
performance rather than the operating performance of any single
segment.
The following table sets forth net revenues by geographic area
for the years ended December 31, 2009, 2008 and 2007.
Revenues are classified based on geographic location of the
customers, or for certain exported products and license revenue,
by country of domicile.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
357,745
|
|
|
$
|
223,773
|
|
|
$
|
243,969
|
|
Mexico
|
|
|
121,413
|
|
|
|
104,531
|
|
|
|
119,131
|
|
Poland
|
|
|
116,381
|
|
|
|
113,431
|
|
|
|
92,001
|
|
Other
|
|
|
234,922
|
|
|
|
215,242
|
|
|
|
234,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
830,461
|
|
|
$
|
656,977
|
|
|
$
|
689,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Sales to McKesson Corporation and its affiliates in the U.S.,
Canada and Mexico for the years ended December 31, 2009,
2008 and 2007 were 21%, 24% and 24%, respectively, of our total
consolidated product net sales. Sales to Cardinal Healthcare in
the U.S. for the years ended December 31, 2009, 2008
and 2007 were 14%, 17% and 12%, respectively, of our total
consolidated product net sales. No other country, or single
customer, generated over 10% of our total product net sales.
The following table sets forth total assets by segment as of
December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals
|
|
$
|
699,354
|
|
|
$
|
692,734
|
|
Branded generics Europe
|
|
|
184,862
|
|
|
|
219,234
|
|
Branded generics Latin America
|
|
|
161,372
|
|
|
|
103,573
|
|
Alliances
|
|
|
8,905
|
|
|
|
16,436
|
|
Corporate
|
|
|
250,986
|
|
|
|
153,955
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,305,479
|
|
|
$
|
1,185,932
|
|
|
|
|
|
|
|
|
|
|
Geographic information for long-lived assets, which is based
upon the physical location of the assets is as follows as of
December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Long-lived Assets
|
|
|
|
|
|
|
|
|
Poland
|
|
$
|
56,225
|
|
|
$
|
47,720
|
|
Mexico
|
|
|
36,845
|
|
|
|
14,923
|
|
Canada
|
|
|
14,386
|
|
|
|
7,887
|
|
U.S.
|
|
|
10,459
|
|
|
|
12,820
|
|
Other
|
|
|
8,896
|
|
|
|
6,878
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
126,811
|
|
|
$
|
90,228
|
|
|
|
|
|
|
|
|
|
|
In 1995, we entered into an exclusive license and supply
agreement with Schering-Plough (the License
Agreement). Under the License Agreement, Schering-Plough
licensed all oral forms of ribavirin for the treatment of
chronic hepatitis C. The FDA granted Schering-Plough
approval for Peg-Intron (pegylated interferon alfa-2b) for use
in combination therapy with Rebetol for the treatment of chronic
hepatitis C in patients with compensated liver disease who
are at least 18 years of age. Schering-Plough markets the
combination therapy in the United States, Europe, Japan, and
many other countries around the world based on the U.S. and
European Union regulatory approvals. Schering-Plough has
launched a generic version of ribavirin. Under the license and
supply agreement, Schering-Plough is obligated to pay us
royalties for sales of their generic ribavirin.
In November 2000, we entered into an agreement that provides
Schering-Plough with certain rights to license various products
we may develop (the 2000 Agreement). Under the terms
of the 2000 Agreement, Schering-Plough has the option to
exclusively license on a worldwide basis up to three compounds
that we may develop for the treatment of hepatitis C on
terms specified in the agreement. The option does not apply to
taribavirin. The option is exercisable as to a particular
compound at any time prior to the start of Phase II
clinical studies for that compound. Once it exercises the option
with respect to a compound, Schering-Plough is required to take
over all developmental costs and responsibility for regulatory
approval for that compound. Under the agreement, we would
receive royalty revenues based on the sales of licensed products.
99
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Under the terms of the 2000 Agreement, we also granted
Schering-Plough and an affiliate rights of first/last refusal to
license compounds relating to the treatment of infectious
disease (other than hepatitis C) or cancer or other
oncology indications as well as rights of first/last refusal
with respect to taribavirin (collectively, the Refusal
Rights). Under the terms of the Refusal Rights, if we
intend to offer a license or other rights with respect to any of
these compounds to a third party, we are required to notify
Schering-Plough. At Schering-Ploughs request, we are
required to first negotiate in good faith with Schering-Plough
on an exclusive basis the terms of a mutually acceptable
exclusive worldwide license or other form of agreement on
commercial terms to be mutually agreed upon. If we cannot reach
an agreement with Schering-Plough, we are permitted to negotiate
a license agreement or other arrangement with a third party.
Prior to entering into any final arrangement with the third
party, we are required to offer substantially similar terms to
Schering-Plough, which terms Schering-Plough has the right to
match.
If Schering-Plough does not exercise its option or Refusal
Rights as to a particular compound, we may continue to develop
that compound or license that compound to other third parties.
The 2000 Agreement will terminate the later of 12 years
from the date of the agreement or the termination of the 1995
License Agreement with Schering-Plough. The 2000 Agreement was
entered into as part of the resolution of claims asserted by
Schering-Plough against us, including claims regarding our
alleged improper hiring of former Schering-Plough research and
development personnel and claims that we were not permitted to
conduct hepatitis C research.
We entered into a licensing agreement effective in January 2007,
with Schering Corporation for the assignment and license of
development and commercialization rights to pradefovir, which we
licensed from Metabasis Therapeutics, Inc.
(Metabasis). Schering-Ploughs license of these
rights from us was negotiated pursuant to the 2000 Agreement.
Schering-Plough returned these rights to Metabasis in September
2007 after the results of a long-term preclinical study were
released.
In May 2009, we entered into an exclusive option agreement with
Schering Corporation and Schering-Plough (together
SP) for taribavirin in Japan. Under the terms of the
option agreement, we granted SP an option to enter into an
exclusive license agreement for the development and
commercialization of taribavirin in Japan. In exchange for the
exclusive option, SP agreed to waive and release its right of
last refusal on taribavirin under the 2000 Agreement. Upon
exercising the option and entering into the exclusive license
agreement, SP would provide us with a $2.0 million upfront
payment and pay mid-single digit royalties on net sales of
taribavirin in Japan.
Dow has entered into license agreements with third parties for
patent protected formulations developed by Dow. We receive
royalties under the terms of these license agreements beginning
in January 2009.
In June 2009, we entered into an exclusive license agreement
with Endo Pharmaceuticals Inc. that grants us an exclusive
license to develop and commercialize Opana and Opana ER in
Canada, Australia and New Zealand (the Opana
Territory). Regulatory approval must be received prior to
any sale of the licensed products. Under the terms of the
license agreement, we will pay royalties ranging from 10% to 20%
of net sales, as well as milestone payments upon achievement of
certain sales levels of licensed products in the Opana Territory.
In September 2009, we entered into license agreements with Meda,
granting Meda the right to sell Cesamet in the U.S. and two
dermatology products in Europe. Under the terms of the license
agreements, we will receive royalties on the net sale of these
products in the respective territories.
Alliance revenue includes the royalties received from the sale
of ribavirin, licensing payments received and revenues
associated with the Collaboration Agreement with GSK. Beginning
in January 2009, we earn royalty income from patent protected
formulations developed by Dow and licensed to third parties. In
2009, we received $6.8 million in initial fees pursuant to
licensing agreements for various products. Beginning in the
third quarter of 2009, we receive profit sharing payments equal
to a majority portion of the net profits on the sale of 1%
clindamycin and 5% benzoyl peroxide gel by Mylan. We will also
receive future royalty payments on Medas net sales of two
100
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
dermatology products in Europe pursuant to license agreements
entered into with Meda. We received a licensing payment of
$19.2 million in 2007 from Schering-Plough as a payment for
the licensing of pradefovir.
The following table provides the details of our alliance revenue
in 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Ribavirin royalty
|
|
$
|
46,672
|
|
|
$
|
59,438
|
|
|
$
|
67,252
|
|
1% clindamycin and 5% benzoyl peroxide gel (IDP-111) profit share
|
|
|
18,073
|
|
|
|
|
|
|
|
|
|
Other royalties
|
|
|
11,230
|
|
|
|
|
|
|
|
|
|
License payments
|
|
|
6,817
|
|
|
|
|
|
|
|
19,200
|
|
GSK Collaboration
|
|
|
14,519
|
|
|
|
4,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total alliance revenue
|
|
$
|
97,311
|
|
|
$
|
63,812
|
|
|
$
|
86,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.
|
Commitments
and Contingencies
|
We are involved in several legal proceedings, including the
following matters:
SEC Investigation: We are the subject of a
Formal Order of Investigation with respect to events and
circumstances surrounding trading in our common stock, the
public release of data from our first pivotal Phase III
trial for taribavirin in March 2006, statements made in
connection with the public release of data and matters regarding
our stock option grants since January 1, 2000 and our
restatement of certain historical financial statements announced
in March 2008. In September 2006, our board of directors
established a Special Committee to review our historical stock
option practices and related accounting, and informed the SEC of
these efforts. We have cooperated fully and will continue to
cooperate with the SEC in its investigation. We cannot predict
the outcome of the investigation.
Permax Product Liability Cases: On
August 27, 2008, we were served complaints in six separate
cases by plaintiffs Prentiss and Carol Harvey; Robert and
Barbara Branson; Dan and Mary Ellen Leach; Eugene and Bertha
Nelson; Beverly Polin; and Ira and Michael Price against Eli
Lilly and Company and Valeant Pharmaceuticals International in
Superior Court, Orange County, California (the California
Permax Actions). The California Actions were consolidated
under the heading of Branson v. Eli Lilly and Company, et
al. On September 15, 2008, we were served a complaint in a
case captioned Linda R. OBrien v. Eli Lilly and
Company, Valeant Pharmaceuticals International, Amarin
Corporation, plc, Amarin Pharmaceuticals, Inc., Elan
Pharmaceuticals, Inc., Athena Neurosciences, Inc., Teva
Pharmaceutical Industries, Ltd., Par Pharmaceutical Companies,
Inc., and Ivax Corporation in the Circuit Court of the
11th Judicial Circuit, Miami-Dade County, Florida. On
March 24, 2009, we were named as a defendant in the
following cases: Richard Andrew Baker v. Eli Lilly and
Company, Valeant Pharmaceuticals International, Amarin
Corporation, plc, Amarin Pharmaceuticals, Inc., Elan
Pharmaceuticals, Inc., Athena Neurosciences, Inc., Par
Pharmaceutical Companies, Inc., Pfizer, Inc. and Pharmacia
Corporation in the United States District Court for the Northern
District of Ohio, Eastern Division; Edwin Elling v. Eli
Lilly and Company, Valeant Pharmaceuticals International, Amarin
Corporation, plc, Amarin Pharmaceuticals, Inc., Elan
Pharmaceuticals, Inc. and Athena Neurosciences, Inc. in the
United Stated District Court for the Northern District of Texas,
Ft. Worth Division; and Judith LaVois v. Eli Lilly and
Company, Valeant Pharmaceuticals International, Amarin
Corporation, plc, Amarin Pharmaceuticals, Inc., Elan
Pharmaceuticals, Inc., Athena Neurosciences, Inc. and Teva
Pharmaceuticals USA, Inc. in the United States District Court
for the Southern District of Texas, Houston Division. On
March 25, 2009, we were named as a defendant in a case
captioned Penny M. Hagerman v. Eli Lilly and Company,
Valeant Pharmaceuticals International, Amarin Corporation, plc,
Amarin Pharmaceuticals, Inc., Elan Pharmaceuticals, Inc., and
Athena Neurosciences, Inc. in the United States District Court
for the District of Colorado. Eli Lilly, initial holder of the
right granted by the FDA to market and sell Permax in the United
101
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
States, which right was licensed to Amarin and assigned to
Valeant, and the source of the manufactured product, has also
been named in the suits. On January 15, 2010, we reached an
agreement in principle with plaintiffs to settle the
OBrien, Baker, Elling, LaVois and Hagerman matters. We are
currently finalizing those settlements. We are in the process of
defending the California Permax Actions. In addition to the
lawsuits described above, we have received, and from time to
time receive, communications from third parties relating to
potential claims that may be asserted with respect to Permax.
Eli Lilly: On January 12, 2009, we were
served a complaint in an action captioned Eli Lilly and
Company v. Valeant Pharmaceuticals International, Case
No. 1:08-cv-1720-SEB-TAB
in the U.S. District Court for the Southern District of
Indiana, Indianapolis Division (the Lilly Action).
In the Lilly Action, Lilly 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.
On March 2, 2009, we filed counterclaims against Lilly for
declaratory judgment and indemnification. On August 24,
2009, Lilly filed a motion for partial summary judgment. The
Court has ordered that Valeant is entitled to take additional
discovery related to Lillys motion for partial summary
judgment prior to responding. We are in the process of defending
the Lilly Action, and discovery is ongoing.
Spear Pharmaceuticals, Inc.: On
December 17, 2007, Spear Pharmaceuticals, Inc. and Spear
Dermatology Products, Inc. filed a complaint in federal court
for the District of Delaware, Case
No. 07-821
(the Delaware Action), against Valeant and
investment firm William Blair & Company, LLC.
Plaintiffs allege that while William Blair was engaged in
connection with the possible sale of plaintiffs generic
tretinoin business, plaintiffs disclosed to William Blair the
development of generic Efudex in their product pipeline.
Plaintiffs further allege that William Blair, while under
confidentiality obligations to plaintiffs, shared such
information with Valeant and that Valeant then filed a Citizen
Petition with the FDA requesting that any abbreviated new drug
application for generic Efudex include a study on superficial
basal cell carcinoma. Arguing that Valeants Citizen
Petition caused the FDA to delay approval of their generic
Efudex, plaintiffs seek damages for Valeants alleged
breach of contract, trade secret misappropriation and unjust
enrichment, in addition to other causes of action against
William Blair.
On April 11, 2008, the FDA approved an Abbreviated New Drug
Application (ANDA) for a 5% fluorouracil cream
sponsored by Spear Pharmaceuticals. 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 (the California Action), 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. On
September 14, 2009, the Court ruled in favor of Spear and
the FDA. On October 19, 2009, we filed a notice to appeal.
On January 7, 2010, we reached an agreement with Spear to
settle both the Delaware Action and the California Action. On
February 10, 2010, we voluntarily dismissed our appeal
relating to the California
102
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Action, with the parties cooperating to reopen the action solely
for the purpose of obtaining a ruling on Spears motion to
execute on a collateralized bond posted by us in connection with
the TRO. On February 12, 2010, the Delaware Action was
dismissed with prejudice.
Tolmar Matter: On or around January 19,
2009, Tolmar, Inc. (Tolmar) notified Galderma
Laboratories, L.P. and us that it had submitted an ANDA,
No. 090-903,
with the FDA seeking approval for the commercial manufacture,
use and sale of its Metronidazole Topical Gel, 1% (the
Tolmar Product) prior to the expiration of
U.S. Patent Nos. 6,881,726 (the 726
patent) and 7,348,317 (the 317 patent). The
726 and 317 patents are owned by Dow, and licensed
to Galderma. The ANDA contains a Paragraph IV certification
alleging that the claims of the 726 and 317 patents
will not be infringed by the manufacture, use, importation, sale
or offer for sale of the Tolmar Product. On March 3, 2009,
Galderma Laboratories, L.P., Galderma S.A., and Dow filed a
complaint against Tolmar for the patent infringement of the
726 and 317 patents, pending in the United States
District Court for the Northern District of Texas, Dallas
Division. On April 20, 2009, Tolmar filed an answer and
counterclaims that included declaratory judgment actions for
non-infringement and invalidity. No trial date has been set.
This lawsuit was filed within forty-five days of Tolmars
Paragraph IV certification. As a result, The Hatch-Waxman
Act provides an automatic stay on the FDAs final approval
of Tolmars ANDA for thirty months, which will expire in
July 2011, or until a decision by the district, whichever is
earlier.
Novel ANDA Patent Certification Notice: On or
around June 12, 2009, we received a notice from Novel
Laboratories, Inc. (Novel) advising us that Novel
had filed with the FDA an ANDA for Diastat AcuDial,
5 mg/mL, 2 mL pre-filled syringe and 4 mL pre-filled
syringe. This ANDA contained a Paragraph IV certification
against our Orange Book listed patent, U.S. Patent
No. 5,462,740 (the 740 Patent). The
45-day
period after the receipt of the notice, during which period we
may file a Hatch-Waxman suit against Novel, has expired.
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.
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.
Robert A. Ingram was Vice Chairman Pharmaceuticals of GSK from
January 2008 through December 31, 2009. Mr. Ingram has
been elected to our board of directors since 2003. In 2008,
Mr. Ingram became our boards lead director. Stephen
F. Stefano was Senior Vice President of GSKs Payor Markets
Division from January 2001 through November 2009. Effective
March 25, 2009, Mr. Stefano was elected by our board
of directors to fill an open board position in the class
expiring in 2010. See Note 4 for discussion of the
Collaboration Agreement with GSK.
Anders Lönner has been the Group President and Chief
Executive Officer of Meda since 1999, and serves on Medas
board of directors. Effective January 7, 2009,
Mr. Lönner was elected by our board of directors to
fill an open board position in the class expiring in 2011. See
Notes 6 and 19 for discussion of transactions with Meda.
103
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
23.
|
Condensed
Consolidating Financial Information
|
In June 2009 we issued Senior Notes that are fully,
unconditionally and jointly and severally guaranteed by certain
of our 100% owned subsidiaries. We are required to present
condensed consolidating financial information in accordance with
the criteria established for parent companies in the SECs
Regulation S-X,
Rule 3-10.
The following condensed consolidating financial information
presents the results of operations, financial position and cash
flows of Valeant Pharmaceuticals International
(VPI), its Guarantor subsidiaries, its non-Guarantor
subsidiaries and the eliminations necessary to arrive at the
information on a consolidated basis as of December 31, 2009
and 2008 and for the years ended December 31, 2009, 2008
and 2007.
104
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Balance Sheet
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
26,182
|
|
|
$
|
41,898
|
|
|
$
|
|
|
|
$
|
68,080
|
|
Marketable securities
|
|
|
|
|
|
|
13,781
|
|
|
|
4
|
|
|
|
|
|
|
|
13,785
|
|
Accounts receivable, net
|
|
|
|
|
|
|
80,443
|
|
|
|
90,706
|
|
|
|
(141
|
)
|
|
|
171,008
|
|
Intercompany receivables
|
|
|
|
|
|
|
93,488
|
|
|
|
32,128
|
|
|
|
(125,616
|
)
|
|
|
|
|
Inventories, net
|
|
|
|
|
|
|
21,159
|
|
|
|
85,086
|
|
|
|
(345
|
)
|
|
|
105,900
|
|
Prepaid expenses and other current assets
|
|
|
116
|
|
|
|
12,700
|
|
|
|
3,773
|
|
|
|
|
|
|
|
16,589
|
|
Current deferred tax assets, net
|
|
|
|
|
|
|
69,917
|
|
|
|
7,351
|
|
|
|
|
|
|
|
77,268
|
|
Income taxes receivable
|
|
|
|
|
|
|
1,630
|
|
|
|
1,954
|
|
|
|
|
|
|
|
3,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
116
|
|
|
|
319,300
|
|
|
|
262,900
|
|
|
|
(126,102
|
)
|
|
|
456,214
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
10,437
|
|
|
|
116,374
|
|
|
|
|
|
|
|
126,811
|
|
Deferred tax assets, net
|
|
|
9,575
|
|
|
|
23,406
|
|
|
|
4,656
|
|
|
|
|
|
|
|
37,637
|
|
Goodwill
|
|
|
|
|
|
|
118,706
|
|
|
|
76,644
|
|
|
|
|
|
|
|
195,350
|
|
Intangible assets, net
|
|
|
|
|
|
|
370,988
|
|
|
|
99,358
|
|
|
|
|
|
|
|
470,346
|
|
Investment in subsidiaries
|
|
|
524,457
|
|
|
|
12,613
|
|
|
|
|
|
|
|
(537,070
|
)
|
|
|
|
|
Intercompany receivables
|
|
|
426,124
|
|
|
|
150,000
|
|
|
|
100,905
|
|
|
|
(677,029
|
)
|
|
|
|
|
Other assets
|
|
|
9,510
|
|
|
|
3,384
|
|
|
|
6,227
|
|
|
|
|
|
|
|
19,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
969,666
|
|
|
|
689,534
|
|
|
|
404,164
|
|
|
|
(1,214,099
|
)
|
|
|
849,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
969,782
|
|
|
$
|
1,008,834
|
|
|
$
|
667,064
|
|
|
$
|
(1,340,201
|
)
|
|
$
|
1,305,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$
|
|
|
|
$
|
9,426
|
|
|
$
|
27,979
|
|
|
$
|
|
|
|
$
|
37,405
|
|
Intercompany payables
|
|
|
|
|
|
|
32,127
|
|
|
|
93,489
|
|
|
|
(125,616
|
)
|
|
|
|
|
Accrued liabilities
|
|
|
|
|
|
|
165,681
|
|
|
|
50,415
|
|
|
|
(164
|
)
|
|
|
215,932
|
|
Notes payable and current portion of long-term debt
|
|
|
47,618
|
|
|
|
14
|
|
|
|
830
|
|
|
|
|
|
|
|
48,462
|
|
Deferred revenue
|
|
|
|
|
|
|
21,330
|
|
|
|
282
|
|
|
|
|
|
|
|
21,612
|
|
Income taxes payable
|
|
|
|
|
|
|
1,995
|
|
|
|
4,725
|
|
|
|
|
|
|
|
6,720
|
|
Current deferred tax liabilities, net
|
|
|
|
|
|
|
|
|
|
|
358
|
|
|
|
|
|
|
|
358
|
|
Current liabilities for uncertain tax positions
|
|
|
|
|
|
|
646
|
|
|
|
|
|
|
|
|
|
|
|
646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
47,618
|
|
|
|
231,219
|
|
|
|
178,078
|
|
|
|
(125,780
|
)
|
|
|
331,135
|
|
Long-term debt, less current portion
|
|
|
551,005
|
|
|
|
|
|
|
|
1,122
|
|
|
|
|
|
|
|
552,127
|
|
Deferred tax liabilities, net
|
|
|
|
|
|
|
|
|
|
|
7,728
|
|
|
|
|
|
|
|
7,728
|
|
Liabilities for uncertain tax positions
|
|
|
|
|
|
|
12,391
|
|
|
|
724
|
|
|
|
|
|
|
|
13,115
|
|
Intercompany payables
|
|
|
|
|
|
|
527,029
|
|
|
|
150,000
|
|
|
|
(677,029
|
)
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
23,740
|
|
|
|
6,455
|
|
|
|
|
|
|
|
30,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
551,005
|
|
|
|
563,160
|
|
|
|
166,029
|
|
|
|
(677,029
|
)
|
|
|
603,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
598,623
|
|
|
|
794,379
|
|
|
|
344,107
|
|
|
|
(802,809
|
)
|
|
|
934,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Valeant stockholders equity
|
|
|
371,159
|
|
|
|
214,455
|
|
|
|
322,937
|
|
|
|
(537,392
|
)
|
|
|
371,159
|
|
Noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
371,159
|
|
|
|
214,455
|
|
|
|
322,957
|
|
|
|
(537,392
|
)
|
|
|
371,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
969,782
|
|
|
$
|
1,008,834
|
|
|
$
|
667,064
|
|
|
$
|
(1,340,201
|
)
|
|
$
|
1,305,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Balance Sheet
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
56,280
|
|
|
$
|
143,302
|
|
|
$
|
|
|
|
$
|
199,582
|
|
Marketable securities
|
|
|
|
|
|
|
19,193
|
|
|
|
|
|
|
|
|
|
|
|
19,193
|
|
Accounts receivable, net
|
|
|
|
|
|
|
75,190
|
|
|
|
69,319
|
|
|
|
|
|
|
|
144,509
|
|
Intercompany receivables
|
|
|
|
|
|
|
95,230
|
|
|
|
309,150
|
|
|
|
(404,380
|
)
|
|
|
|
|
Inventories, net
|
|
|
|
|
|
|
23,103
|
|
|
|
50,691
|
|
|
|
(822
|
)
|
|
|
72,972
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
13,944
|
|
|
|
3,661
|
|
|
|
|
|
|
|
17,605
|
|
Current deferred tax assets, net
|
|
|
|
|
|
|
10,616
|
|
|
|
5,563
|
|
|
|
|
|
|
|
16,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
293,556
|
|
|
|
581,686
|
|
|
|
(405,202
|
)
|
|
|
470,040
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
12,820
|
|
|
|
77,408
|
|
|
|
|
|
|
|
90,228
|
|
Deferred tax assets, net
|
|
|
|
|
|
|
13,510
|
|
|
|
1,340
|
|
|
|
|
|
|
|
14,850
|
|
Goodwill
|
|
|
|
|
|
|
106,754
|
|
|
|
7,880
|
|
|
|
|
|
|
|
114,634
|
|
Intangible assets, net
|
|
|
|
|
|
|
429,907
|
|
|
|
37,888
|
|
|
|
|
|
|
|
467,795
|
|
Investment in subsidiaries
|
|
|
678,286
|
|
|
|
1,023
|
|
|
|
|
|
|
|
(679,309
|
)
|
|
|
|
|
Intercompany receivables
|
|
|
|
|
|
|
180,432
|
|
|
|
100,252
|
|
|
|
(280,684
|
)
|
|
|
|
|
Other assets
|
|
|
4,170
|
|
|
|
20,420
|
|
|
|
3,795
|
|
|
|
|
|
|
|
28,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
682,456
|
|
|
|
764,866
|
|
|
|
228,563
|
|
|
|
(959,993
|
)
|
|
|
715,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
682,456
|
|
|
$
|
1,058,422
|
|
|
$
|
810,249
|
|
|
$
|
(1,365,195
|
)
|
|
$
|
1,185,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$
|
|
|
|
$
|
26,482
|
|
|
$
|
15,156
|
|
|
$
|
|
|
|
$
|
41,638
|
|
Intercompany payables
|
|
|
|
|
|
|
309,150
|
|
|
|
95,230
|
|
|
|
(404,380
|
)
|
|
|
|
|
Accrued liabilities
|
|
|
2,660
|
|
|
|
186,070
|
|
|
|
42,720
|
|
|
|
|
|
|
|
231,450
|
|
Notes payable and current portion of long-term debt
|
|
|
|
|
|
|
204
|
|
|
|
462
|
|
|
|
|
|
|
|
666
|
|
Deferred revenue
|
|
|
|
|
|
|
14,967
|
|
|
|
448
|
|
|
|
|
|
|
|
15,415
|
|
Income taxes payable
|
|
|
|
|
|
|
(1,399
|
)
|
|
|
3,896
|
|
|
|
|
|
|
|
2,497
|
|
Current deferred tax liabilities, net
|
|
|
|
|
|
|
2,396
|
|
|
|
50
|
|
|
|
|
|
|
|
2,446
|
|
Current liabilities for uncertain tax positions
|
|
|
|
|
|
|
478
|
|
|
|
|
|
|
|
|
|
|
|
478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,660
|
|
|
|
538,348
|
|
|
|
157,962
|
|
|
|
(404,380
|
)
|
|
|
294,590
|
|
Long-term debt, less current portion
|
|
|
397,633
|
|
|
|
49
|
|
|
|
454
|
|
|
|
|
|
|
|
398,136
|
|
Deferred revenue
|
|
|
|
|
|
|
11,841
|
|
|
|
|
|
|
|
|
|
|
|
11,841
|
|
Deferred tax liabilities, net
|
|
|
|
|
|
|
(2,396
|
)
|
|
|
3,208
|
|
|
|
|
|
|
|
812
|
|
Liabilities for uncertain tax positions
|
|
|
|
|
|
|
53,425
|
|
|
|
|
|
|
|
|
|
|
|
53,425
|
|
Intercompany payables
|
|
|
30,432
|
|
|
|
100,252
|
|
|
|
150,000
|
|
|
|
(280,684
|
)
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
170,559
|
|
|
|
4,821
|
|
|
|
|
|
|
|
175,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
428,065
|
|
|
|
333,730
|
|
|
|
158,483
|
|
|
|
(280,684
|
)
|
|
|
639,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
430,725
|
|
|
|
872,078
|
|
|
|
316,445
|
|
|
|
(685,064
|
)
|
|
|
934,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Valeant stockholders equity
|
|
|
251,731
|
|
|
|
186,344
|
|
|
|
493,787
|
|
|
|
(680,131
|
)
|
|
|
251,731
|
|
Noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
251,731
|
|
|
|
186,344
|
|
|
|
493,804
|
|
|
|
(680,131
|
)
|
|
|
251,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
682,456
|
|
|
$
|
1,058,422
|
|
|
$
|
810,249
|
|
|
$
|
(1,365,195
|
)
|
|
$
|
1,185,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statements of Operations
For the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
|
|
|
$
|
302,072
|
|
|
$
|
414,893
|
|
|
$
|
(6,204
|
)
|
|
$
|
710,761
|
|
Service revenue
|
|
|
|
|
|
|
15,127
|
|
|
|
7,533
|
|
|
|
(271
|
)
|
|
|
22,389
|
|
Alliances
|
|
|
|
|
|
|
97,311
|
|
|
|
|
|
|
|
|
|
|
|
97,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
414,510
|
|
|
|
422,426
|
|
|
|
(6,475
|
)
|
|
|
830,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization)
|
|
|
|
|
|
|
49,998
|
|
|
|
149,657
|
|
|
|
(6,681
|
)
|
|
|
192,974
|
|
Cost of services
|
|
|
|
|
|
|
12,590
|
|
|
|
5,246
|
|
|
|
|
|
|
|
17,836
|
|
Selling, general and administrative
|
|
|
|
|
|
|
130,321
|
|
|
|
125,461
|
|
|
|
|
|
|
|
255,782
|
|
Research and development costs, net
|
|
|
|
|
|
|
38,717
|
|
|
|
5,554
|
|
|
|
(294
|
)
|
|
|
43,977
|
|
Special charges and credits including acquired in-process
research and development
|
|
|
|
|
|
|
4,377
|
|
|
|
1,974
|
|
|
|
|
|
|
|
6,351
|
|
Restructuring, asset impairments, dispositions and
acquisition-related costs
|
|
|
|
|
|
|
5,246
|
|
|
|
4,822
|
|
|
|
|
|
|
|
10,068
|
|
Amortization expense
|
|
|
|
|
|
|
63,148
|
|
|
|
7,492
|
|
|
|
|
|
|
|
70,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
|
|
|
|
304,397
|
|
|
|
300,206
|
|
|
|
(6,975
|
)
|
|
|
597,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
110,113
|
|
|
|
122,220
|
|
|
|
500
|
|
|
|
232,833
|
|
Other income (expense), net including translation and
exchange (1)
|
|
|
277,505
|
|
|
|
(241
|
)
|
|
|
(1,214
|
)
|
|
|
(277,505
|
)
|
|
|
(1,455
|
)
|
Gain on early extinguishment of debt
|
|
|
7,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,221
|
|
Interest income
|
|
|
|
|
|
|
4,057
|
|
|
|
9,560
|
|
|
|
(9,296
|
)
|
|
|
4,321
|
|
Interest expense
|
|
|
(42,169
|
)
|
|
|
(8,213
|
)
|
|
|
(2,485
|
)
|
|
|
9,296
|
|
|
|
(43,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
242,557
|
|
|
|
105,716
|
|
|
|
128,081
|
|
|
|
(277,005
|
)
|
|
|
199,349
|
|
Provision (benefit) for income taxes
|
|
|
(21,184
|
)
|
|
|
(68,965
|
)
|
|
|
31,879
|
|
|
|
|
|
|
|
(58,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
263,741
|
|
|
|
174,681
|
|
|
|
96,202
|
|
|
|
(277,005
|
)
|
|
|
257,619
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
|
|
|
|
5,311
|
|
|
|
814
|
|
|
|
|
|
|
|
6,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
263,741
|
|
|
|
179,992
|
|
|
|
97,016
|
|
|
|
(277,005
|
)
|
|
|
263,744
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Valeant
|
|
$
|
263,741
|
|
|
$
|
179,992
|
|
|
$
|
97,013
|
|
|
$
|
(277,005
|
)
|
|
$
|
263,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statements of Operations
For the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
|
|
|
$
|
226,621
|
|
|
$
|
377,174
|
|
|
$
|
(10,630
|
)
|
|
$
|
593,165
|
|
Alliances
|
|
|
|
|
|
|
63,812
|
|
|
|
|
|
|
|
|
|
|
|
63,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
290,433
|
|
|
|
377,174
|
|
|
|
(10,630
|
)
|
|
|
656,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization)
|
|
|
|
|
|
|
51,158
|
|
|
|
127,061
|
|
|
|
(10,303
|
)
|
|
|
167,916
|
|
Selling, general and administrative
|
|
|
|
|
|
|
137,675
|
|
|
|
140,344
|
|
|
|
|
|
|
|
278,019
|
|
Research and development costs, net
|
|
|
|
|
|
|
83,339
|
|
|
|
3,628
|
|
|
|
|
|
|
|
86,967
|
|
Special charges and credits including acquired in-process
research and development
|
|
|
|
|
|
|
186,300
|
|
|
|
|
|
|
|
|
|
|
|
186,300
|
|
Restructuring, asset impairments, dispositions and
acquisition-related costs
|
|
|
|
|
|
|
26,769
|
|
|
|
(5,474
|
)
|
|
|
|
|
|
|
21,295
|
|
Amortization expense
|
|
|
|
|
|
|
43,928
|
|
|
|
6,045
|
|
|
|
|
|
|
|
49,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
|
|
|
|
529,169
|
|
|
|
271,604
|
|
|
|
(10,303
|
)
|
|
|
790,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
(238,736
|
)
|
|
|
105,570
|
|
|
|
(327
|
)
|
|
|
(133,493
|
)
|
Other income (expense), net including translation and
exchange (1)
|
|
|
34,502
|
|
|
|
1,375
|
|
|
|
688
|
|
|
|
(34,502
|
)
|
|
|
2,063
|
|
Loss on early extinguishment of debt
|
|
|
(12,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,994
|
)
|
Interest income
|
|
|
|
|
|
|
8,141
|
|
|
|
11,169
|
|
|
|
(2,181
|
)
|
|
|
17,129
|
|
Interest expense
|
|
|
(44,395
|
)
|
|
|
(2,314
|
)
|
|
|
(857
|
)
|
|
|
2,181
|
|
|
|
(45,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(22,887
|
)
|
|
|
(231,534
|
)
|
|
|
116,570
|
|
|
|
(34,829
|
)
|
|
|
(172,680
|
)
|
Provision (benefit) for income taxes
|
|
|
17,940
|
|
|
|
(27,007
|
)
|
|
|
43,755
|
|
|
|
|
|
|
|
34,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(40,827
|
)
|
|
|
(204,527
|
)
|
|
|
72,815
|
|
|
|
(34,829
|
)
|
|
|
(207,368
|
)
|
Income (loss) from discontinued operations, net of tax
|
|
|
|
|
|
|
(44,702
|
)
|
|
|
211,250
|
|
|
|
|
|
|
|
166,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(40,827
|
)
|
|
|
(249,229
|
)
|
|
|
284,065
|
|
|
|
(34,829
|
)
|
|
|
(40,820
|
)
|
Less: Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Valeant
|
|
$
|
(40,827
|
)
|
|
$
|
(249,229
|
)
|
|
$
|
284,058
|
|
|
$
|
(34,829
|
)
|
|
$
|
(40,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statements of Operations
For the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
|
|
|
$
|
233,806
|
|
|
$
|
381,187
|
|
|
$
|
(11,942
|
)
|
|
$
|
603,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alliances
|
|
|
|
|
|
|
86,452
|
|
|
|
|
|
|
|
|
|
|
|
86,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
320,258
|
|
|
|
381,187
|
|
|
|
(11,942
|
)
|
|
|
689,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization)
|
|
|
|
|
|
|
36,339
|
|
|
|
133,317
|
|
|
|
(11,596
|
)
|
|
|
158,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
|
|
|
|
155,183
|
|
|
|
136,818
|
|
|
|
|
|
|
|
292,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development costs, net
|
|
|
|
|
|
|
94,085
|
|
|
|
3,872
|
|
|
|
|
|
|
|
97,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring, asset impairments, dispositions and
acquisition-related costs
|
|
|
|
|
|
|
12,079
|
|
|
|
15,596
|
|
|
|
|
|
|
|
27,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense
|
|
|
|
|
|
|
45,593
|
|
|
|
10,392
|
|
|
|
|
|
|
|
55,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
|
|
|
|
343,279
|
|
|
|
299,995
|
|
|
|
(11,596
|
)
|
|
|
631,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
(23,021
|
)
|
|
|
81,192
|
|
|
|
(346
|
)
|
|
|
57,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net including translation and exchange
(1)
|
|
|
35,006
|
|
|
|
(5,051
|
)
|
|
|
6,710
|
|
|
|
(35,006
|
)
|
|
|
1,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
8,784
|
|
|
|
10,347
|
|
|
|
(1,547
|
)
|
|
|
17,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(55,194
|
)
|
|
|
(785
|
)
|
|
|
(2,491
|
)
|
|
|
1,547
|
|
|
|
(56,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(20,188
|
)
|
|
|
(20,073
|
)
|
|
|
95,758
|
|
|
|
(35,352
|
)
|
|
|
20,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
|
|
|
|
(17,693
|
)
|
|
|
31,228
|
|
|
|
|
|
|
|
13,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(20,188
|
)
|
|
|
(2,380
|
)
|
|
|
64,530
|
|
|
|
(35,352
|
)
|
|
|
6,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
|
|
|
|
(33,424
|
)
|
|
|
6,628
|
|
|
|
|
|
|
|
(26,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(20,188
|
)
|
|
|
(35,804
|
)
|
|
|
71,158
|
|
|
|
(35,352
|
)
|
|
|
(20,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Valeant
|
|
$
|
(20,188
|
)
|
|
$
|
(35,804
|
)
|
|
$
|
71,156
|
|
|
$
|
(35,352
|
)
|
|
$
|
(20,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Other income (expense), net
including translation and exchange for VPI is comprised of
equity in income (loss) of consolidated subsidiaries.
|
109
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statements of Cash Flows
For the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
263,741
|
|
|
$
|
179,992
|
|
|
$
|
97,016
|
|
|
$
|
(277,005
|
)
|
|
$
|
263,744
|
|
Income from discontinued operations
|
|
|
|
|
|
|
5,311
|
|
|
|
814
|
|
|
|
|
|
|
|
6,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
263,741
|
|
|
|
174,681
|
|
|
|
96,202
|
|
|
|
(277,005
|
)
|
|
|
257,619
|
|
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities in continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
67,498
|
|
|
|
18,883
|
|
|
|
|
|
|
|
86,381
|
|
Provision for losses on accounts receivable and inventory
|
|
|
|
|
|
|
1,592
|
|
|
|
1,319
|
|
|
|
|
|
|
|
2,911
|
|
Stock compensation expense
|
|
|
|
|
|
|
16,121
|
|
|
|
|
|
|
|
|
|
|
|
16,121
|
|
Excess tax deduction from stock options exercised
|
|
|
(1,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,735
|
)
|
Translation and exchange (gains) losses, net
|
|
|
|
|
|
|
1,726
|
|
|
|
(707
|
)
|
|
|
|
|
|
|
1,019
|
|
Impairment charges and other non-cash items
|
|
|
12,496
|
|
|
|
1,425
|
|
|
|
1,045
|
|
|
|
|
|
|
|
14,966
|
|
Payments of accreted interest on long-term debt
|
|
|
(35,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,338
|
)
|
Deferred income taxes
|
|
|
(1,666
|
)
|
|
|
(98,361
|
)
|
|
|
2,374
|
|
|
|
|
|
|
|
(97,653
|
)
|
Gain on extinguishment of debt
|
|
|
(7,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,221
|
)
|
Equity in earnings of subsidiaries
|
|
|
(277,505
|
)
|
|
|
|
|
|
|
|
|
|
|
277,505
|
|
|
|
|
|
Dividends
|
|
|
88,513
|
|
|
|
|
|
|
|
|
|
|
|
(88,513
|
)
|
|
|
|
|
Change in assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
685
|
|
|
|
682
|
|
|
|
141
|
|
|
|
1,508
|
|
Inventories
|
|
|
|
|
|
|
923
|
|
|
|
(13,639
|
)
|
|
|
(477
|
)
|
|
|
(13,193
|
)
|
Prepaid expenses and other assets
|
|
|
46
|
|
|
|
3,533
|
|
|
|
(694
|
)
|
|
|
|
|
|
|
2,885
|
|
Trade payables and accrued liabilities
|
|
|
(6,046
|
)
|
|
|
20,694
|
|
|
|
(8,340
|
)
|
|
|
(164
|
)
|
|
|
6,144
|
|
Income taxes
|
|
|
|
|
|
|
2,129
|
|
|
|
(832
|
)
|
|
|
|
|
|
|
1,297
|
|
Other liabilities
|
|
|
|
|
|
|
(49,854
|
)
|
|
|
464
|
|
|
|
|
|
|
|
(49,390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from operating activities in continuing operations
|
|
|
35,285
|
|
|
|
142,792
|
|
|
|
96,757
|
|
|
|
(88,513
|
)
|
|
|
186,321
|
|
Cash flow from operating activities in discontinued operations
|
|
|
|
|
|
|
(2,768
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
35,285
|
|
|
|
140,024
|
|
|
|
96,757
|
|
|
|
(88,513
|
)
|
|
|
183,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(4,104
|
)
|
|
|
(15,943
|
)
|
|
|
|
|
|
|
(20,047
|
)
|
Proceeds from sale of assets
|
|
|
|
|
|
|
|
|
|
|
760
|
|
|
|
|
|
|
|
760
|
|
Proceeds from sale of businesses
|
|
|
|
|
|
|
3,342
|
|
|
|
|
|
|
|
|
|
|
|
3,342
|
|
Proceeds from investments
|
|
|
|
|
|
|
133,880
|
|
|
|
2,057
|
|
|
|
|
|
|
|
135,937
|
|
Purchase of investments
|
|
|
|
|
|
|
(128,184
|
)
|
|
|
(905
|
)
|
|
|
|
|
|
|
(129,089
|
)
|
Acquisition of businesses, license rights and product lines
|
|
|
|
|
|
|
(170,208
|
)
|
|
|
(158,234
|
)
|
|
|
|
|
|
|
(328,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities in continuing operations
|
|
|
|
|
|
|
(165,274
|
)
|
|
|
(172,265
|
)
|
|
|
|
|
|
|
(337,539
|
)
|
Cash flow from investing activities in discontinued operations
|
|
|
|
|
|
|
(7,063
|
)
|
|
|
2,122
|
|
|
|
|
|
|
|
(4,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(172,337
|
)
|
|
|
(170,143
|
)
|
|
|
|
|
|
|
(342,480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt and notes payable
|
|
|
(135,009
|
)
|
|
|
(121
|
)
|
|
|
(16,588
|
)
|
|
|
|
|
|
|
(151,718
|
)
|
Proceeds from issuance of long-term debt and notes payable
|
|
|
346,838
|
|
|
|
|
|
|
|
2,144
|
|
|
|
|
|
|
|
348,982
|
|
Stock option exercises and employee stock purchases
|
|
|
40,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,387
|
|
Payments of employee withholding taxes related to equity awards
|
|
|
(7,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,099
|
)
|
Excess tax deduction from stock options exercised
|
|
|
1,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,735
|
|
Purchase of treasury stock
|
|
|
(202,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(202,378
|
)
|
Intercompany and dividends
|
|
|
(79,759
|
)
|
|
|
2,336
|
|
|
|
(11,090
|
)
|
|
|
88,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities in continuing operations
|
|
|
(35,285
|
)
|
|
|
2,215
|
|
|
|
(25,534
|
)
|
|
|
88,513
|
|
|
|
29,909
|
|
Cash flow from financing activities in discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(35,285
|
)
|
|
|
2,215
|
|
|
|
(25,534
|
)
|
|
|
88,513
|
|
|
|
29,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(2,484
|
)
|
|
|
|
|
|
|
(2,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
|
|
|
|
(30,098
|
)
|
|
|
(101,404
|
)
|
|
|
|
|
|
|
(131,502
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
56,280
|
|
|
|
143,302
|
|
|
|
|
|
|
|
199,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
|
|
|
|
26,182
|
|
|
|
41,898
|
|
|
|
|
|
|
|
68,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents classified as part of discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents of continuing operations
|
|
$
|
|
|
|
$
|
26,182
|
|
|
$
|
41,898
|
|
|
$
|
|
|
|
$
|
68,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statements of Cash Flows
For the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(40,827
|
)
|
|
$
|
(249,229
|
)
|
|
$
|
284,065
|
|
|
$
|
(34,829
|
)
|
|
$
|
(40,820
|
)
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
(44,702
|
)
|
|
|
211,250
|
|
|
|
|
|
|
|
166,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(40,827
|
)
|
|
|
(204,527
|
)
|
|
|
72,815
|
|
|
|
(34,829
|
)
|
|
|
(207,368
|
)
|
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by operating activities in
continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
46,074
|
|
|
|
20,406
|
|
|
|
|
|
|
|
66,480
|
|
Provision for losses on accounts receivable and inventory
|
|
|
|
|
|
|
4,755
|
|
|
|
16,910
|
|
|
|
|
|
|
|
21,665
|
|
Stock compensation expense
|
|
|
|
|
|
|
5,064
|
|
|
|
|
|
|
|
|
|
|
|
5,064
|
|
Excess tax deduction from stock options exercised
|
|
|
(12,303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,303
|
)
|
Translation and exchange (gains), net
|
|
|
|
|
|
|
(2,041
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
(2,063
|
)
|
Impairment charges and other non-cash items
|
|
|
17,101
|
|
|
|
(4,405
|
)
|
|
|
(3,454
|
)
|
|
|
|
|
|
|
9,242
|
|
Payments of accreted interest on long-term debt
|
|
|
(6,115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,115
|
)
|
Acquired in-process research and development
|
|
|
|
|
|
|
186,300
|
|
|
|
|
|
|
|
|
|
|
|
186,300
|
|
Deferred income taxes
|
|
|
23,589
|
|
|
|
(51,947
|
)
|
|
|
4,695
|
|
|
|
|
|
|
|
(23,663
|
)
|
Loss on extinguishment of debt
|
|
|
954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
954
|
|
Equity in earnings of subsidiaries
|
|
|
(34,502
|
)
|
|
|
|
|
|
|
|
|
|
|
34,502
|
|
|
|
|
|
Dividends
|
|
|
327,116
|
|
|
|
|
|
|
|
|
|
|
|
(327,116
|
)
|
|
|
|
|
Change in assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
(6,138
|
)
|
|
|
17,176
|
|
|
|
|
|
|
|
11,038
|
|
Inventories
|
|
|
|
|
|
|
(6,573
|
)
|
|
|
(15,208
|
)
|
|
|
(588
|
)
|
|
|
(22,369
|
)
|
Prepaid expenses and other assets
|
|
|
(115
|
)
|
|
|
9,156
|
|
|
|
476
|
|
|
|
|
|
|
|
9,517
|
|
Trade payables and accrued liabilities
|
|
|
|
|
|
|
21,458
|
|
|
|
27,653
|
|
|
|
|
|
|
|
49,111
|
|
Income taxes
|
|
|
|
|
|
|
18,192
|
|
|
|
14,650
|
|
|
|
|
|
|
|
32,842
|
|
Other liabilities
|
|
|
|
|
|
|
91,554
|
|
|
|
(9,231
|
)
|
|
|
|
|
|
|
82,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from operating activities in continuing operations
|
|
|
274,898
|
|
|
|
106,922
|
|
|
|
146,866
|
|
|
|
(328,031
|
)
|
|
|
200,655
|
|
Cash flow from operating activities in discontinued operations
|
|
|
|
|
|
|
18,034
|
|
|
|
(8,275
|
)
|
|
|
|
|
|
|
9,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
274,898
|
|
|
|
124,956
|
|
|
|
138,591
|
|
|
|
(328,031
|
)
|
|
|
210,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(1,132
|
)
|
|
|
(15,443
|
)
|
|
|
|
|
|
|
(16,575
|
)
|
Proceeds from sale of assets
|
|
|
|
|
|
|
71
|
|
|
|
900
|
|
|
|
|
|
|
|
971
|
|
Proceeds from sale of businesses
|
|
|
|
|
|
|
12,122
|
|
|
|
36,453
|
|
|
|
|
|
|
|
48,575
|
|
Proceeds from investments
|
|
|
|
|
|
|
67,849
|
|
|
|
132,953
|
|
|
|
|
|
|
|
200,802
|
|
Purchase of investments
|
|
|
|
|
|
|
(77,984
|
)
|
|
|
(77,669
|
)
|
|
|
|
|
|
|
(155,653
|
)
|
Acquisition of businesses, license rights and product lines
|
|
|
|
|
|
|
(339,360
|
)
|
|
|
(15,943
|
)
|
|
|
|
|
|
|
(355,303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities in continuing operations
|
|
|
|
|
|
|
(338,434
|
)
|
|
|
61,251
|
|
|
|
|
|
|
|
(277,183
|
)
|
Cash flow from investing activities in discontinued operations
|
|
|
|
|
|
|
71,994
|
|
|
|
375,107
|
|
|
|
|
|
|
|
447,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
|
|
|
(266,440
|
)
|
|
|
436,358
|
|
|
|
|
|
|
|
169,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt and notes payable
|
|
|
(322,870
|
)
|
|
|
(1,192
|
)
|
|
|
258
|
|
|
|
|
|
|
|
(323,804
|
)
|
Proceeds from issuance of long-term debt and notes payable
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
118
|
|
Stock option exercises and employee stock purchases
|
|
|
49,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,054
|
|
Excess tax deduction from stock options exercised
|
|
|
12,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,303
|
|
Purchase of treasury stock
|
|
|
(206,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(206,517
|
)
|
Intercompany and dividends
|
|
|
193,132
|
|
|
|
126,206
|
|
|
|
(647,369
|
)
|
|
|
328,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities in continuing operations
|
|
|
(274,898
|
)
|
|
|
125,014
|
|
|
|
(646,993
|
)
|
|
|
328,031
|
|
|
|
(468,846
|
)
|
Cash flow from financing activities in discontinued operations
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(274,898
|
)
|
|
|
124,971
|
|
|
|
(646,993
|
)
|
|
|
328,031
|
|
|
|
(468,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(21,226
|
)
|
|
|
|
|
|
|
(21,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
|
|
|
|
(16,513
|
)
|
|
|
(93,270
|
)
|
|
|
|
|
|
|
(109,783
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
72,793
|
|
|
|
236,572
|
|
|
|
|
|
|
|
309,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
|
|
|
|
56,280
|
|
|
|
143,302
|
|
|
|
|
|
|
|
199,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents classified as part of discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents of continuing operations
|
|
$
|
|
|
|
$
|
56,280
|
|
|
$
|
143,302
|
|
|
$
|
|
|
|
$
|
199,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
VALEANT
PHARMACEUTICALS INTERNATIONAL
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statements of Cash Flows
For the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(20,188
|
)
|
|
$
|
(35,804
|
)
|
|
$
|
71,158
|
|
|
$
|
(35,352
|
)
|
|
$
|
(20,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
(33,424
|
)
|
|
|
6,628
|
|
|
|
|
|
|
|
(26,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(20,188
|
)
|
|
|
(2,380
|
)
|
|
|
64,530
|
|
|
|
(35,352
|
)
|
|
|
6,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by (used in) operating
activities in continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
49,783
|
|
|
|
21,851
|
|
|
|
|
|
|
|
71,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for losses on accounts receivable and inventory
|
|
|
|
|
|
|
1,541
|
|
|
|
4,947
|
|
|
|
|
|
|
|
6,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
|
|
|
|
|
|
12,419
|
|
|
|
|
|
|
|
|
|
|
|
12,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation and exchange (gains) losses, net
|
|
|
|
|
|
|
1,568
|
|
|
|
(3,227
|
)
|
|
|
|
|
|
|
(1,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges and other non-cash items
|
|
|
16,437
|
|
|
|
1,882
|
|
|
|
11,716
|
|
|
|
|
|
|
|
30,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(1,561
|
)
|
|
|
14,377
|
|
|
|
5,306
|
|
|
|
|
|
|
|
18,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries
|
|
|
(35,006
|
)
|
|
|
|
|
|
|
|
|
|
|
35,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
21,629
|
|
|
|
1,811
|
|
|
|
|
|
|
|
23,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
(4,809
|
)
|
|
|
12,072
|
|
|
|
346
|
|
|
|
7,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
(42
|
)
|
|
|
(5,530
|
)
|
|
|
(2,267
|
)
|
|
|
|
|
|
|
(7,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables and accrued liabilities
|
|
|
|
|
|
|
(14,226
|
)
|
|
|
4,458
|
|
|
|
|
|
|
|
(9,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
|
|
|
|
(37,891
|
)
|
|
|
(19,459
|
)
|
|
|
|
|
|
|
(57,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
2,430
|
|
|
|
(1,606
|
)
|
|
|
|
|
|
|
824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from operating activities in continuing operations
|
|
|
(40,360
|
)
|
|
|
40,793
|
|
|
|
100,132
|
|
|
|
|
|
|
|
100,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from operating activities in discontinued operations
|
|
|
1,040
|
|
|
|
(28,697
|
)
|
|
|
19,613
|
|
|
|
|
|
|
|
(8,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(39,320
|
)
|
|
|
12,096
|
|
|
|
119,745
|
|
|
|
|
|
|
|
92,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(2,363
|
)
|
|
|
(26,777
|
)
|
|
|
|
|
|
|
(29,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of assets
|
|
|
|
|
|
|
37,378
|
|
|
|
1,249
|
|
|
|
|
|
|
|
38,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of businesses
|
|
|
|
|
|
|
|
|
|
|
2,453
|
|
|
|
|
|
|
|
2,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from investments
|
|
|
|
|
|
|
28,164
|
|
|
|
7,084
|
|
|
|
|
|
|
|
35,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of investments
|
|
|
|
|
|
|
(26,436
|
)
|
|
|
(46,082
|
)
|
|
|
|
|
|
|
(72,518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses, license rights and product lines
|
|
|
|
|
|
|
(21,000
|
)
|
|
|
(1,520
|
)
|
|
|
|
|
|
|
(22,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities in continuing operations
|
|
|
|
|
|
|
15,743
|
|
|
|
(63,593
|
)
|
|
|
|
|
|
|
(47,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities in discontinued operations
|
|
|
|
|
|
|
(5,135
|
)
|
|
|
13,643
|
|
|
|
|
|
|
|
8,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
|
|
|
10,608
|
|
|
|
(49,950
|
)
|
|
|
|
|
|
|
(39,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt and notes payable
|
|
|
|
|
|
|
(1,655
|
)
|
|
|
(1,839
|
)
|
|
|
|
|
|
|
(3,494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt and notes payable
|
|
|
|
|
|
|
105
|
|
|
|
1,694
|
|
|
|
|
|
|
|
1,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercises and employee stock purchases
|
|
|
15,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(99,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany
|
|
|
123,589
|
|
|
|
(34,901
|
)
|
|
|
(88,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities in continuing operations
|
|
|
39,320
|
|
|
|
(36,451
|
)
|
|
|
(88,833
|
)
|
|
|
|
|
|
|
(85,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities in discontinued operations
|
|
|
|
|
|
|
(170
|
)
|
|
|
(7,183
|
)
|
|
|
|
|
|
|
(7,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
39,320
|
|
|
|
(36,621
|
)
|
|
|
(96,016
|
)
|
|
|
|
|
|
|
(93,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
23,924
|
|
|
|
|
|
|
|
23,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
|
|
|
|
(13,917
|
)
|
|
|
(2,297
|
)
|
|
|
|
|
|
|
(16,214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
86,710
|
|
|
|
238,869
|
|
|
|
|
|
|
|
325,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
|
|
|
|
72,793
|
|
|
|
236,572
|
|
|
|
|
|
|
|
309,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents classified as part of discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(21,637
|
)
|
|
|
|
|
|
|
(21,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents of continuing operations
|
|
$
|
|
|
|
$
|
72,793
|
|
|
$
|
214,935
|
|
|
$
|
|
|
|
$
|
287,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
Other
|
|
|
|
|
|
at End
|
|
|
|
of Year
|
|
|
Expenses
|
|
|
Accounts
|
|
|
Deductions
|
|
|
of Year
|
|
|
|
(In thousands)
|
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
4,099
|
|
|
$
|
863
|
|
|
$
|
1,446
|
|
|
$
|
(1,642
|
)
|
|
$
|
4,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for inventory obsolescence
|
|
$
|
13,917
|
|
|
$
|
2,049
|
|
|
$
|
4,114
|
|
|
$
|
(8,652
|
)
|
|
$
|
11,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset valuation allowance
|
|
$
|
123,756
|
|
|
$
|
(102,515
|
)
|
|
$
|
(16,794
|
)
|
|
$
|
|
|
|
$
|
4,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
8,754
|
|
|
$
|
644
|
|
|
$
|
344
|
|
|
$
|
(5,643
|
)
|
|
$
|
4,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for inventory obsolescence
|
|
$
|
12,476
|
|
|
$
|
21,021
|
|
|
$
|
1,720
|
|
|
$
|
(21,300
|
)
|
|
$
|
13,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset valuation allowance
|
|
$
|
126,232
|
|
|
$
|
(10,373
|
)
|
|
$
|
7,897
|
|
|
$
|
|
|
|
$
|
123,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
4,926
|
|
|
$
|
3,947
|
|
|
$
|
326
|
|
|
$
|
(445
|
)
|
|
$
|
8,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for inventory obsolescence
|
|
$
|
9,778
|
|
|
$
|
2,541
|
|
|
$
|
10,751
|
|
|
$
|
(10,594
|
)
|
|
$
|
12,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset valuation allowance
|
|
$
|
120,686
|
|
|
$
|
30,654
|
|
|
$
|
(25,108
|
)
|
|
$
|
|
|
|
$
|
126,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
We maintain disclosure controls and procedures that are designed
to provide reasonable assurance that information required to be
disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms, and that such information is
accumulated and communicated to our management, including our
Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), as appropriate, to allow timely
decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management
necessarily is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our CEO and CFO,
evaluated the effectiveness of our disclosure controls and
procedures. Based on their evaluation, our CEO and CFO concluded
that the Companys disclosure controls and procedures were
effective to provide reasonable assurance as of
December 31, 2009.
Managements
Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rule 13a-15(f).
Our management, with the participation of our CEO and CFO,
conducted an evaluation of the effectiveness, as of
December 31, 2009, of our internal control over financial
reporting using the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control Integrated
Framework. Management concluded that our internal control
over financial reporting as of December 31, 2009, was
effective based on criteria in Internal Control
Integrated Framework issued by the COSO.
113
We excluded Private Formula Holdings International Pty Limited
(PFI), EMO-FARM sp. z o.o. (Emo-Farm),
Tecnofarma S.A. de C.V. (Tecnofarma) and Laboratoire
Dr. Renaud (Dr. Renaud) from our
assessment of internal control over financial reporting as of
December 31, 2009 because they were acquired by the Company
in purchase business combinations during 2009. The total assets
and total revenues of PFI, Emo-Farm, Tecnofarma and
Dr. Renaud, wholly-owned subsidiaries, represent 6%, 3%, 4%
and 2% and, 1%, 1%, 1% and 0%, respectively, of the related
consolidated financial statement amounts as of and for the year
ended December 31, 2009.
The effectiveness of our internal control over financial
reporting as of December 31, 2009 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report included in this
Annual Report on
Form 10-K.
Changes
in Internal Control over Financial Reporting
There have been no changes in our internal control over
financial reporting during the quarter ended December 31,
2009 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
114
PART III
|
|
Item 10.
|
Directors
and Executive Officers of the Registrant
|
The information required under this Item is set forth in our
definitive proxy statement to be filed in connection with our
2010 annual meeting of stockholders (the Proxy
Statement) and is incorporated by reference.
We have adopted a code of ethics that applies to our principal
executive officer, principal financial officer and principal
accounting officer. The code of ethics has been posted on our
Internet website found at www.valeant.com. We intend to
satisfy the Securities and Exchange Commission disclosure
requirements regarding amendments to, or waivers from, any
provisions of our code of ethics on our website.
|
|
Item 11.
|
Executive
Compensation
|
The information required under this Item is set forth in the
Proxy Statement and is incorporated by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required under this Item is set forth in the
Proxy Statement and is incorporated by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions
|
The information required under this Item is set forth in the
Proxy Statement and is incorporated by reference.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required under this Item is set forth in the
Proxy Statement and is incorporated by reference.
115
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
1. Financial Statements
Financial Statements of the Registrant are listed in the index
to Consolidated Financial Statements and filed under
Item 8, Financial Statements and Supplementary
Data, in this Annual Report on
Form 10-K.
2. Financial Statement Schedule
Financial Statement Schedule of the Registrant is listed in the
index to Consolidated Financial Statements and filed under
Item 8, Financial Statements and Supplementary
Data, in this Annual Report on
Form 10-K.
Schedules not listed have been omitted because the information
required therein is not applicable or is shown in the financial
statements and the notes thereto.
3. Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation, as amended to date,
previously filed as Exhibit 3.1 to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2003
(No. 03995078), which is incorporated herein by reference.
|
|
3
|
.2
|
|
Certificate of Designation, Preferences and Rights of
Series A Participating Preferred Stock, previously filed as
Exhibit 3.1 to the Registrants Current Report on
Form 8-K,
filed October 6, 2004 (No. 041068838), which is
incorporated herein by reference.
|
|
3
|
.3
|
|
Amended and Restated Bylaws of the Registrant.
|
|
4
|
.1
|
|
Form of Rights Agreement, dated as of November 2, 1994,
between the Registrant and American Stock Transfer &
Trust Company, as Trustee, previously filed as
Exhibit 4.3 to the Registrants Registration Statement
on
Form 8-A,
filed November 10, 1994 (No. 94558814), which is
incorporated herein by reference.
|
|
4
|
.2
|
|
Amendment No. 1 to Rights Agreement, dated as of
October 5, 2004, previously filed as Exhibit 4.1 to
the Registrants Current Report on
Form 8-K,
filed October 6, 2004 (No. 041068838), which is
incorporated herein by reference.
|
|
4
|
.3
|
|
Amendment No. 2 to Rights Agreement, dated as of
June 5, 2008, by and between Valeant Pharmaceuticals
International and American Transfer &
Trust Company as Rights Agent, previously filed as
Exhibit 4.3 to the Registrants Amendment No. 4
to
Form 8-A/A,
filed June 6, 2008, which is incorporated herein by
reference.
|
|
4
|
.4
|
|
Amendment No. 3 to Rights Agreement, dated as of
May 15, 2009, by and between Valeant Pharmaceuticals
International and American Transfer &
Trust Company as Rights Agent, previously filed as
Exhibit 4.4 to the Registrants Amendment No. 5
to
Form 8-A/A,
filed May 15, 2009, which is incorporated herein by
reference.
|
|
4
|
.5
|
|
Indenture, dated as of November 19, 2003, among Valeant
Pharmaceuticals International, Ribapharm Inc. and The Bank of
New York as Trustee, previously filed as to Exhibit 4.1 to
the Registrants Current Report on
Form 8-K,
filed November 25, 2003 (No. 031023410), which is
incorporated herein by reference.
|
|
4
|
.6
|
|
Indenture, dated as of June 9, 2009, by and among Valeant
Pharmaceuticals International, the Guarantors named therein and
The Bank of New York Mellon Trust Company, N.A., as
Trustee, relating to the 8.375% Senior Notes due 2016,
previously filed as Exhibit 99.2 to the Registrants
Current Report on
Form 8-K,
filed June 11, 2009, which is incorporated herein by
reference.
|
|
10
|
.1
|
|
Valeant Pharmaceuticals International 2003 Equity Incentive
Plan, previously filed as Annex B to the Registrants
Proxy Statement on Schedule 14A, filed April 25, 2003
(No. 03664139), which is incorporated herein by reference.
|
|
10
|
.2
|
|
Valeant Pharmaceuticals International 2006 Equity Incentive
Plan, as amended, previously filed as Annex E to the
Registrants Proxy Statement on Schedule 14A, filed
April 4, 2008, which is incorporated herein by reference.
|
116
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
**10
|
.3
|
|
Exclusive License and Supply Agreement between Valeant
Pharmaceuticals International and Schering-Plough Ltd., dated as
of July 28, 1995, previously filed as Exhibit 10 to
the Registrants Amendment 3 to the Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1996
(No. 97519714), which is incorporated herein by reference.
|
|
**10
|
.4
|
|
Amendment to Exclusive License and Supply Agreement between
Valeant Pharmaceuticals International and Schering-Plough Ltd.,
dated as of January 20, 1998, previously filed as
Exhibit 10.32 to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2000 (No. 1590968), as
amended by
Form 10-K/A,
which is incorporated herein by reference.
|
|
**10
|
.5
|
|
Amendment to Exclusive License and Supply Agreement between
Valeant Pharmaceuticals International and Schering-Plough Ltd.,
dated as of July 16, 1998, previously filed as
Exhibit 10.33 to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2000 (No. 1590968), as
amended by
Form 10-K/A,
which is incorporated herein by reference.
|
|
**10
|
.6
|
|
Agreement among Schering-Plough Corporation, Valeant
Pharmaceuticals International and Ribapharm Inc., dated as of
November 14, 2000, previously filed as Exhibit 10.34
to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2000 (No. 1590968), as
amended by
Form 10-K/A,
which is incorporated herein by reference.
|
|
**10
|
.7#
|
|
Asset Purchase Agreement, dated as of January 22, 2004, by
and between Xcel Pharmaceuticals, Inc. and VIATRIS GmbH and Co.
KG., previously filed as Exhibit 10.7 to the
Registrants Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2005, which is incorporated
herein by reference.
|
|
10
|
.8
|
|
Form of 3.0% Convertible Subordinated Notes due 2010,
previously filed as
Exhibit A-1
to Exhibit 4.1 to the Registrants Current Report on
Form 8-K,
filed November 25, 2003 (No. 031023410), which is
incorporated herein by reference.
|
|
10
|
.9
|
|
Form of 4.0% Convertible Subordinated Notes due 2013,
previously filed as
Exhibit A-2
to Exhibit 4.1 to the Registrants Current Report on
Form 8-K,
filed November 25, 2003 (No. 031023410), which is
incorporated herein by reference.
|
|
10
|
.10
|
|
Form of Executive Severance Agreement between Valeant
Pharmaceuticals International and Peter J. Blott (entered into
on March 28, 2007), previously filed as Exhibit 10.1
to the Registrants Current Report on
Form 8-K,
filed June 17, 2005, which is incorporated herein by
reference.
|
|
10
|
.11
|
|
Form of Restricted Stock Unit Award Agreement under the 2003
Equity Incentive Plan, previously filed as Exhibit 99.1 to
the Registrants Current Report on
Form 8-K,
filed June 27, 2006, which is incorporated herein by
reference.
|
|
10
|
.12
|
|
Form of Restricted Stock Unit Award Grant Notice for Directors
under the 2006 Equity Incentive Plan, previously filed as
Exhibit 10.1 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007, which is incorporated
herein by reference.
|
|
10
|
.13
|
|
Form of Restricted Stock Unit Award Agreement for Directors
under the 2006 Equity Incentive Plan, previously filed as
Exhibit 10.2 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007, which is incorporated
herein by reference.
|
|
**10
|
.14#
|
|
Asset Purchase Agreement, dated as of December 19, 2007,
between Three Rivers Pharmaceuticals, LLC and Valeant
Pharmaceuticals North America, previously filed as
Exhibit 10.27 to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2007, which is incorporated
herein by reference.
|
|
**10
|
.15
|
|
Side Letter, dated as of January 11, 2008, between Three
Rivers Pharmaceuticals, LLC and Valeant Pharmaceuticals North
America, previously filed as Exhibit 10.28 to the
Registrants Annual Report on
Form 10-K
for the year ended December 31, 2007, which is incorporated
herein by reference.
|
|
10
|
.16
|
|
Employment Agreement, dated as of February 1, 2008, between
Valeant Pharmaceuticals International and J. Michael Pearson,
previously filed as Exhibit 10.1 to the Registrants
Current Report on
Form 8-K,
filed February 6, 2008, which is incorporated herein by
reference.
|
|
10
|
.17
|
|
Amendment to Executive Employment Agreement, dated as of
November 30, 2009, between Valeant Pharmaceuticals
International and J. Michael Pearson, previously filed as
Exhibit 10.1 to the Registrants Current Report on
Form 8-K,
filed December 1, 2009, which is incorporated herein by
reference.
|
117
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.18#
|
|
Acquisition Agreement, dated as of August 4, 2008, between
Valeant Pharmaceuticals International and Meda AB, previously
filed as Exhibit 99.1 to the Registrants Current
Report on
Form 8-K,
filed August 5, 2008, which is incorporated herein by
reference.
|
|
10
|
.19
|
|
Asset Transfer and License Agreement, dated as of August 4,
2008, between Valeant Pharmaceuticals International and Meda AB,
previously filed as Exhibit 99.2 to the Registrants
Current Report on
Form 8-K,
filed August 5, 2008, which is incorporated herein by
reference.
|
|
10
|
.20
|
|
Performance Restricted Stock Unit and Matching RSU Award
Agreement between Valeant Pharmaceuticals International and
Peter J. Blott, previously filed as Exhibit 99.1 to the
Registrants Current Report on
Form 8-K,
filed August 27, 2008, which is incorporated herein by
reference.
|
|
**10
|
.21
|
|
License and Collaboration Agreement, dated as of August 27,
2008, between Valeant Pharmaceuticals North America and Glaxo
Group Limited, previously filed as Exhibit 10.1 to the
Registrants Current Report on
Form 8-K/A,
filed August 29, 2008, which is incorporated herein by
reference.
|
|
**10
|
.22
|
|
First Amendment to the GSK Retigabine Agreement, dated as of
February 10, 2009, between Valeant Pharmaceuticals North
America and Glaxo Group Limited, previously filed as
Exhibit 10.35 to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2008, which is incorporated
herein by reference.
|
|
**10
|
.23#
|
|
Agreement and Plan of Merger, dated as of September 16,
2008, among Coria Laboratories, Ltd., the Shareholders of Coria
Laboratories, Ltd., Valeant Pharmaceuticals International and CL
Acquisition Corp., previously filed as Exhibit 10.6 to the
Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2008, which is
incorporated herein by reference.
|
|
**10
|
.24
|
|
Amendment to the Coria Merger Agreement, dated as of
October 15, 2008, among Coria Laboratories, Ltd., the
Shareholders of Coria Laboratories, Ltd., Valeant
Pharmaceuticals International and CL Acquisition Corp.,
previously filed as Exhibit 10.7 to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2008, which is
incorporated herein by reference.
|
|
**10
|
.25#
|
|
Agreement and Plan of Merger, dated as of December 9, 2008,
by and among Valeant Pharmaceuticals International, Descartes
Acquisition Corp., Dow Pharmaceutical Sciences, Inc., and Harris
Goodman, as Stockholder Representative, previously filed as
Exhibit 2.1 to the Registrants Current Report on
Form 8-K/A,
filed May 22, 2009, which is incorporated herein by
reference.
|
|
** 10
|
.26#
|
|
Amendment No. 1 to Agreement and Plan of Merger, dated as
of September 28, 2009, by and among Valeant Pharmaceuticals
International and Harris Goodman in his capacity as the
Stockholder Representative on behalf of the Securityholders of
Dow Pharmaceutical Sciences, Inc., previously filed as
Exhibit 2.1 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2009, which is
incorporated herein by reference.
|
|
10
|
.27
|
|
Employment letter agreement, dated as of September 2, 2008,
between Valeant Pharmaceuticals International and Steve T. Min,
previously filed as Exhibit 10.39 to the Registrants
Annual Report on
Form 10-K
for the year ended December 31, 2008, which is incorporated
herein by reference.
|
|
10
|
.28
|
|
Employment letter agreement, dated as of August 25, 2008,
between Valeant Pharmaceuticals International and Elisa Karlson,
previously filed as Exhibit 10.40 to the Registrants
Annual Report on
Form 10-K
for the year ended December 31, 2008, which is incorporated
herein by reference.
|
|
10
|
.29
|
|
Employment letter agreement, dated as of December 17, 2008,
between Valeant Pharmaceuticals International and Rajiv De
Silva, previously filed as Exhibit 10.41 to the
Registrants Annual Report on
Form 10-K
for the year ended December 31, 2008, which is incorporated
herein by reference.
|
|
10
|
.30
|
|
Employment letter agreement, dated as of March 10, 2009,
between the Registrant and Bhaskar Chaudhuri, previously filed
as Exhibit 10.2 to the Registrants Quarterly Report
on
Form 10-Q
for the quarter ended March 31, 2009, which is incorporated
herein by reference.
|
|
10
|
.31
|
|
Description of Registrants annual incentive plan for
fiscal year 2009, previously described in Item 5.02 of the
Registrants Current Report on
Form 8-K,
filed March 10, 2009, which is incorporated herein by
reference.
|
118
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
**10
|
.32
|
|
Waiver, Release and Option Agreement for Taribavirin, effective
as of May 29, 2009, by and between Valeant Pharmaceuticals
International, Schering Corporation and Schering-Plough Ltd.,
previously filed as Exhibit 10.2 to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2009, which is incorporated
herein by reference.
|
|
10
|
.33
|
|
Exchange and Registration Rights Agreement, dated as of
June 9, 2009, by and among Valeant Pharmaceuticals
International, Goldman, Sachs & Co. and UBS Securities
LLC as Representative of the several Initial Purchasers named
therein and the Guarantors (as defined therein), relating to the
8.375% Senior Notes due 2016, previously filed as
Exhibit 99.1 to the Registrants Current Report on
Form 8-K,
filed June 11, 2009, which is incorporated herein by
reference.
|
|
10
|
.34
|
|
Purchase Agreement, dated as of June 3, 2009, by and among
Valeant Pharmaceuticals International, the Purchasers named in
Schedule I thereto and the Guarantors (as defined therein),
relating to the 8.375% Senior Notes due 2016, previously
filed as Exhibit 99.3 to the Registrants Current
Report on
Form 8-K,
filed June 11, 2009, which is incorporated herein by
reference.
|
|
**10
|
.35
|
|
Product Commercialization Agreement, dated as of March 14,
2008, by and between Mylan Pharmaceuticals Inc. and Dow
Pharmaceutical Sciences, Inc., previously filed as
Exhibit 10.1 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2009, which is
incorporated herein by reference.
|
|
10
|
.36
|
|
Form of Warrant issued pursuant to that certain Exchange
Agreement, dated August 13, 2009, by and among Valeant
Pharmaceuticals International and certain holders of the
Companys 3.00% Convertible Subordinated Notes due
August 16, 2010, previously filed as Exhibit 10.2 to
the Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2009, which is
incorporated herein by reference.
|
|
10
|
.37
|
|
Standstill and Board Nomination Agreement, dated as of
December 17, 2009, by and between Valeant Pharmaceuticals
International, ValueAct Capital Master Fund, L.P., VA
Partners I, LLC, ValueAct Capital Management, L.P.,
ValueAct Capital Management, LLC, ValueAct Holdings, L.P., and
ValueAct Holdings GP, LLC, and acknowledged and agreed to by
Brandon B. Boze, previously filed as Exhibit 10.1 to the
Registrants Current Report on
Form 8-K,
filed December 21, 2009, which is incorporated herein by
reference.
|
|
10
|
.38
|
|
Valeant Pharmaceuticals International 2009 Stock Purchase Plan,
previously filed as Exhibit 99.1 to the Registrants
Registration Statement on
Form S-8,
filed July 1, 2009, which is incorporated herein by
reference.
|
|
21
|
|
|
Subsidiaries of the Registrant.
|
|
23
|
|
|
Consent of PricewaterhouseCoopers LLP.
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)
under the Exchange Act and Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)
under the Exchange Act and Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
|
|
Certification of Chief Executive Officer and Chief Financial
Officer of Periodic Financial Reports pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. § 1350.
|
|
|
|
* |
|
None of the other indebtedness of the Registrant exceeds 10% of
its total consolidated assets. The Registrant will furnish
copies of the instruments relating to such other indebtedness
upon request. |
|
** |
|
Portions of this exhibit have been omitted pursuant to an Order
Granting Confidential Treatment issued by the SEC. Such
information has been omitted and filed separately with the
Securities and Exchange Commission. |
|
# |
|
One or more exhibits to this exhibit have been omitted pursuant
to Item 601(b)(2) of
Regulation S-K.
We undertake to furnish supplementally a copy of any omitted
exhibit to the SEC upon request. |
|
|
|
Management contract or compensatory plan or arrangement. |
119
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Valeant Pharmaceuticals
International
|
|
|
|
By
|
/s/ J.
Michael
Pearson
|
J. Michael Pearson
Chairman and Chief Executive Officer
Date: February 23, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ J.
Michael Pearson
J.
Michael Pearson
|
|
Chief Executive Officer and
Chairman of the Board (Principal Executive Officer)
|
|
Date: February 23, 2010
|
|
|
|
|
|
/s/ Peter
J. Blott
Peter
J. Blott
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer)
|
|
Date: February 23, 2010
|
|
|
|
|
|
/s/ Robert
A. Ingram
Robert
A. Ingram
|
|
Lead Director
|
|
Date: February 23, 2010
|
|
|
|
|
|
/s/ Richard
H. Koppes
Richard
H. Koppes
|
|
Director
|
|
Date: February 23, 2010
|
|
|
|
|
|
/s/ Lawrence
N. Kugelman
Lawrence
N. Kugelman
|
|
Director
|
|
Date: February 23, 2010
|
|
|
|
|
|
/s/ Theo
Melas-Kyriazi
Theo
Melas-Kyriazi
|
|
Director
|
|
Date: February 23, 2010
|
|
|
|
|
|
/s/ G.
Mason Morfit
G.
Mason Morfit
|
|
Director
|
|
Date: February 23, 2010
|
|
|
|
|
|
/s/ Norma
A. Provencio
Norma
A. Provencio
|
|
Director
|
|
Date: February 23, 2010
|
|
|
|
|
|
/s/ Anders
Lönner
Anders
Lönner
|
|
Director
|
|
Date: February 23, 2010
|
|
|
|
|
|
/s/ Stephen
F. Stefano
Stephen
F. Stefano
|
|
Director
|
|
Date: February 23, 2010
|
|
|
|
|
|
/s/ Brandon
B. Boze
Brandon
B. Boze
|
|
Director
|
|
Date: February 23, 2010
|
120
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation, as amended to date,
previously filed as Exhibit 3.1 to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2003
(No. 03995078), which is incorporated herein by reference.
|
|
3
|
.2
|
|
Certificate of Designation, Preferences and Rights of
Series A Participating Preferred Stock, previously filed as
Exhibit 3.1 to the Registrants Current Report on
Form 8-K,
filed October 6, 2004 (No. 041068838), which is
incorporated herein by reference.
|
|
3
|
.3
|
|
Amended and Restated Bylaws of the Registrant.
|
|
4
|
.1
|
|
Form of Rights Agreement, dated as of November 2, 1994,
between the Registrant and American Stock Transfer &
Trust Company, as Trustee, previously filed as
Exhibit 4.3 to the Registrants Registration Statement
on
Form 8-A,
filed November 10, 1994 (No. 94558814), which is
incorporated herein by reference.
|
|
4
|
.2
|
|
Amendment No. 1 to Rights Agreement, dated as of
October 5, 2004, previously filed as Exhibit 4.1 to
the Registrants Current Report on
Form 8-K,
filed October 6, 2004 (No. 041068838), which is
incorporated herein by reference.
|
|
4
|
.3
|
|
Amendment No. 2 to Rights Agreement, dated as of
June 5, 2008, by and between Valeant Pharmaceuticals
International and American Transfer &
Trust Company as Rights Agent, previously filed as
Exhibit 4.3 to the Registrants Amendment No. 4
to
Form 8-A/A,
filed June 6, 2008, which is incorporated herein by
reference.
|
|
4
|
.4
|
|
Amendment No. 3 to Rights Agreement, dated as of
May 15, 2009, by and between Valeant Pharmaceuticals
International and American Transfer &
Trust Company as Rights Agent, previously filed as
Exhibit 4.4 to the Registrants Amendment No. 5
to
Form 8-A/A,
filed May 15, 2009, which is incorporated herein by
reference.
|
|
4
|
.5
|
|
Indenture, dated as of November 19, 2003, among Valeant
Pharmaceuticals International, Ribapharm Inc. and The Bank of
New York as Trustee, previously filed as to Exhibit 4.1 to
the Registrants Current Report on
Form 8-K,
filed November 25, 2003 (No. 031023410), which is
incorporated herein by reference.
|
|
4
|
.6
|
|
Indenture, dated as of June 9, 2009, by and among Valeant
Pharmaceuticals International, the Guarantors named therein and
The Bank of New York Mellon Trust Company, N.A., as
Trustee, relating to the 8.375% Senior Notes due 2016,
previously filed as Exhibit 99.2 to the Registrants
Current Report on
Form 8-K,
filed June 11, 2009, which is incorporated herein by
reference.
|
|
10
|
.1
|
|
Valeant Pharmaceuticals International 2003 Equity Incentive
Plan, previously filed as Annex B to the Registrants
Proxy Statement on Schedule 14A, filed April 25, 2003
(No. 03664139), which is incorporated herein by reference.
|
|
10
|
.2
|
|
Valeant Pharmaceuticals International 2006 Equity Incentive
Plan, as amended, previously filed as Annex E to the
Registrants Proxy Statement on Schedule 14A, filed
April 4, 2008, which is incorporated herein by reference.
|
|
**10
|
.3
|
|
Exclusive License and Supply Agreement between Valeant
Pharmaceuticals International and Schering-Plough Ltd., dated as
of July 28, 1995, previously filed as Exhibit 10 to
the Registrants Amendment 3 to the Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1996
(No. 97519714), which is incorporated herein by reference.
|
|
**10
|
.4
|
|
Amendment to Exclusive License and Supply Agreement between
Valeant Pharmaceuticals International and Schering-Plough Ltd.,
dated as of January 20, 1998, previously filed as
Exhibit 10.32 to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2000 (No. 1590968), as
amended by
Form 10-K/A,
which is incorporated herein by reference.
|
|
**10
|
.5
|
|
Amendment to Exclusive License and Supply Agreement between
Valeant Pharmaceuticals International and Schering-Plough Ltd.,
dated as of July 16, 1998, previously filed as
Exhibit 10.33 to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2000 (No. 1590968), as
amended by
Form 10-K/A,
which is incorporated herein by reference.
|
121
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
**10
|
.6
|
|
Agreement among Schering-Plough Corporation, Valeant
Pharmaceuticals International and Ribapharm Inc., dated as of
November 14, 2000, previously filed as Exhibit 10.34
to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2000 (No. 1590968), as
amended by
Form 10-K/A,
which is incorporated herein by reference.
|
|
**10
|
.7#
|
|
Asset Purchase Agreement, dated as of January 22, 2004, by
and between Xcel Pharmaceuticals, Inc. and VIATRIS GmbH and Co.
KG., previously filed as Exhibit 10.7 to the
Registrants Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2005, which is incorporated
herein by reference.
|
|
10
|
.8
|
|
Form of 3.0% Convertible Subordinated Notes due 2010,
previously filed as
Exhibit A-1
to Exhibit 4.1 to the Registrants Current Report on
Form 8-K,
filed November 25, 2003 (No. 031023410), which is
incorporated herein by reference.
|
|
10
|
.9
|
|
Form of 4.0% Convertible Subordinated Notes due 2013,
previously filed as
Exhibit A-2
to Exhibit 4.1 to the Registrants Current Report on
Form 8-K,
filed November 25, 2003 (No. 031023410), which is
incorporated herein by reference.
|
|
10
|
.10
|
|
Form of Executive Severance Agreement between Valeant
Pharmaceuticals International and Peter J. Blott (entered into
on March 28, 2007), previously filed as Exhibit 10.1
to the Registrants Current Report on
Form 8-K,
filed June 17, 2005, which is incorporated herein by
reference.
|
|
10
|
.11
|
|
Form of Restricted Stock Unit Award Agreement under the 2003
Equity Incentive Plan, previously filed as Exhibit 99.1 to
the Registrants Current Report on
Form 8-K,
filed June 27, 2006, which is incorporated herein by
reference.
|
|
10
|
.12
|
|
Form of Restricted Stock Unit Award Grant Notice for Directors
under the 2006 Equity Incentive Plan, previously filed as
Exhibit 10.1 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007, which is incorporated
herein by reference.
|
|
10
|
.13
|
|
Form of Restricted Stock Unit Award Agreement for Directors
under the 2006 Equity Incentive Plan, previously filed as
Exhibit 10.2 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007, which is incorporated
herein by reference.
|
|
**10
|
.14#
|
|
Asset Purchase Agreement, dated as of December 19, 2007,
between Three Rivers Pharmaceuticals, LLC and Valeant
Pharmaceuticals North America, previously filed as
Exhibit 10.27 to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2007, which is incorporated
herein by reference.
|
|
**10
|
.15
|
|
Side Letter, dated as of January 11, 2008, between Three
Rivers Pharmaceuticals, LLC and Valeant Pharmaceuticals North
America, previously filed as Exhibit 10.28 to the
Registrants Annual Report on
Form 10-K
for the year ended December 31, 2007, which is incorporated
herein by reference.
|
|
10
|
.16
|
|
Employment Agreement, dated as of February 1, 2008, between
Valeant Pharmaceuticals International and J. Michael Pearson,
previously filed as Exhibit 10.1 to the Registrants
Current Report on
Form 8-K,
filed February 6, 2008, which is incorporated herein by
reference.
|
|
10
|
.17
|
|
Amendment to Executive Employment Agreement, dated as of
November 30, 2009, between Valeant Pharmaceuticals
International and J. Michael Pearson, previously filed as
Exhibit 10.1 to the Registrants Current Report on
Form 8-K,
filed December 1, 2009, which is incorporated herein by
reference.
|
|
10
|
.18#
|
|
Acquisition Agreement, dated as of August 4, 2008, between
Valeant Pharmaceuticals International and Meda AB, previously
filed as Exhibit 99.1 to the Registrants Current
Report on
Form 8-K,
filed August 5, 2008, which is incorporated herein by
reference.
|
|
10
|
.19
|
|
Asset Transfer and License Agreement, dated as of August 4,
2008, between Valeant Pharmaceuticals International and Meda AB,
previously filed as Exhibit 99.2 to the Registrants
Current Report on
Form 8-K,
filed August 5, 2008, which is incorporated herein by
reference.
|
|
10
|
.20
|
|
Performance Restricted Stock Unit and Matching RSU Award
Agreement between Valeant Pharmaceuticals International and
Peter J. Blott, previously filed as Exhibit 99.1 to the
Registrants Current Report on
Form 8-K,
filed August 27, 2008, which is incorporated herein by
reference.
|
122
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
**10
|
.21
|
|
License and Collaboration Agreement, dated as of August 27,
2008, between Valeant Pharmaceuticals North America and Glaxo
Group Limited, previously filed as Exhibit 10.1 to the
Registrants Current Report on
Form 8-K/A,
filed August 29, 2008, which is incorporated herein by
reference.
|
|
**10
|
.22
|
|
First Amendment to the GSK Retigabine Agreement, dated as of
February 10, 2009, between Valeant Pharmaceuticals North
America and Glaxo Group Limited, previously filed as
Exhibit 10.35 to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2008, which is incorporated
herein by reference.
|
|
**10
|
.23#
|
|
Agreement and Plan of Merger, dated as of September 16,
2008, among Coria Laboratories, Ltd., the Shareholders of Coria
Laboratories, Ltd., Valeant Pharmaceuticals International and CL
Acquisition Corp., previously filed as Exhibit 10.6 to the
Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2008, which is
incorporated herein by reference.
|
|
**10
|
.24
|
|
Amendment to the Coria Merger Agreement, dated as of
October 15, 2008, among Coria Laboratories, Ltd., the
Shareholders of Coria Laboratories, Ltd., Valeant
Pharmaceuticals International and CL Acquisition Corp.,
previously filed as Exhibit 10.7 to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2008, which is
incorporated herein by reference.
|
|
**10
|
.25#
|
|
Agreement and Plan of Merger, dated as of December 9, 2008,
by and among Valeant Pharmaceuticals International, Descartes
Acquisition Corp., Dow Pharmaceutical Sciences, Inc., and Harris
Goodman, as Stockholder Representative, previously filed as
Exhibit 2.1 to the Registrants Current Report on
Form 8-K/A,
filed May 22, 2009, which is incorporated herein by
reference.
|
|
** 10
|
.26#
|
|
Amendment No. 1 to Agreement and Plan of Merger, dated as
of September 28, 2009, by and among Valeant Pharmaceuticals
International and Harris Goodman in his capacity as the
Stockholder Representative on behalf of the Securityholders of
Dow Pharmaceutical Sciences, Inc., previously filed as
Exhibit 2.1 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2009, which is
incorporated herein by reference.
|
|
10
|
.27
|
|
Employment letter agreement, dated as of September 2, 2008,
between Valeant Pharmaceuticals International and Steve T. Min,
previously filed as Exhibit 10.39 to the Registrants
Annual Report on
Form 10-K
for the year ended December 31, 2008, which is incorporated
herein by reference.
|
|
10
|
.28
|
|
Employment letter agreement, dated as of August 25, 2008,
between Valeant Pharmaceuticals International and Elisa Karlson,
previously filed as Exhibit 10.40 to the Registrants
Annual Report on
Form 10-K
for the year ended December 31, 2008, which is incorporated
herein by reference.
|
|
10
|
.29
|
|
Employment letter agreement, dated as of December 17, 2008,
between Valeant Pharmaceuticals International and Rajiv De
Silva, previously filed as Exhibit 10.41 to the
Registrants Annual Report on
Form 10-K
for the year ended December 31, 2008, which is incorporated
herein by reference.
|
|
10
|
.30
|
|
Employment letter agreement, dated as of March 10, 2009,
between the Registrant and Bhaskar Chaudhuri, previously filed
as Exhibit 10.2 to the Registrants Quarterly Report
on
Form 10-Q
for the quarter ended March 31, 2009, which is incorporated
herein by reference.
|
|
10
|
.31
|
|
Description of Registrants annual incentive plan for
fiscal year 2009, previously described in Item 5.02 of the
Registrants Current Report on
Form 8-K,
filed March 10, 2009, which is incorporated herein by
reference.
|
|
**10
|
.32
|
|
Waiver, Release and Option Agreement for Taribavirin, effective
as of May 29, 2009, by and between Valeant Pharmaceuticals
International, Schering Corporation and Schering-Plough Ltd.,
previously filed as Exhibit 10.2 to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2009, which is incorporated
herein by reference.
|
|
10
|
.33
|
|
Exchange and Registration Rights Agreement, dated as of
June 9, 2009, by and among Valeant Pharmaceuticals
International, Goldman, Sachs & Co. and UBS Securities
LLC as Representative of the several Initial Purchasers named
therein and the Guarantors (as defined therein), relating to the
8.375% Senior Notes due 2016, previously filed as
Exhibit 99.1 to the Registrants Current Report on
Form 8-K,
filed June 11, 2009, which is incorporated herein by
reference.
|
123
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.34
|
|
Purchase Agreement, dated as of June 3, 2009, by and among
Valeant Pharmaceuticals International, the Purchasers named in
Schedule I thereto and the Guarantors (as defined therein),
relating to the 8.375% Senior Notes due 2016, previously
filed as Exhibit 99.3 to the Registrants Current
Report on
Form 8-K,
filed June 11, 2009, which is incorporated herein by
reference.
|
|
**10
|
.35
|
|
Product Commercialization Agreement, dated as of March 14,
2008, by and between Mylan Pharmaceuticals Inc. and Dow
Pharmaceutical Sciences, Inc., previously filed as
Exhibit 10.1 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2009, which is
incorporated herein by reference.
|
|
10
|
.36
|
|
Form of Warrant issued pursuant to that certain Exchange
Agreement, dated August 13, 2009, by and among Valeant
Pharmaceuticals International and certain holders of the
Companys 3.00% Convertible Subordinated Notes due
August 16, 2010, previously filed as Exhibit 10.2 to
the Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2009, which is
incorporated herein by reference.
|
|
10
|
.37
|
|
Standstill and Board Nomination Agreement, dated as of
December 17, 2009, by and between Valeant Pharmaceuticals
International, ValueAct Capital Master Fund, L.P., VA
Partners I, LLC, ValueAct Capital Management, L.P.,
ValueAct Capital Management, LLC, ValueAct Holdings, L.P., and
ValueAct Holdings GP, LLC, and acknowledged and agreed to by
Brandon B. Boze, previously filed as Exhibit 10.1 to the
Registrants Current Report on
Form 8-K,
filed December 21, 2009, which is incorporated herein by
reference.
|
|
10
|
.38
|
|
Valeant Pharmaceuticals International 2009 Stock Purchase Plan,
previously filed as Exhibit 99.1 to the Registrants
Registration Statement on
Form S-8,
filed July 1, 2009, which is incorporated herein by
reference.
|
|
21
|
|
|
Subsidiaries of the Registrant.
|
|
23
|
|
|
Consent of PricewaterhouseCoopers LLP.
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)
under the Exchange Act and Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)
under the Exchange Act and Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
|
|
Certification of Chief Executive Officer and Chief Financial
Officer of Periodic Financial Reports pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. § 1350.
|
|
|
|
* |
|
None of the other indebtedness of the Registrant exceeds 10% of
its total consolidated assets. The Registrant will furnish
copies of the instruments relating to such other indebtedness
upon request. |
|
** |
|
Portions of this exhibit have been omitted pursuant to an Order
Granting Confidential Treatment issued by the SEC. Such
information has been omitted and filed separately with the
Securities and Exchange Commission. |
|
# |
|
One or more exhibits to this exhibit have been omitted pursuant
to Item 601(b)(2) of
Regulation S-K.
We undertake to furnish supplementally a copy of any omitted
exhibit to the SEC upon request. |
|
|
|
Management contract or compensatory plan or arrangement. |
124