e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition
period from to
Commission file number: 1-11397
Valeant Pharmaceuticals International
(Exact name of registrant as specified in its charter)
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Delaware
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33-0628076 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
One Enterprise Aliso Viejo, California
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92656 |
(Address of principal executive offices) |
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(Zip Code) |
(949) 461-6000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
þ | |
Accelerated filer
o | |
Non-accelerated filer o | |
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 number of shares outstanding of the registrants Common Stock, $0.01 par value, as of July
30, 2010 was 75,921,797.
VALEANT PHARMACEUTICALS INTERNATIONAL
INDEX
1
INTRODUCTORY NOTE
On June 20, 2010, we entered into an
Agreement and Plan of Merger
with Biovail Corporation (Biovail), Biovail Americas Corp., a wholly owned subsidiary of
Biovail (BAC) and Beach Merger
Corp., a newly formed wholly owned subsidiary of BAC. Unless stated otherwise, all
forward-looking information contained in this Quarterly Report does not take into account or give
effect to the impact of the proposed merger. For additional details regarding the proposed merger,
see:
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Note 19 to our condensed consolidated financial statements, Commitments and Contingencies, contained in Part I, Item I of this Quarterly Report; |
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|
Note 20 to our condensed consolidated financial statements, Merger with Biovail,
contained in Part I, Item I of this Quarterly Report; |
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Managements Discussion and Analysis of Financial Condition and Results of
Operations contained in Part I, Item 2 of this Quarterly Report; and |
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Risk Factors contained in Part II,
Item 1A of this Quarterly Report. |
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
VALEANT PHARMACEUTICALS INTERNATIONAL
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2010 and December 31, 2009
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June 30, |
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December 31, |
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2010 |
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2009 |
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(Unaudited, in thousands) |
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ASSETS
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Current Assets: |
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Cash and cash equivalents |
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$ |
75,383 |
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$ |
68,080 |
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Marketable securities |
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|
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|
13,785 |
|
Accounts receivable, net |
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183,793 |
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|
171,008 |
|
Inventories, net |
|
|
134,036 |
|
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|
105,900 |
|
Assets held for sale |
|
|
1,559 |
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|
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Prepaid expenses |
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16,512 |
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16,589 |
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Current deferred tax assets, net |
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87,741 |
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77,268 |
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Income taxes receivable |
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4,166 |
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|
3,584 |
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Total current assets |
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503,190 |
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|
456,214 |
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Property, plant and equipment, net |
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|
155,208 |
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126,811 |
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Deferred tax assets, net |
|
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4,917 |
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|
37,637 |
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Goodwill |
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361,133 |
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195,350 |
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Intangible assets, net |
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840,832 |
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470,346 |
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Other assets |
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22,826 |
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19,121 |
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Total non-current assets |
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1,384,916 |
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849,265 |
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$ |
1,888,106 |
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$ |
1,305,479 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current Liabilities: |
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Trade payables |
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$ |
49,733 |
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$ |
37,405 |
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Accrued liabilities |
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228,213 |
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215,932 |
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Notes payable and current portion of long-term debt |
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82,282 |
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48,462 |
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Deferred revenue |
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17,773 |
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21,612 |
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Income taxes payable |
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10,084 |
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6,720 |
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Current deferred tax liabilities, net |
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|
759 |
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358 |
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Current liabilities for uncertain tax positions |
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646 |
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646 |
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Total current liabilities |
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389,490 |
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331,135 |
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Long-term debt, less current portion |
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955,576 |
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552,127 |
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Deferred revenue |
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|
621 |
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Deferred tax liabilities, net |
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106,930 |
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7,728 |
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Liabilities for uncertain tax positions |
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16,739 |
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13,115 |
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Other liabilities |
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65,741 |
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30,195 |
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Total non-current liabilities |
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1,145,607 |
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603,165 |
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Total liabilities |
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1,535,097 |
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934,300 |
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Commitments and contingencies |
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Stockholders Equity: |
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Common stock |
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759 |
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|
774 |
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Additional capital |
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922,936 |
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986,393 |
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Accumulated deficit |
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(573,774 |
) |
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(642,043 |
) |
Accumulated other comprehensive income |
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3,066 |
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26,035 |
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Total Valeant stockholders equity |
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352,987 |
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371,159 |
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Noncontrolling interest |
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22 |
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20 |
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Total stockholders equity |
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353,009 |
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371,179 |
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$ |
1,888,106 |
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$ |
1,305,479 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
VALEANT PHARMACEUTICALS INTERNATIONAL
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended June 30, 2010 and 2009
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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(Unaudited, in thousands, except per share data) |
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Revenues: |
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Product sales |
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$ |
219,458 |
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$ |
166,865 |
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$ |
423,965 |
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$ |
319,698 |
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Service revenue |
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4,396 |
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5,606 |
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9,356 |
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12,344 |
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Alliance revenue |
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31,720 |
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|
19,227 |
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54,244 |
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|
37,579 |
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Total revenues |
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255,574 |
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|
191,698 |
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|
487,565 |
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|
369,621 |
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Costs and expenses: |
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Cost of goods sold (excluding amortization) |
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60,638 |
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42,750 |
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114,841 |
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82,447 |
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Cost of services |
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3,279 |
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5,337 |
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6,445 |
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|
9,663 |
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Selling, general and administrative |
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73,485 |
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|
61,626 |
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144,026 |
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|
125,842 |
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Research and development costs, net |
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11,951 |
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|
9,146 |
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|
22,353 |
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|
17,880 |
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Special charges and credits |
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|
1,012 |
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|
1,974 |
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|
1,550 |
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|
|
1,974 |
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Restructuring and acquisition-related costs |
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|
10,706 |
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|
2,603 |
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|
|
11,730 |
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|
|
3,814 |
|
Amortization expense |
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|
22,335 |
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|
17,105 |
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41,665 |
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34,109 |
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|
|
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|
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|
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Total costs and expenses |
|
|
183,406 |
|
|
|
140,541 |
|
|
|
342,610 |
|
|
|
275,729 |
|
|
|
|
|
|
|
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|
|
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|
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Income from operations |
|
|
72,168 |
|
|
|
51,157 |
|
|
|
144,955 |
|
|
|
93,892 |
|
Other income (expense), net including translation and exchange |
|
|
(1,412 |
) |
|
|
(646 |
) |
|
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(1,936 |
) |
|
|
566 |
|
Gain on early extinguishment of debt |
|
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|
2,777 |
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|
|
|
|
|
|
7,376 |
|
Interest income |
|
|
387 |
|
|
|
726 |
|
|
|
846 |
|
|
|
2,560 |
|
Interest expense |
|
|
(20,558 |
) |
|
|
(8,551 |
) |
|
|
(33,648 |
) |
|
|
(16,564 |
) |
|
|
|
|
|
|
|
|
|
|
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|
Income from continuing operations before income taxes |
|
|
50,585 |
|
|
|
45,463 |
|
|
|
110,217 |
|
|
|
87,830 |
|
Provision for income taxes |
|
|
18,348 |
|
|
|
12,427 |
|
|
|
42,378 |
|
|
|
23,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
32,237 |
|
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|
33,036 |
|
|
|
67,839 |
|
|
|
63,834 |
|
Income (loss) from discontinued operations, net of tax |
|
|
17 |
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|
|
(175 |
) |
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|
432 |
|
|
|
223 |
|
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|
|
|
|
|
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Net income |
|
|
32,254 |
|
|
|
32,861 |
|
|
|
68,271 |
|
|
|
64,057 |
|
Less: Net income attributable to noncontrolling interest |
|
|
1 |
|
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|
1 |
|
|
|
2 |
|
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|
2 |
|
|
|
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|
|
|
|
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|
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Net income attributable to Valeant |
|
$ |
32,253 |
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|
$ |
32,860 |
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$ |
68,269 |
|
|
$ |
64,055 |
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|
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|
|
|
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Basic income per share attributable to Valeant: |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
Income from continuing operations attributable to Valeant |
|
$ |
0.42 |
|
|
$ |
0.40 |
|
|
$ |
0.87 |
|
|
$ |
0.77 |
|
Income from discontinued operations attributable to Valeant |
|
|
|
|
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Valeant |
|
$ |
0.42 |
|
|
$ |
0.40 |
|
|
$ |
0.88 |
|
|
$ |
0.77 |
|
|
|
|
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|
|
|
|
|
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|
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|
Diluted income per share attributable to Valeant: |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Income from continuing operations attributable to Valeant |
|
$ |
0.39 |
|
|
$ |
0.39 |
|
|
$ |
0.82 |
|
|
$ |
0.76 |
|
Income from discontinued operations attributable to Valeant |
|
|
|
|
|
|
|
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Valeant |
|
$ |
0.39 |
|
|
$ |
0.39 |
|
|
$ |
0.83 |
|
|
$ |
0.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share computation Basic |
|
|
77,136 |
|
|
|
82,794 |
|
|
|
77,797 |
|
|
|
82,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share computation Diluted |
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|
82,638 |
|
|
|
83,673 |
|
|
|
82,355 |
|
|
|
83,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
VALEANT PHARMACEUTICALS INTERNATIONAL
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and six months ended June 30, 2010 and 2009
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Three Months Ended |
|
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Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(Unaudited, in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
32,254 |
|
|
$ |
32,861 |
|
|
$ |
68,271 |
|
|
$ |
64,057 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(30,110 |
) |
|
|
26,011 |
|
|
|
(23,038 |
) |
|
|
(3,474 |
) |
Unrealized gain on marketable equity
securities |
|
|
|
|
|
|
172 |
|
|
|
|
|
|
|
172 |
|
Unrealized gain (loss) on hedges |
|
|
|
|
|
|
(155 |
) |
|
|
|
|
|
|
56 |
|
Pension liability adjustment |
|
|
93 |
|
|
|
(83 |
) |
|
|
69 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
2,237 |
|
|
$ |
58,806 |
|
|
$ |
45,302 |
|
|
$ |
60,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
VALEANT PHARMACEUTICALS INTERNATIONAL
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2010 and 2009
|
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|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Unaudited, in thousands) |
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
68,271 |
|
|
$ |
64,057 |
|
Adjustments to reconcile net income to net cash provided by operating activities in
continuing operations: |
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
(432 |
) |
|
|
(223 |
) |
Depreciation and amortization |
|
|
51,399 |
|
|
|
41,753 |
|
Provision for losses on accounts receivable and inventory |
|
|
191 |
|
|
|
1,505 |
|
Stock compensation expense |
|
|
11,749 |
|
|
|
7,703 |
|
Excess tax deduction from stock options exercised |
|
|
(3,239 |
) |
|
|
(734 |
) |
Translation and exchange (gains) losses, net |
|
|
774 |
|
|
|
(625 |
) |
Impairment charges and other non-cash items |
|
|
5,040 |
|
|
|
8,320 |
|
Payments of accreted interest on long-term debt |
|
|
|
|
|
|
(22,987 |
) |
Deferred income taxes |
|
|
13,043 |
|
|
|
(501 |
) |
Gain on extinguishment of debt |
|
|
|
|
|
|
(7,376 |
) |
Change in assets and liabilities, net of effects of acquisitions: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
3,706 |
|
|
|
11,850 |
|
Inventories |
|
|
(10,214 |
) |
|
|
(9,662 |
) |
Prepaid expenses and other assets |
|
|
3,553 |
|
|
|
4,603 |
|
Trade payables and accrued liabilities |
|
|
(13,280 |
) |
|
|
4,965 |
|
Income taxes |
|
|
5,507 |
|
|
|
2,790 |
|
Other liabilities |
|
|
(7,997 |
) |
|
|
(23,155 |
) |
|
|
|
|
|
|
|
Cash flow from operating activities in continuing operations |
|
|
128,071 |
|
|
|
82,283 |
|
Cash flow from operating activities in discontinued operations |
|
|
(11 |
) |
|
|
(2,434 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
128,060 |
|
|
|
79,849 |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(8,542 |
) |
|
|
(9,108 |
) |
Proceeds from sale of assets |
|
|
417 |
|
|
|
484 |
|
Proceeds from sale of businesses |
|
|
|
|
|
|
3,342 |
|
Proceeds from investments |
|
|
13,588 |
|
|
|
20,408 |
|
Purchase of investments |
|
|
|
|
|
|
(107,210 |
) |
Loans and advances (to) from joint ventures |
|
|
(628 |
) |
|
|
(802 |
) |
Acquisition of businesses, license rights and product lines |
|
|
(466,836 |
) |
|
|
(84,098 |
) |
|
|
|
|
|
|
|
Cash flow from investing activities in continuing operations |
|
|
(462,001 |
) |
|
|
(176,984 |
) |
Cash flow from investing activities in discontinued operations |
|
|
801 |
|
|
|
(10,610 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(461,200 |
) |
|
|
(187,594 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Payments on long-term debt and notes payable |
|
|
(8,863 |
) |
|
|
(94,301 |
) |
Proceeds from issuance of long-term debt and notes payable |
|
|
427,823 |
|
|
|
349,603 |
|
Stock option exercises and employee stock purchases |
|
|
26,847 |
|
|
|
31,445 |
|
Payments of employee withholding taxes related to equity awards |
|
|
(1,304 |
) |
|
|
|
|
Excess tax deduction from stock options exercised |
|
|
3,239 |
|
|
|
734 |
|
Purchase of treasury stock |
|
|
(106,587 |
) |
|
|
(25,706 |
) |
|
|
|
|
|
|
|
Cash flow from financing activities in continuing operations |
|
|
341,155 |
|
|
|
261,775 |
|
Cash flow from financing activities in discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
341,155 |
|
|
|
261,775 |
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(712 |
) |
|
|
(7,992 |
) |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
7,303 |
|
|
|
146,038 |
|
Cash and cash equivalents at beginning of period |
|
|
68,080 |
|
|
|
199,582 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
75,383 |
|
|
$ |
345,620 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(all amounts in thousands, except share and per share amounts, unless otherwise indicated)
1. Organization and Summary of Significant Accounting Policies
In these condensed consolidated financial statements and this Quarterly 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 Merck & Co., Inc. (Merck)
(formerly Schering-Plough), revenue from our Dow Pharmaceutical Sciences, Inc. (Dow) subsidiarys
agreement with Mylan Pharmaceuticals Inc. (Mylan), and revenues associated with the Collaboration
and License Agreement with GSK (as defined in Note 4 below). We also generate alliance revenue and
service revenue from the development of dermatological products by Dow.
Basis of Presentation: The accompanying unaudited condensed consolidated financial statements
have been prepared by us in accordance with U.S. generally accepted accounting principles (U.S.
GAAP) for interim financial information and with the rules and regulations of the Securities and
Exchange Commission (the SEC). Certain information and footnote disclosures normally included in
financial statements prepared on the basis of U.S. GAAP have been condensed or omitted pursuant to
such rules and regulations. The results of operations presented herein are not necessarily
indicative of the results to be expected for a full year. Although we believe that all adjustments
(consisting only of normal, recurring adjustments) necessary for a fair presentation of the interim
periods presented are included and that the disclosures are adequate to make the information
presented not misleading, these condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto included in our Annual
Report on Form 10-K for the year ended December 31, 2009. The year-end condensed balance sheet data
presented herein was derived from audited financial statements, but does not include all
disclosures required by U.S. GAAP.
Use of Estimates: The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to make estimates and
assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ materially from those
estimates.
Assets Held for Sale: We vacated an office building we own in Warsaw, Poland and as of June
30, 2010 classified it as held for sale.
Recent Accounting Standards:
In June 2009, the Financial Accounting Standards Board (FASB) issued authoritative guidance
that changes the consolidation guidance applicable to a variable interest entity (VIE). It also
amends the guidance governing the determination of whether an enterprise is the primary beneficiary
of a VIE, and is, therefore, required to consolidate an entity, by requiring a qualitative analysis
rather than a quantitative analysis. The qualitative analysis will include, among other things,
consideration of who has the power to direct the activities of the entity that most significantly
impact the entitys economic performance and who has the obligation to absorb losses or the right
to receive benefits of the VIE that could potentially be significant to the VIE. We adopted this
guidance on January 1, 2010. The adoption of this guidance did not have a material impact on our
consolidated financial statements.
In October 2009, the FASB issued an accounting standards update that requires entities to
allocate revenue in an arrangement using estimated selling prices of the delivered goods and
services based on a selling price hierarchy. This guidance eliminates the residual method of
revenue allocation and requires revenue to be allocated using the relative selling price method.
This guidance is effective for fiscal years ending after June 15, 2010, and may be applied
prospectively for revenue arrangements entered into or materially modified after the date of
adoption or
7
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
2. Restructuring
In March 2008, we initiated a program (the 2008 Restructuring) to reduce our geographic
footprint and product focus by restructuring our business in order to focus on the pharmaceutical
markets in our core geographies of the United States, Canada and Australia and on the branded
generics markets in Europe and Latin America. The 2008 Restructuring plan included actions to
divest our operations in markets outside of these core geographic areas through sales of
subsidiaries or assets and other strategic alternatives. In December 2008, as part of our efforts
to align our infrastructure to the scale of our operations, we exercised our option to terminate
the lease of our Aliso Viejo, California corporate headquarters as of December 2011 and as a result
recorded a lease termination penalty of $3.2 million, which will be payable in October 2011.
The following table summarizes the restructuring costs, all of which are included in the
Specialty pharmaceuticals segment, recorded in the three and six months ended June 30, 2010 and
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Employee severances (430 employees, cumulatively) |
|
$ |
(47 |
) |
|
$ |
847 |
|
|
$ |
(57 |
) |
|
$ |
1,775 |
|
Contract cancellation and other costs |
|
|
97 |
|
|
|
839 |
|
|
|
205 |
|
|
|
1,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal: cash charges |
|
|
50 |
|
|
|
1,686 |
|
|
|
148 |
|
|
|
2,869 |
|
Non-cash charges |
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring costs |
|
$ |
50 |
|
|
$ |
1,694 |
|
|
$ |
148 |
|
|
$ |
2,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010, the restructuring accrual was $5.3 million and relates primarily to
lease termination penalty and severance costs expected to be paid primarily during 2010, except for
the lease termination penalty which will be paid in 2011. A summary of accruals and expenditures of
restructuring costs which will be paid in cash is as follows:
Reconciliation of Cash Payments and Accruals
|
|
|
|
|
Restructuring accrual, December 31, 2009 |
|
$ |
6,444 |
|
Charges to earnings |
|
|
148 |
|
Cash paid |
|
|
(1,336 |
) |
|
|
|
|
Restructuring accrual, June 30, 2010 |
|
$ |
5,256 |
|
|
|
|
|
The 2008 restructuring initiatives were substantially completed in 2009. We expect to continue
to recognize costs through 2011 related to the accretion of lease termination penalty costs.
3. Acquisitions and Acquisition-Related Costs
Aton Acquisition
On May 26, 2010, we acquired all of the outstanding stock of privately-held Princeton Pharma
Holdings LLC, and its wholly owned operating subsidiary, Aton Pharma, Inc. (collectively, Aton),
a U.S.-based specialty pharmaceutical company, which is focused on ophthalmology and certain orphan
drug indications. The purchase price consisted of $317.5 million in cash, net of cash acquired,
subject to certain closing adjustments, and contingent consideration with an aggregate fair value
at acquisition of $27.1 million. The contingent consideration consists of
future milestones predominantly based upon the achievement of approval and commercial targets
for certain pipeline products in development. The range of the undiscounted amounts we could be
obligated to pay as
8
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
contingent consideration ranges from $0 to $390.0 million. The fair value of
the contingent consideration was determined based on probability-weighted payments adjusted by a
probability of success (POS) factor corresponding to the POS factor for the respective pipeline
product, then discounted using a 4% discount rate. Each reporting period, we will estimate changes
in the fair value of the contingent consideration and any change in fair value will be recognized
in our consolidated statement of operations.
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
the valuation of intangible assets and
certain contingent liabilities. The
excess of the purchase price over the estimated fair value of net assets acquired was allocated to
goodwill totaling $111.3 million, which is not deductible for
tax purposes, representing primarily the value of synergies expected
from the transaction. The following
table summarizes the estimated fair value of the net assets acquired:
|
|
|
|
|
Accounts receivable |
|
$ |
11,819 |
|
Inventories |
|
|
16,481 |
|
Other current assets |
|
|
9,078 |
|
Long-term assets |
|
|
8,892 |
|
Identifiable intangible assets: |
|
|
|
|
Developed technologies (13.3-year weighted-average useful life) |
|
|
341,300 |
|
Tradenames (5-year useful life) |
|
|
6,900 |
|
Acquired in-process research and development |
|
|
9,700 |
|
Goodwill |
|
|
111,328 |
|
Current liabilities |
|
|
(28,234 |
) |
Long-term liabilities, primarily deferred taxes |
|
|
(142,632 |
) |
|
|
|
|
Net assets acquired |
|
$ |
344,632 |
|
|
|
|
|
The acquired in-process research and development (IPR&D) represents the fair value assigned
to incomplete research projects, which at the time of the acquisition, had not reached
technological feasibility. The amounts are accounted for as indefinite-lived intangible assets,
subject to impairment testing until completion or abandonment of the projects. Upon successful
completion of each project, we will make a determination as to the useful life of the asset and
begin amortization.
VitalScience Acquisition
On May 19, 2010, we acquired all of the outstanding stock of VitalScience Corp.
(VitalScience), a privately-held over the counter (OTC) dermatology company located in Canada,
for a purchase price of approximately $9.9 million in cash, net of cash acquired. VitalScience is a
retail cosmeceuticals business, which includes the contract manufacture, distribution, sale,
research and development of skin care, body care and related specialty cosmetics products primarily
in Canada.
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,
consisting primarily of trade names and customer relationships each with useful lives of 10 years,
and certain liabilities is provisional pending finalization of the valuation of these items. Any
excess of the purchase price over the estimated fair value of net assets acquired will be allocated
to goodwill upon finalization of the valuation of intangible assets. The following table summarizes
the estimated fair value of the net assets acquired:
9
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
Current assets |
|
$ |
2,740 |
|
Long-term assets |
|
|
523 |
|
Identifiable intangible assets |
|
|
9,902 |
|
Goodwill |
|
|
2,970 |
|
Current and long-term liabilities |
|
|
(6,250 |
) |
|
|
|
|
Net assets acquired |
|
$ |
9,885 |
|
|
|
|
|
Brazil Acquisitions
On April 20, 2010, we acquired all of the outstanding stock of a privately-held pharmaceutical
company located in Brazil for a purchase price of approximately $55.0 million in cash, net of cash
acquired. The company primarily focuses on branded generics and OTC dermatological products.
On April 7, 2010, we acquired all of the outstanding stock of Instituto Terapeutico Delta Ltda
(Delta), a privately-held company located in Brazil, and additionally acquired a manufacturing
facility in Brazil for aggregate cash consideration of approximately $55.8 million, net of cash
acquired. Delta is a dermatology company whose product portfolio is primarily branded generics and
OTC products.
The purchase price for each of the acquisitions is subject to certain closing adjustments. We
accounted for the acquisitions as business combinations. 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 certain contingent liabilities. Amortizing
intangible assets aggregating $20.6 million, consist primarily of trade names with a
weighted-average amortization period of 14.4 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 $54.9 million, which is not deductible for tax
purposes. The following table summarizes the aggregate estimated fair value of the net assets
acquired:
|
|
|
|
|
Current assets |
|
$ |
22,682 |
|
Property, plant and equipment |
|
|
39,116 |
|
Other long-term assets |
|
|
316 |
|
Identifiable intangible assets |
|
|
20,631 |
|
Goodwill |
|
|
54,888 |
|
Current liabilities |
|
|
(18,476 |
) |
Long-term liabilities |
|
|
(8,363 |
) |
|
|
|
|
Net assets acquired |
|
$ |
110,794 |
|
|
|
|
|
Pro forma Results of Operations
The results of operations for each of the acquisitions discussed above are included in the
consolidated statements of operations from their respective acquisition dates. We do not consider
the historical results of operations of VitalScience or our Brazil acquisitions to be material to
our historical consolidated results of operations, either individually or in the aggregate.
Accordingly, the supplemental pro forma information presented below does not include any
adjustments related to these acquisitions.
Aton contributed revenues of $9.9 million and net income of $1.9 million in the six months
ended June 30, 2010. The following pro forma results of operations for the six months ended June
30, 2010 assume the Aton acquisition had occurred on January 1, 2010, and for the six months ended
June 30, 2009 assume the Aton acquisition had occurred on January 1, 2009. The pro forma results of
operations reflect the application of the following adjustments:
|
|
|
Additional amortization expense that would have been recognized assuming fair value
adjustments to intangible assets;
|
10
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
Additional interest expense and financing costs that would have been incurred on
borrowing arrangements and loss of interest income on cash and short-term investments
used to fund the acquisition; |
|
|
|
Elimination of $1.1 million incurred in the six months ended June 30, 2010, related
to the fair value adjustment to acquisition-date inventory that has been sold, which is
considered non-recurring. There is no long-term continuing impact of the fair value
adjustments to acquisition-date inventory, and, as such, the impact of those adjustments
is not reflected in the pro forma operating results; and |
|
|
|
Elimination of transaction and integration costs totaling $3.2 million associated
with the acquisition, which do not have a continuing impact on the consolidated
operating results. |
In addition, all of the above adjustments were adjusted for the applicable income tax impact.
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
Revenues |
|
$ |
517,839 |
|
|
$ |
394,956 |
|
Net income attributable to Valeant |
|
$ |
64,117 |
|
|
$ |
57,932 |
|
Basic net income per share attributable to Valeant |
|
$ |
0.82 |
|
|
$ |
0.70 |
|
Diluted net income per share attributable to Valeant |
|
$ |
0.78 |
|
|
$ |
0.69 |
|
The pro forma information is not necessarily indicative of the actual results that would have
been achieved had the Aton acquisition occurred on the dates indicated, or the results that may be
achieved in the future.
Acquisition-related costs
In the three and six months ended June 30, 2010, we incurred the following acquisition-related
costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Transaction costs |
|
$ |
8,660 |
|
|
$ |
909 |
|
|
$ |
9,208 |
|
|
$ |
909 |
|
Integration costs and other |
|
|
1,996 |
|
|
|
|
|
|
|
2,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisition-related costs |
|
$ |
10,656 |
|
|
$ |
909 |
|
|
$ |
11,582 |
|
|
$ |
909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs include legal, accounting and other costs directly related to our business
acquisitions. Integration costs and other primarily consist of severance for employees related to
acquired businesses, professional fees related to financial processes and information systems and
other integration activities and transitional expenses. These expenses are included in
restructuring and acquisition-related costs in the statements of operations.
Transaction costs in the three and six months ended June 30, 2010 include $4.8 million related
to our pending merger with Biovail Corporation (Biovail) (see Note 20). Certain transaction costs
are contingent upon successful completion of the merger. Additional contingent fees will be accrued
upon the successful completion of the merger.
Asset Purchase in Poland
On April 19, 2010, we completed the acquisition of rights to certain dermatology products in
Poland for a purchase price of approximately $17.9 million. We accounted for the acquisition as a
purchase of assets. A portion ($4.2 million) of the purchase price was paid upon signing of the
agreement in the fourth quarter of 2009 with the remaining balance payable at the closing. The
weighted-average useful life of the product rights was determined to be approximately 10 years.
4. Collaborative Arrangements
11
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Collaboration Agreement with GSK
In October 2008, we closed the worldwide License and Collaboration Agreement (the
Collaboration Agreement) with Glaxo Group Limited, a wholly owned subsidiary of GlaxoSmithKline
plc (GSK) to develop and commercialize a compound to treat adult epilepsy patients with
refractory partial-onset seizures, and its backup compounds. The generic name of this compound will
be ezogabine in the Untied States and retigabine in all other countries. Ezogabine/retigabine is a
first-in-class neuronal potassium channel opener.
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 ezogabine/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 of our participatory obligations, which will
end no later than the launch date of an ezogabine/retigabine product (the Pre-Launch Period). We
recognize alliance revenue during the Pre-Launch Period as we complete our performance obligations
using the proportional performance model, which requires us to determine and measure the completion
of our expected development and pre-commercialization costs during the Pre-Launch Period, in
addition to our participation in the joint steering committee. We expect to complete our research
and development and pre-commercialization obligations in effect during the Pre-Launch Period by the
first quarter of 2011.
GSK has the right to terminate the Collaboration Agreement at any time prior to the receipt of
the approval by the U.S. Food and Drug Administration (FDA) of a new drug application (NDA) for
an ezogabine product, which right may be irrevocably waived at any time by GSK. The period of time
prior to such termination or waiver is referred to as the Review Period. If GSK terminates the
Collaboration Agreement prior to December 31, 2010, we would be required to refund to GSK a portion
of the upfront fee. In February 2009, the Collaboration Agreement was amended to, among other
matters, reduce the maximum amount that we would be required to refund to GSK to $20.0 million
through June 30, 2010, with additional ratable reductions in the amount of the required refund
during 2010 until reaching zero at December 31, 2010.
During the three and six months ended June 30, 2010, the combined research and development
expenses and pre-commercialization expenses incurred under the Collaboration Agreement by us and
GSK were $12.7 million and $24.0 million, respectively, as outlined in the table below, compared to
$13.5 million and $26.9 million in the corresponding periods in 2009. We recorded a charge of $2.6
million and $4.6 million in the three and six months ended June 30, 2010, respectively, compared to
a charge of $1.2 million and a credit of $0.2 million in the corresponding periods in 2009, against
our share of the expenses to equalize our expenses with GSK, pursuant to the terms of the
Collaboration Agreement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Valeant research and development costs |
|
$ |
3,673 |
|
|
$ |
5,477 |
|
|
$ |
7,364 |
|
|
$ |
13,424 |
|
Valeant selling, general and administrative |
|
|
54 |
|
|
|
56 |
|
|
|
82 |
|
|
|
205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,727 |
|
|
|
5,533 |
|
|
|
7,446 |
|
|
|
13,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSK expenses |
|
|
9,009 |
|
|
|
7,976 |
|
|
|
16,565 |
|
|
|
13,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total spending for Collaboration Agreement |
|
$ |
12,736 |
|
|
$ |
13,509 |
|
|
$ |
24,011 |
|
|
$ |
26,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equalization charge (credit) |
|
$ |
2,641 |
|
|
$ |
1,222 |
|
|
$ |
4,560 |
|
|
$ |
(175 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
12
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The table below outlines the alliance revenue, expenses incurred, associated credits against
the expenses incurred, and remaining upfront payment for the Collaboration Agreement during the six
months ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, |
|
|
Research |
|
|
|
Balance |
|
|
Alliance |
|
|
General and |
|
|
and |
|
Collaboration Accounting Impact |
|
Sheet |
|
|
Revenue |
|
|
Administrative |
|
|
Development |
|
|
Upfront payment from GSK |
|
$ |
125,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Release from upfront payment in
2008/2009 |
|
|
(58,058 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Incurred cost in 2010 |
|
|
|
|
|
|
|
|
|
|
82 |
|
|
|
7,364 |
|
Incurred cost offset in 2010 |
|
|
(12,006 |
) |
|
|
|
|
|
|
(1,140 |
) |
|
|
(10,866 |
) |
Recognize alliance revenue |
|
|
(13,729 |
) |
|
|
(13,729 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release from upfront payment in 2010 |
|
|
(25,735 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining upfront payment from GSK |
|
$ |
41,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equalization payable to GSK |
|
$ |
(4,560 |
) |
|
|
|
|
|
|
1,058 |
|
|
|
3,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense and revenue |
|
|
|
|
|
$ |
(13,729 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
$ |
25,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue short-term |
|
|
15,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining upfront payment from GSK |
|
$ |
41,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total combined expenses by us and GSK for the Collaboration Agreement through June 30, 2010
were $102.3 million.
Co-marketing Agreement with Spear
In February 2010, we entered into a co-marketing agreement with Spear Pharmaceuticals, Inc.
and Spear Dermatology Products, Inc. (collectively Spear) for rights to commercialize Refissa®, a
prescription-based topical tretinoin cream used to diminish fine wrinkles and fade irregular
pigmentation due to sun damage. We paid Spear a $12.0 million upfront fee and could pay up to an
additional $3.0 million in milestone payments if certain sales targets are achieved. The upfront
fee and a $1.0 million milestone accrued as of June 30, 2010 are included in intangible assets in
our condensed consolidated balance sheet, and are being amortized on a straight-line basis over the
initial 10-year term of the agreement.
We record the sales of Refissa® and related expenses in our condensed consolidated statements
of operations. Under the agreement, we pay Spear a percentage of net profits from the sale of
Refissa® in the U.S., which we record in cost of goods sold. Also under the agreement, we will pay
Spear a royalty on net sales of Refissa® in the rest of the world, if we acquire those rights.
5. Special Charges and Credits
Special charges and credits in the three and six months ended June 30, 2010 primarily related
to settlement of certain legal disputes and related legal fees.
Special charges and credits in the three and six months ended June 30, 2009 primarily consist
of an initial license fee related to an exclusive license agreement 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.
13
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Discontinued Operations
In September 2008, we sold our business operation located in Western and Eastern Europe,
Middle East and Africa (the WEEMEA business) to Meda AB, an international specialty
pharmaceutical company located in Stockholm, Sweden (Meda). Meda acquired our operating
subsidiaries in those markets, and the rights to all products and licenses marketed by us in those
divested regions as of the divestiture date.
In January 2008, we sold our Infergen product rights to Three Rivers Pharmaceuticals, LLC. As
of December 31, 2009, we received aggregate proceeds of $76.5 million for our Infergen product
rights. We received $3.3 million in the six months ended June 30, 2010, with additional aggregate
payments due through March 2011 of $10.2 million.
As a result of these dispositions, the results of the WEEMEA business and the Infergen
operations have been reflected as discontinued operations in our condensed consolidated statement
of operations for all periods. In addition, any cash flows related to these discontinued operations
are presented separately in the condensed consolidated statements of cash flows.
7. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share for the
three and six months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted earnings per share attributable to Valeant: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Valeant |
|
$ |
32,236 |
|
|
$ |
33,035 |
|
|
$ |
67,837 |
|
|
$ |
63,832 |
|
Income (loss) from discontinued operations attributable to Valeant |
|
|
17 |
|
|
|
(175 |
) |
|
|
432 |
|
|
|
223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Valeant |
|
$ |
32,253 |
|
|
$ |
32,860 |
|
|
$ |
68,269 |
|
|
$ |
64,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share attributable to Valeant: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding |
|
|
76,597 |
|
|
|
82,225 |
|
|
|
77,275 |
|
|
|
82,165 |
|
Vested stock equivalents (not issued) |
|
|
539 |
|
|
|
569 |
|
|
|
522 |
|
|
|
568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share attributable to Valeant |
|
|
77,136 |
|
|
|
82,794 |
|
|
|
77,797 |
|
|
|
82,733 |
|
Denominator for diluted earnings per share attributable to Valeant: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options |
|
|
1,544 |
|
|
|
622 |
|
|
|
1,404 |
|
|
|
589 |
|
Convertible debt |
|
|
1,835 |
|
|
|
|
|
|
|
1,199 |
|
|
|
|
|
Other dilutive securities |
|
|
2,123 |
|
|
|
257 |
|
|
|
1,955 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares |
|
|
5,502 |
|
|
|
879 |
|
|
|
4,558 |
|
|
|
833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share attributable to Valeant |
|
|
82,638 |
|
|
|
83,673 |
|
|
|
82,355 |
|
|
|
83,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share attributable to Valeant: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Valeant |
|
$ |
0.42 |
|
|
$ |
0.40 |
|
|
$ |
0.87 |
|
|
$ |
0.77 |
|
Income from discontinued operations attributable to Valeant |
|
|
|
|
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Valeant |
|
$ |
0.42 |
|
|
$ |
0.40 |
|
|
$ |
0.88 |
|
|
$ |
0.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share attributable to Valeant: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Valeant |
|
$ |
0.39 |
|
|
$ |
0.39 |
|
|
$ |
0.82 |
|
|
$ |
0.76 |
|
Income from discontinued operations attributable to Valeant |
|
|
|
|
|
|
|
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Valeant |
|
$ |
0.39 |
|
|
$ |
0.39 |
|
|
$ |
0.83 |
|
|
$ |
0.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 3.0% Notes and the 4.0% Notes, discussed in Note 10, allow us to settle any
conversion by remitting to the note holder the principal amount of the note in cash, while settling
the conversion spread (the excess conversion value over the accreted value) in shares of our common
stock. Only the conversion spread, which will be
settled in stock, results in potential dilution in our earnings-per-share computations as the
accreted value of the notes will be
14
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
settled for cash upon the conversion. The calculation of diluted earnings per share was
not affected by the conversion spread in the three and six months ended June 30, 2009.
The following table summarizes the shares excluded from the calculation of diluted income per
share as the inclusion of such shares would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares excluded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
17 |
|
|
|
2,017 |
|
|
|
9 |
|
|
|
2,038 |
|
Restricted stock units |
|
|
1,709 |
|
|
|
956 |
|
|
|
1,329 |
|
|
|
862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,726 |
|
|
|
2,973 |
|
|
|
1,338 |
|
|
|
2,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Detail of Certain Accounts
The following tables present the details of certain amounts included in our consolidated
balance sheet as of June 30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net: |
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
$ |
146,090 |
|
|
$ |
122,238 |
|
Royalties and profit share receivable |
|
|
18,772 |
|
|
|
20,138 |
|
Other receivables |
|
|
26,567 |
|
|
|
33,398 |
|
|
|
|
|
|
|
|
|
|
|
191,429 |
|
|
|
175,774 |
|
Allowance for doubtful accounts |
|
|
(7,636 |
) |
|
|
(4,766 |
) |
|
|
|
|
|
|
|
|
|
$ |
183,793 |
|
|
$ |
171,008 |
|
|
|
|
|
|
|
|
Inventories, net: |
|
|
|
|
|
|
|
|
Raw materials and supplies |
|
$ |
28,875 |
|
|
$ |
27,880 |
|
Work-in-process |
|
|
13,010 |
|
|
|
11,013 |
|
Finished goods |
|
|
107,822 |
|
|
|
78,435 |
|
|
|
|
|
|
|
|
|
|
|
149,707 |
|
|
|
117,328 |
|
Allowance for inventory obsolescence |
|
|
(15,671 |
) |
|
|
(11,428 |
) |
|
|
|
|
|
|
|
|
|
$ |
134,036 |
|
|
$ |
105,900 |
|
|
|
|
|
|
|
|
9. Intangible Assets and Goodwill
Intangible
assets: As of June 30, 2010 and December 31, 2009, the components of intangible
assets were as follows:
15
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Average |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
|
Lives (years) |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neurology |
|
|
13 |
|
|
$ |
278,668 |
|
|
$ |
(187,062 |
) |
|
$ |
91,606 |
|
|
$ |
278,944 |
|
|
$ |
(174,744 |
) |
|
$ |
104,200 |
|
Dermatology |
|
|
14 |
|
|
|
377,189 |
|
|
|
(100,778 |
) |
|
|
276,411 |
|
|
|
314,850 |
|
|
|
(85,033 |
) |
|
|
229,817 |
|
Other |
|
|
13 |
|
|
|
381,797 |
|
|
|
(50,573 |
) |
|
|
331,224 |
|
|
|
90,547 |
|
|
|
(48,408 |
) |
|
|
42,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product intangibles |
|
|
13 |
|
|
|
1,037,654 |
|
|
|
(338,413 |
) |
|
|
699,241 |
|
|
|
684,341 |
|
|
|
(308,185 |
) |
|
|
376,156 |
|
Outlicensed technology |
|
|
10 |
|
|
|
70,000 |
|
|
|
(12,201 |
) |
|
|
57,799 |
|
|
|
70,000 |
|
|
|
(7,854 |
) |
|
|
62,146 |
|
Customer relationships |
|
|
8 |
|
|
|
30,901 |
|
|
|
(4,710 |
) |
|
|
26,191 |
|
|
|
27,159 |
|
|
|
(2,764 |
) |
|
|
24,395 |
|
IPR&D |
|
Indefinite |
|
|
|
9,700 |
|
|
|
|
|
|
|
9,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names |
|
|
17 |
|
|
|
41,804 |
|
|
|
(1,068 |
) |
|
|
40,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names |
|
Indefinite |
|
|
|
7,165 |
|
|
|
|
|
|
|
7,165 |
|
|
|
7,649 |
|
|
|
|
|
|
|
7,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
|
|
|
|
$ |
1,197,224 |
|
|
$ |
(356,392 |
) |
|
$ |
840,832 |
|
|
$ |
789,149 |
|
|
$ |
(318,803 |
) |
|
$ |
470,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future amortization of intangible assets at June 30, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled Future Amortization Expense |
|
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
Thereafter |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neurology |
|
$ |
11,926 |
|
|
$ |
19,034 |
|
|
$ |
17,936 |
|
|
$ |
16,885 |
|
|
$ |
16,311 |
|
|
$ |
9,514 |
|
|
$ |
91,606 |
|
Dermatology |
|
|
18,741 |
|
|
|
37,360 |
|
|
|
37,360 |
|
|
|
35,715 |
|
|
|
33,732 |
|
|
|
113,503 |
|
|
|
276,411 |
|
Other |
|
|
14,321 |
|
|
|
28,986 |
|
|
|
28,948 |
|
|
|
28,748 |
|
|
|
28,532 |
|
|
|
201,689 |
|
|
|
331,224 |
|
Outlicensed technology |
|
|
4,346 |
|
|
|
8,693 |
|
|
|
7,513 |
|
|
|
7,513 |
|
|
|
6,134 |
|
|
|
23,600 |
|
|
|
57,799 |
|
Customer relationships |
|
|
3,026 |
|
|
|
5,210 |
|
|
|
4,422 |
|
|
|
3,635 |
|
|
|
2,713 |
|
|
|
7,185 |
|
|
|
26,191 |
|
Trade names |
|
|
1,603 |
|
|
|
3,222 |
|
|
|
3,222 |
|
|
|
3,222 |
|
|
|
3,222 |
|
|
|
26,245 |
|
|
|
40,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
53,963 |
|
|
$ |
102,505 |
|
|
$ |
99,401 |
|
|
$ |
95,718 |
|
|
$ |
90,644 |
|
|
$ |
381,736 |
|
|
$ |
823,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the three and six months ended June 30, 2010, was $22.3 million
and $41.7 million, respectively, of which $19.9 million and $36.7 million, respectively, related to
amortization of acquired product intangibles. Amortization expense for the three and six months
ended June 30, 2009, was $17.1 million and $34.1 million, respectively, of which $14.8 million and
$29.5 million, respectively, related to amortization of acquired product intangibles.
In the six months ended June 30, 2010, we acquired product intangibles in the U.S., Canada and
Poland for $32.7 million in cash consideration, of which $25.7 million was paid in the six months
ended June 30, 2010. In the six months ended June 30, 2009, we acquired product rights in Poland
for cash consideration of $1.7 million, of which $0.7 million was paid in the six months ended June
30, 2009.
Goodwill:
The changes in the carrying amount of goodwill by segment for the six
months ended June 30, 2010, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty |
|
|
Branded Generics |
|
|
Branded Generics |
|
|
|
|
|
|
Pharmaceuticals |
|
|
Europe |
|
|
Latin America |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
$ |
175,605 |
|
|
$ |
10,408 |
|
|
$ |
9,337 |
|
|
$ |
195,350 |
|
Additions (a) |
|
|
114,660 |
|
|
|
|
|
|
|
54,886 |
|
|
|
169,546 |
|
Other (b) |
|
|
(877 |
) |
|
|
(1,615 |
) |
|
|
(1,271 |
) |
|
|
(3,763 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2010 |
|
$ |
289,388 |
|
|
$ |
8,793 |
|
|
$ |
62,952 |
|
|
$ |
361,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
(a) |
|
Additions due to 2010 business acquisitions and finalization of allocation of fair value of
assets acquired and liabilities assumed related to 2009 business acquisitions. |
|
(b) |
|
Primarily related to the effect of changes in foreign currency exchange rates. |
10. Long-term Debt
As of June 30, 2010 and December 31, 2009, long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
3.0% Notes |
|
$ |
48,866 |
|
|
$ |
48,866 |
|
Unamortized discount |
|
|
(254 |
) |
|
|
(1,248 |
) |
|
|
|
|
|
|
|
Net carrying value of 3.0% Notes |
|
|
48,612 |
|
|
|
47,618 |
|
4.0% Notes |
|
|
224,960 |
|
|
|
224,960 |
|
Unamortized discount |
|
|
(24,792 |
) |
|
|
(27,953 |
) |
|
|
|
|
|
|
|
Net carrying value of 4.0% Notes |
|
|
200,168 |
|
|
|
197,007 |
|
8.375% Senior Notes |
|
|
365,000 |
|
|
|
365,000 |
|
Unamortized discount |
|
|
(10,355 |
) |
|
|
(11,002 |
) |
|
|
|
|
|
|
|
Net carrying value of 8.375% Notes |
|
|
354,645 |
|
|
|
353,998 |
|
7.625% Senior Notes |
|
|
400,000 |
|
|
|
|
|
Senior Secured Term Loan |
|
|
30,000 |
|
|
|
|
|
Other |
|
|
4,433 |
|
|
|
1,966 |
|
|
|
|
|
|
|
|
|
|
|
1,037,858 |
|
|
|
600,589 |
|
Less: current portion |
|
|
(82,282 |
) |
|
|
(48,462 |
) |
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
955,576 |
|
|
$ |
552,127 |
|
|
|
|
|
|
|
|
Senior Secured Term Loan
On May 26, 2010, we entered into a Credit and Guaranty Agreement (the Credit Agreement) with
Goldman Sachs Credit Partners L.P. and Goldman Sachs Bank USA, which provides for a single $30.0
million senior secured term loan (the Senior Secured Term Loan). The Senior Secured Term Loan
initially bears interest at an annual rate equal to the Base Rate, as defined in the Credit
Agreement, plus 1.75%, or at our option, at an annual rate equal to LIBOR, plus 2.75% (3.17% as of
June 30, 2010). The Senior Secured Term Loan, together with accrued interest, is due on December 1,
2010.
The Credit Agreement limits our ability, and the ability of certain subsidiaries, to: incur or
guarantee indebtedness or certain liens or enter into negative pledges; pay dividends, repurchase
stock or make certain other restricted payments or subsidiary distributions; enter into
transactions with affiliates; consummate asset sales, acquisitions or mergers, sales and leasebacks
or dispositions of subsidiary interests; prepay other indebtedness or
make investments. In July 2010, we obtained a consent waiver from Goldman Sachs that will
allow us to pay the outstanding principal amount of the 3.0% Notes due August 16, 2010.
In connection with the Credit Agreement, we entered into a Pledge and Security Agreement that
provides the lender a security interest in and continuing lien on certain of our assets until
payment in full of the Senior Secured Term Loan. The Senior Secured Term Loan is guaranteed by
certain of our subsidiaries that are presently guarantors of the 7.625% Senior Notes and the 8.375%
Senior Notes (each as defined below).
We expect that the Senior Secured Term Loan will be refinanced pursuant to the Commitment
Letter (as defined in Note 20).
7.625% Senior Notes
17
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On April 9, 2010, we issued $400.0 million aggregate principal amount of senior notes (the
7.625% Senior Notes), at par, which bear a coupon interest rate of 7.625% and are due March 15,
2020. Interest is payable in arrears semi-annually on each March 15 and September 15. The 7.625%
Notes are guaranteed on a senior unsecured basis by certain of our subsidiaries, which are
initially the same subsidiaries that guarantee our 8.375% Senior Notes (as defined below) and rank
equally in right of payment with all of our existing and future unsecured and unsubordinated
indebtedness and senior to our existing and future indebtedness that expressly provides for
subordination to the 7.625% Senior Notes. The 7.625% Senior Notes are effectively junior in right
of payment to our existing and future secured indebtedness, to the extent of the assets securing
such indebtedness. The 7.625% Senior Notes were sold in accordance with Rule 144A and Regulation S
of the Securities Act and we are obligated (i) to file a registration statement with the SEC that
would enable the holders of the 7.625% Senior Notes to exchange them
for publicly registered notes having substantially the same terms and (ii) to complete such
exchange offer within 365 days of April 9, 2010.
We may redeem some or all of the 7.625% Senior Notes at any time prior to March 15, 2015 by
paying a redemption price equal to the principal amount of the 7.625% Senior Notes, plus the
Applicable Premium (as defined in the indenture as discussed below), plus accrued and unpaid
interest, if any, to the redemption date. At any time prior to March 15, 2013, we may use the net
cash proceeds of certain equity offerings of our capital stock to redeem up to 35% of the principal
amount of the 7.625% Senior Notes at a redemption price equal to 107.625% of their principal amount
plus accrued and unpaid interest, plus certain additional interest as specified in the indenture,
if any, to the redemption date; provided that at least 65% of the aggregate principal amount of
notes issued under the indenture remain outstanding immediately after such redemption and the
redemption occurs within 90 days after the closing of such equity offering. At any time on or after
March 15, 2015, we may redeem some or all of the 7.625% Senior Notes by paying a redemption price
expressed as a percentage of the principal amount (103.813% if redeemed during the twelve-month
period beginning on March 15, 2015, 102.542% if redeemed during the twelve-month period beginning
on March 15, 2016, 101.271% if redeemed during the twelve-month period beginning on March 15, 2017
and 100% if redeemed on or after March 15, 2018), plus accrued and unpaid interest, plus certain
liquidated damages as specified in the indenture, if any, to the redemption date.
If
we experience a change of control (as defined in the indenture governing the 7.625% Senior Notes), we may be required to offer to purchase the 7.625%
Senior Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid
interest, plus certain liquidated damages as specified in the indenture, if any, to but excluding
the repurchase date.
The indenture governing the 7.625% 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. If an event of default, as specified in the
indenture governing the 7.625% Senior Notes, shall occur and be continuing, either the trustee or
the holders of a specified percentage of the 7.625% Senior Notes may accelerate the maturity of all
the 7.625% Senior Notes. As of June 30, 2010, we were in compliance with these covenants.
We expect that the 7.625% Senior Notes will be refinanced pursuant to the Commitment Letter
(as defined in Note 20) or alternative financing in connection with the merger.
8.375% Senior Notes
In June 2009, we issued $365.0 million aggregate principal amount of senior notes (the 8.375%
Senior Notes), which bear a coupon interest rate of 8.375% and are due June 15, 2016. The 8.375%
Senior Notes were issued at a discounted price of 96.797%, resulting in an effective annual yield
of 9.0%. Interest is payable in arrears semi-annually on each June 15 and December 15. The 8.375%
Senior Notes are guaranteed on a senior unsecured basis by certain of our subsidiaries. If we
experience a change of control, we may be required to offer to purchase the 8.375% Senior Notes at
a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest, plus
liquidated damages, if any, to the redemption date. The indenture governing the 8.375% Senior Notes
contains covenants that will limit our ability and the ability of our restricted subsidiaries to,
among other things: incur
18
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 June 30, 2010, we were in compliance with these covenants.
The 8.375% Senior Notes were sold in accordance with Rule 144A of the Securities Act and
Regulation S of the Securities Act. On March 5, 2010, we filed a registration statement on Form
S-4, which was declared effective on March 29, 2010. The registration statement registered the
exchange of the 8.375% Senior Notes for publicly registered notes with substantially the same
terms. The exchange offer for the 8.375% Senior Notes commenced on
March 30, 2010 and expired on April 28, 2010. In May 2010, the 8.375% Senior Notes were
exchanged for publicly registered notes with substantially the same terms.
We expect that the 8.375% Senior Notes will be refinanced pursuant to the Commitment Letter
(as defined in Note 20) or alternative financing in connection with the merger.
3.0% and 4.0% Convertible Subordinated Notes
In November 2003, we issued $240.0 million aggregate principal amount of 3.0% Convertible
Subordinated Notes due August 2010 (the 3.0% Notes) and $240.0 million aggregate principal amount
of 4.0% Convertible Subordinated Notes due 2013 (the 4.0% Notes), which were issued as two series
of notes under a single indenture. Interest on the 3.0% Notes is payable semi-annually on February
16 and August 16 of each year. Interest on the 4.0% Notes is payable semi-annually on May 15 and
November 15 of each year. We have the right to redeem the 4.0% Notes, in whole or in part, at their
principal amount on or after May 20, 2011. The 3.0% Notes and 4.0% Notes are convertible into our
common stock at an initial conversion rate of 31.6336 shares per $1,000 principal amount of notes,
subject to adjustment. Upon conversion, we will have the right to satisfy the conversion
obligations by delivery, at our option in shares of our common stock, in cash or in a combination
thereof. It is our intent to settle the principal amount of the 3.0% Notes and 4.0% Notes in cash.
In July 2010, pursuant to the indenture, we notified the trustee of our election to settle the
principal amount of the 3.0% Notes in cash, and to settle the remainder of the conversion
obligation in shares of our common stock. The 3.0% Notes and 4.0% Notes are subordinated unsecured
obligations, ranking in right of payment behind our senior debt, if any. As of June 30, 2010, $48.9
million aggregate principal amount of 3.0% Notes and $225.0 million aggregate principal amount of
4.0% Notes were outstanding.
During the six months ended June 30, 2009, we purchased an aggregate of $117.6 million
principal amount of the 3.0% Notes and 4.0% Notes at a purchase price of $115.2 million. The
carrying amount of the 3.0% Notes and 4.0% Notes purchased was $109.2 million and the estimated
fair value of the Notes exclusive of the conversion feature was $101.8 million. The difference
between the carrying amount and the estimated fair value was recognized as a gain of $7.4 million
upon early extinguishment of debt. The difference between the estimated fair value of $101.8
million and the purchase price of $115.2 million was $13.4 million and was charged to additional
capital. A portion of the purchase price was attributable to accreted interest on the debt discount
and deferred loan costs and is presented in the statement of cash flows for the six months ended
June 30, 2009 as payments of accreted interest on long-term debt in cash flow from operating
activities in continuing operations.
In connection with the offering of the 3.0% Notes and the 4.0% Notes, we entered into
convertible note hedge and written call option transactions with respect to our common stock (the
Convertible Note Hedge). The Convertible Note Hedge consisted of our purchasing call options on
12,653,440 shares of our common stock at a strike price of $31.61 and selling call options on the
identical number of shares at $39.52. The number of shares covered by the Convertible Note Hedge is
the same number of shares underlying the conversion of $200.0 million principal amount of the 3.0%
Notes and $200.0 million principal amount of the 4.0% Notes. The Convertible Note Hedge is expected
to reduce the potential dilution from conversion of the 3.0% Notes and the 4.0% Notes. The written
call options offset, to some extent, the cost of the call options purchased. As a result of the
cessation of Valeants common dividend, the strike price on the purchased call options were
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.
19
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the year ended December 31, 2009, corresponding to the partial redemption of the 3.0%
Notes, we also effected a proportionate partial termination of the Convertible Note Hedge, reducing
the number of shares covered by the Convertible Note Hedge by 4,780,913 shares. As of June 30, 2010
and December 31, 2009, the number of shares covered by the Convertible Note Hedge was 7,872,527,
the same number of shares underlying the conversion of the remaining balance of $48.9 million
principal amount of the 3.0% Notes and $200.0 million principal amount of the 4.0% Notes.
The estimated fair value of our 3.0% Notes, 4.0% Notes and the 8.375% Senior Notes, based on
quoted market prices or on current interest rates for similar obligations with like maturities, was
approximately $877.2 million and $697.8 million at June 30, 2010 and December 31, 2009,
respectively, compared to its carrying value of $603.4
million and $598.6 million, respectively, and principal amount of $638.8 million. At June 30,
2010, our 7.625% Senior Notes had an estimated fair value of $476.0 million compared to the
carrying value and principal amount of $400.0 million.
11. Income Taxes
The income tax provision for the six months ended June 30, 2010 consists of $17.3 million
related to the expected taxes on earnings in tax jurisdictions outside the U.S. and $25.1 million
related to U.S. federal and state income taxes. Our effective tax rate at June 30, 2010 of 38.0%
differs from the statutory U.S. federal rate primarily due to state income taxes. The effective tax
rate for the six months ended June 30, 2010 of 38.0% as compared to 27.3% for the six months ended
June 30, 2009, was higher as the prior year benefited from the partial release during the period of tax valuation
allowances on U.S. net deferred tax assets, which were fully released by the end of 2009.
We record a valuation allowance against our deferred tax assets to reduce the net carrying
value to an amount that we believe is more likely than not to be realized. When we establish or
reduce the valuation allowance against our deferred tax assets, the provision for income taxes will
increase or decrease, respectively, in the period such determination is made. The valuation
allowance against deferred tax assets was $4.4 million as of June 30, 2010 and December 31, 2009.
As of June 30, 2010, we had $22.6 million of unrecognized tax benefits, which included $5.2
million relating to interest and penalties. Of the total unrecognized tax benefits, $19.0 million
would reduce our effective tax rate, if recognized.
The Internal Revenue Service is currently auditing our U.S. consolidated income tax returns
for the 2007 and 2008 tax years. During the first half of 2010, several states have initiated tax
audits for the years 2002 through 2007. Additionally, one of our Mexican subsidiaries is under
examination for the 2004 tax year. Our Hungary subsidiary is under
examination for tax years 2006 through 2008.
Our continuing practice is to recognize interest and penalties related to income tax matters
in income tax expense. As of June 30, 2010, we had accrued $3.9 million for interest and $1.3
million for penalties. We accrued additional interest and penalties of $0.8 million during the six
months ended June 30, 2010.
12. Derivative Financial Instruments
Our business and financial results are affected by fluctuations in world financial markets. We
evaluate our exposure to such risks on an ongoing basis, and seek ways to manage these risks to an
acceptable level, based on managements judgment of the appropriate trade-off between risk,
opportunity and cost. We do not hold any significant amount of market risk sensitive instruments
whose value is subject to market price risk. We use derivative financial instruments to hedge
foreign currency exposures. We do not speculate in derivative instruments in order to profit from
foreign currency exchange fluctuations; nor do we enter into trades for which there is no
underlying exposure.
Our significant foreign currency exposure relates to the Polish Zloty, the Mexican Peso, the
Australian Dollar, and the Canadian Dollar. We utilize cash flow and net investment hedges to
reduce our exposure to foreign currency risk. We have chosen not to seek hedge accounting treatment
for certain undesignated cash flow hedges as these
20
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
contracts are short term (typically less than 30
days in duration) and offset matching intercompany exposures in selected Valeant subsidiaries.
The table below summarizes the fair value and balance sheet location of our outstanding
derivatives at June 30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010 |
|
|
|
|
|
|
Asset Derivatives |
|
Liability Derivatives |
|
|
|
|
|
|
Balance |
|
|
|
|
|
Balance |
|
|
|
|
Notional |
|
Sheet |
|
Fair |
|
Sheet |
|
Fair |
Description |
|
Amount |
|
Location |
|
Value |
|
Location |
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undesignated hedges |
|
$ |
20,452 |
|
|
Other assets |
|
$ |
451 |
|
|
Accrued liabilities |
|
$ |
(173 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
The table below summarizes the information related to changes in the fair value of our
derivative instruments for the three and six months ended June 30, 2010 and 2009:
21
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010 |
|
|
|
|
|
|
Net |
|
Cash |
|
|
|
|
|
|
Investment |
|
Flow |
|
|
Undesignated |
|
Derivative |
|
Derivative |
Description |
|
Hedges |
|
Contracts |
|
Contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain recognized in currency translation
adjustment in other comprehensive income |
|
$ |
|
|
|
$ |
1,873 |
|
|
$ |
|
|
Gain recognized in exchange gain / loss |
|
|
1,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2010 |
|
|
|
|
|
|
Net |
|
Cash |
|
|
|
|
|
|
Investment |
|
Flow |
|
|
Undesignated |
|
Derivative |
|
Derivative |
Description |
|
Hedges |
|
Contracts |
|
Contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain recognized in currency translation
adjustment in other comprehensive income |
|
$ |
|
|
|
$ |
1,617 |
|
|
$ |
|
|
Gain recognized in exchange gain / loss |
|
|
306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2009 |
|
|
|
|
|
|
Net |
|
Cash |
|
|
|
|
|
|
Investment |
|
Flow |
|
|
Undesignated |
|
Derivative |
|
Derivative |
Description |
|
Hedges |
|
Contracts |
|
Contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss recognized in currency translation
adjustment in other comprehensive income |
|
$ |
|
|
|
$ |
(2,054 |
) |
|
$ |
|
|
Loss recognized in other comprehensive income |
|
|
|
|
|
|
|
|
|
|
(155 |
) |
Gain recognized in royalty income |
|
|
|
|
|
|
|
|
|
|
102 |
|
Loss recognized in exchange gain / loss |
|
|
(1,841 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2009 |
|
|
|
|
|
|
|
Net |
|
|
Cash |
|
|
|
|
|
|
|
Investment |
|
|
Flow |
|
|
|
Undesignated |
|
|
Derivative |
|
|
Derivative |
|
Description |
|
Hedges |
|
|
Contracts |
|
|
Contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain recognized in currency translation
adjustment in other comprehensive income |
|
$ |
|
|
|
$ |
619 |
|
|
$ |
|
|
Gain recognized in other comprehensive income |
|
|
|
|
|
|
|
|
|
|
56 |
|
Gain recognized in royalty income |
|
|
|
|
|
|
|
|
|
|
102 |
|
Loss recognized in exchange gain / loss |
|
|
(1,977 |
) |
|
|
|
|
|
|
|
|
See Note 13 for additional information about the fair value of our derivative
instruments.
13. Fair Value Measurements
Fair value measurements are based on a three-tier hierarchy that prioritizes inputs used to
measure fair value. These tiers include: Level 1, defined as observable inputs such as quoted
prices in active markets; Level 2, defined as inputs other than quoted prices in active markets
that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for
which little or no market data exists. The following table provides the assets and liabilities
carried at fair value measured on a recurring basis as of June 30, 2010 and December 31, 2009:
22
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (Liabilities) |
|
|
June 30, 2010 |
|
December 31, 2009 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undesignated hedges |
|
$ |
|
|
|
$ |
278 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(4 |
) |
|
$ |
|
|
Net investment derivative contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231 |
|
|
|
|
|
Derivative contracts used as hedges are valued based on observable inputs such as changes
in interest rates and currency fluctuations and are classified within Level 2 of the valuation
hierarchy. For a derivative instrument in an asset position, we analyze the credit standing of the
counterparty and factor it into the fair value measurement. The fair value measurement of a
liability must reflect the nonperformance risk of the reporting entity. Therefore, the impact of
our creditworthiness has also been factored into the fair value measurement of the derivative
instruments in a liability position.
14. Stock and Stock Incentive Programs
Common Stock: We are authorized to issue 200 million shares of $0.01 par value common stock.
The number of shares outstanding as of June 30, 2010 and December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2010 |
|
2009 |
|
|
|
|
|
|
|
|
|
Shares outstanding |
|
|
75,902 |
|
|
|
77,350 |
|
Shares held in treasury |
|
|
26,993 |
|
|
|
25,466 |
|
Stock and Securities Repurchase Programs: In October 2008, our board of directors authorized
us to repurchase up to $200.0 million of our outstanding securities in a 24-month period ending
October 2010, unless earlier terminated or completed. In May 2009, our board of directors increased
the authorization to $500.0 million, over a period ending in May 2011. In March 2010, our board of
directors further increased the authorization to $1.0 billion over a period ending in March 2013.
Under the program, purchases of outstanding senior notes, convertible subordinated notes or common
stock may be made from time to time on the open market, in privately negotiated transactions,
pursuant to tender offers or otherwise, including pursuant to one or more trading plans, at times
and in amounts as we see appropriate. The amount of securities to be purchased and the timing of
such purchases are subject to various factors, which may include the price of the securities,
general market conditions, corporate and regulatory requirements and alternate investment
opportunities. The securities repurchase program may be modified or discontinued at any time.
During the six months ended June 30, 2010, we purchased 2,637,545 shares of our common stock for a
total of $106.6 million. As of June 30, 2010, we have repurchased an aggregate 9,886,438 shares of
our common stock for $315.1 million under this program, in addition to the purchase of $206.1
million aggregate principal amount of our 3.0% Notes and 4.0% Notes at a purchase price of $207.3
million, including cash and warrants.
Stock-based compensation: During the three and six months ended June 30, 2010, we granted to
certain executives, employees and directors of the Company an aggregate of 26,436 and 160,520
time-vested restricted stock units, respectively, which vest based upon service conditions,. During
the three and six months ended June 30, 2010, we granted certain executives of the Company an
aggregate of 8,186 and 382,387 performance-based restricted stock units, respectively, which vest
based upon both service and certain stock price appreciation conditions. During the three and six
months ended June 30, 2010 we granted an aggregate of 30,725 and 1,091,725 stock options to certain
employees at weighted-average exercise prices of $48.57 and $38.76, respectively.
A summary of stock compensation expense in continuing operations for our stock incentive plans
for the three and six months ended June 30, 2010 and 2009 is presented below:
23
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phantom and restricted stock units |
|
$ |
4,815 |
|
|
$ |
2,237 |
|
|
$ |
9,113 |
|
|
$ |
5,065 |
|
Employee stock options |
|
|
1,988 |
|
|
|
1,144 |
|
|
|
2,636 |
|
|
|
2,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation |
|
$ |
6,803 |
|
|
$ |
3,381 |
|
|
$ |
11,749 |
|
|
$ |
7,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future stock compensation expense for restricted stock units and stock option incentive awards
outstanding as of June 30, 2010 is as follows:
|
|
|
|
|
Remainder of 2010 |
|
$ |
13,109 |
|
2011 |
|
|
19,178 |
|
2012 |
|
|
12,873 |
|
2013 |
|
|
8,072 |
|
2014 |
|
|
1,594 |
|
2015 |
|
|
73 |
|
|
|
|
|
|
|
$ |
54,899 |
|
|
|
|
|
15. Business Segments
Our products are sold through three segments comprising Specialty pharmaceuticals, Branded
generics Europe and Branded generics Latin America. The Specialty pharmaceuticals segment
revenues include product revenues primarily from the U.S., Canada, Australia and New Zealand. 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 and over the counter products primarily in Mexico and Brazil.
Additionally, we generate alliance revenue, including royalties from the sale of ribavirin by
Merck, revenue from Mylan pursuant to an agreement with Dow, royalty payments on net sales of
Cesamet in the U.S. through license agreements entered into with Meda in September 2009 and
revenues associated with the Collaboration Agreement with GSK. We also generate alliance revenue
and service revenue from the development of dermatological products from our Dow subsidiary, as
well as payments received from licensing of certain other products (see Note 16).
The following table sets forth the amounts of our segment revenues and operating income for
the three and six months ended June 30, 2010 and 2009:
24
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals product sales |
|
$ |
126,901 |
|
|
$ |
96,634 |
|
|
$ |
247,643 |
|
|
$ |
182,947 |
|
Specialty pharmaceuticals service and alliance revenue (1) |
|
|
30,143 |
|
|
|
12,196 |
|
|
|
52,666 |
|
|
|
24,101 |
|
Branded generics Europe product sales |
|
|
40,785 |
|
|
|
34,032 |
|
|
|
82,493 |
|
|
|
69,370 |
|
Branded generics Latin America product sales |
|
|
51,772 |
|
|
|
36,199 |
|
|
|
93,829 |
|
|
|
67,381 |
|
Alliances (ribavirin royalties only) |
|
|
5,973 |
|
|
|
12,637 |
|
|
|
10,934 |
|
|
|
25,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues |
|
$ |
255,574 |
|
|
$ |
191,698 |
|
|
$ |
487,565 |
|
|
$ |
369,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals |
|
$ |
68,020 |
|
|
$ |
34,088 |
|
|
$ |
129,207 |
|
|
$ |
62,339 |
|
Branded generics Europe |
|
|
9,741 |
|
|
|
7,699 |
|
|
|
20,620 |
|
|
|
16,563 |
|
Branded generics Latin America |
|
|
12,184 |
|
|
|
13,773 |
|
|
|
25,681 |
|
|
|
25,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,945 |
|
|
|
55,560 |
|
|
|
175,508 |
|
|
|
104,883 |
|
Alliances |
|
|
5,973 |
|
|
|
12,637 |
|
|
|
10,934 |
|
|
|
25,822 |
|
Corporate |
|
|
(12,032 |
) |
|
|
(12,463 |
) |
|
|
(28,207 |
) |
|
|
(31,025 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
83,886 |
|
|
|
55,734 |
|
|
|
158,235 |
|
|
|
99,680 |
|
Special charges and credits |
|
|
(1,012 |
) |
|
|
(1,974 |
) |
|
|
(1,550 |
) |
|
|
(1,974 |
) |
Restructuring and acquisition-related costs |
|
|
(10,706 |
) |
|
|
(2,603 |
) |
|
|
(11,730 |
) |
|
|
(3,814 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated segment operating income |
|
|
72,168 |
|
|
|
51,157 |
|
|
|
144,955 |
|
|
|
93,892 |
|
Interest income |
|
|
387 |
|
|
|
726 |
|
|
|
846 |
|
|
|
2,560 |
|
Interest expense |
|
|
(20,558 |
) |
|
|
(8,551 |
) |
|
|
(33,648 |
) |
|
|
(16,564 |
) |
Gain on early extinguishment of debt |
|
|
|
|
|
|
2,777 |
|
|
|
|
|
|
|
7,376 |
|
Other income (expense), net including translation and exchange |
|
|
(1,412 |
) |
|
|
(646 |
) |
|
|
(1,936 |
) |
|
|
566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
$ |
50,585 |
|
|
$ |
45,463 |
|
|
$ |
110,217 |
|
|
$ |
87,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Specialty pharmaceuticals service and alliance revenue consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue |
|
$ |
4,396 |
|
|
$ |
5,606 |
|
|
$ |
9,356 |
|
|
$ |
12,344 |
|
1% clindamycin and 5% benzoyl peroxide gel (IDP-111) profit
share |
|
|
11,232 |
|
|
|
|
|
|
|
20,530 |
|
|
|
|
|
Other royalties |
|
|
4,160 |
|
|
|
3,790 |
|
|
|
7,585 |
|
|
|
5,639 |
|
License payments |
|
|
765 |
|
|
|
|
|
|
|
1,466 |
|
|
|
|
|
GSK collaboration |
|
|
9,590 |
|
|
|
2,800 |
|
|
|
13,729 |
|
|
|
6,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty pharmaceuticals service and alliance revenue |
|
$ |
30,143 |
|
|
$ |
12,196 |
|
|
$ |
52,666 |
|
|
$ |
24,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges, acquisition-related costs and special charges and credits are not
included in the applicable segments as management excludes these items in assessing the financial
performance of these segments, primarily due to their non-operational nature. Stock-based
compensation expense is considered a corporate cost since the amount of such charges depends on
corporate-wide performance rather than the operating performance of any single segment.
25
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth net revenues by geographic area for the three and six months
ended June 30, 2010 and 2009. Revenues are classified based on geographic location of the
customers, or for certain exported products and license revenue, by county of domicile.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
117,156 |
|
|
$ |
79,792 |
|
|
$ |
223,223 |
|
|
$ |
154,288 |
|
Poland |
|
|
31,928 |
|
|
|
25,434 |
|
|
|
65,110 |
|
|
|
53,188 |
|
Mexico |
|
|
34,825 |
|
|
|
27,878 |
|
|
|
67,400 |
|
|
|
52,465 |
|
Other |
|
|
71,665 |
|
|
|
58,594 |
|
|
|
131,832 |
|
|
|
109,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
255,574 |
|
|
$ |
191,698 |
|
|
$ |
487,565 |
|
|
$ |
369,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth our total assets by segment as of June 30, 2010 and December
31, 2009:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
|
|
|
|
|
|
Specialty pharmaceuticals |
|
$ |
1,206,681 |
|
|
$ |
699,354 |
|
Branded generics Europe |
|
|
170,236 |
|
|
|
184,862 |
|
Branded generics Latin America |
|
|
291,344 |
|
|
|
161,372 |
|
Alliances |
|
|
5,944 |
|
|
|
8,905 |
|
Corporate |
|
|
213,901 |
|
|
|
250,986 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,888,106 |
|
|
$ |
1,305,479 |
|
|
|
|
|
|
|
|
During the three and six months ended June 30, 2010 and 2009, two customers each accounted for
more than 10% of consolidated product sales. Sales to McKesson Corporation and its affiliates
(McKesson) and to Cardinal Health (Cardinal) in the United States, Canada and Mexico are
detailed in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McKesson |
|
$ |
44,127 |
|
|
$ |
37,525 |
|
|
$ |
85,032 |
|
|
$ |
70,817 |
|
Cardinal |
|
|
30,940 |
|
|
|
24,188 |
|
|
|
57,707 |
|
|
|
45,688 |
|
Percentage of total product sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McKesson |
|
|
20 |
% |
|
|
22 |
% |
|
|
20 |
% |
|
|
22 |
% |
Cardinal |
|
|
14 |
% |
|
|
14 |
% |
|
|
14 |
% |
|
|
14 |
% |
16. Alliance Revenue
Alliance revenue includes the royalties received from the sale of ribavirin and from patent
protected formulations developed by Dow and licensed to third parties, licensing payments received
and revenues associated with the Collaboration Agreement with GSK. In addition, beginning in the
third quarter of 2009, we receive profit sharing payments equal to a majority portion of the net
profits on the sale of 1% clindamycin and 5% benzoyl peroxide gel by Mylan and royalty payments on
net sales of Cesamet in the U.S. through a license agreement entered into with Meda in September
2009. We will also receive future royalty payments on Medas net sales of two dermatology products
in Europe pursuant to license agreements entered into with Meda. The following table provides the
details of our alliance revenue in the three and six months ended June 30, 2010 and 2009:
26
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ribavirin royalty |
|
$ |
5,973 |
|
|
$ |
12,637 |
|
|
$ |
10,934 |
|
|
$ |
25,822 |
|
1% clindamycin and 5% benzoyl peroxide
gel (IDP-111) profit share |
|
|
11,232 |
|
|
|
|
|
|
|
20,530 |
|
|
|
|
|
Other royalties |
|
|
4,160 |
|
|
|
3,790 |
|
|
|
7,585 |
|
|
|
5,639 |
|
License payments |
|
|
765 |
|
|
|
|
|
|
|
1,466 |
|
|
|
|
|
GSK collaboration |
|
|
9,590 |
|
|
|
2,800 |
|
|
|
13,729 |
|
|
|
6,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total alliance revenue |
|
$ |
31,720 |
|
|
$ |
19,227 |
|
|
$ |
54,244 |
|
|
$ |
37,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17. Related Parties
Robert A. Ingram was Vice Chairman Pharmaceuticals of GSK from January 2008 through December
2009, and serves as a strategic advisor to the Chief Executive Officer of GSK since January 2010.
Mr. Ingram has been a member of 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. Mr. Stefano has been a member of our board of directors
since March 2009. See Note 4 for discussion of the Collaboration Agreement with GSK.
Anders Lönner has been the Group President and Chief Executive Officer of Meda since 1999, and
serves on Medas board of directors. Effective January 7, 2009, Mr. Lönner was elected by our board
of directors to fill an open board position in the class expiring in 2011. See Notes 6 and 16 for
discussion of transactions with Meda.
G. Mason Morfit is a partner and a member of the Management Committee of ValueAct Capital. Mr.
Morfit has been a member of our board of directors since 2007. Brandon B. Boze has been a Vice
President at ValueAct Capital since 2005, and has been a member of our board of directors since
December 2009. ValueAct Capital is the general partner and the manager of ValueAct Capital Master
Fund, L.P. During the three months ended June 30, 2010, we purchased 2,637,545 shares of our common
stock for a total of $106.6 million from ValueAct Capital Master Fund, L.P.
18. Condensed Consolidating Financial Information
In June 2009, we issued the 8.375% Senior Notes that are fully, unconditionally and jointly
and severally guaranteed by certain of our 100% owned subsidiaries. We are required to present
condensed consolidating financial information in accordance with the criteria established for
parent companies in the SECs Regulation S-X, Rule 3-10. The following condensed consolidating
financial information presents the results of operations, financial 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 June 30, 2010 and December 31, 2009 and for the three and six-month periods ended June 30, 2010
and 2009:
27
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet
June 30, 2010
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI |
|
|
Guarantors |
|
|
Non-Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
45,134 |
|
|
$ |
30,249 |
|
|
$ |
|
|
|
$ |
75,383 |
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
|
|
|
|
83,926 |
|
|
|
100,008 |
|
|
|
(141 |
) |
|
|
183,793 |
|
Intercompany receivables |
|
|
|
|
|
|
319,763 |
|
|
|
25,776 |
|
|
|
(345,539 |
) |
|
|
|
|
Inventories, net |
|
|
|
|
|
|
41,887 |
|
|
|
92,981 |
|
|
|
(832 |
) |
|
|
134,036 |
|
Assets held for sale |
|
|
|
|
|
|
|
|
|
|
1,559 |
|
|
|
|
|
|
|
1,559 |
|
Prepaid expenses |
|
|
183 |
|
|
|
11,488 |
|
|
|
4,841 |
|
|
|
|
|
|
|
16,512 |
|
Current deferred tax assets, net |
|
|
|
|
|
|
73,020 |
|
|
|
14,721 |
|
|
|
|
|
|
|
87,741 |
|
Income taxes receivable |
|
|
|
|
|
|
|
|
|
|
4,166 |
|
|
|
|
|
|
|
4,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
183 |
|
|
|
575,218 |
|
|
|
274,301 |
|
|
|
(346,512 |
) |
|
|
503,190 |
|
Property, plant and equipment, net |
|
|
|
|
|
|
10,250 |
|
|
|
144,958 |
|
|
|
|
|
|
|
155,208 |
|
Deferred tax assets, net |
|
|
6,955 |
|
|
|
|
|
|
|
4,917 |
|
|
|
(6,955 |
) |
|
|
4,917 |
|
Goodwill |
|
|
|
|
|
|
118,706 |
|
|
|
242,427 |
|
|
|
|
|
|
|
361,133 |
|
Intangible assets, net |
|
|
|
|
|
|
352,046 |
|
|
|
488,786 |
|
|
|
|
|
|
|
840,832 |
|
Investment in subsidiaries |
|
|
1,194,798 |
|
|
|
19,169 |
|
|
|
|
|
|
|
(1,213,967 |
) |
|
|
|
|
Intercompany receivables |
|
|
166,404 |
|
|
|
150,000 |
|
|
|
100,916 |
|
|
|
(417,320 |
) |
|
|
|
|
Other assets |
|
|
18,072 |
|
|
|
3,218 |
|
|
|
1,536 |
|
|
|
|
|
|
|
22,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets |
|
|
1,386,229 |
|
|
|
653,389 |
|
|
|
983,540 |
|
|
|
(1,638,242 |
) |
|
|
1,384,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,386,412 |
|
|
$ |
1,228,607 |
|
|
$ |
1,257,841 |
|
|
$ |
(1,984,754 |
) |
|
$ |
1,888,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables |
|
$ |
|
|
|
$ |
23,934 |
|
|
$ |
25,799 |
|
|
$ |
|
|
|
$ |
49,733 |
|
Intercompany payables |
|
|
|
|
|
|
25,776 |
|
|
|
319,763 |
|
|
|
(345,539 |
) |
|
|
|
|
Accrued liabilities |
|
|
|
|
|
|
176,568 |
|
|
|
51,809 |
|
|
|
(164 |
) |
|
|
228,213 |
|
Notes payable and current portion of long-term debt |
|
|
78,612 |
|
|
|
3 |
|
|
|
3,667 |
|
|
|
|
|
|
|
82,282 |
|
Deferred revenue |
|
|
|
|
|
|
17,527 |
|
|
|
246 |
|
|
|
|
|
|
|
17,773 |
|
Income taxes payable |
|
|
|
|
|
|
2,044 |
|
|
|
8,040 |
|
|
|
|
|
|
|
10,084 |
|
Current deferred tax liabilities, net |
|
|
|
|
|
|
|
|
|
|
759 |
|
|
|
|
|
|
|
759 |
|
Current liabilities for uncertain tax positions |
|
|
|
|
|
|
646 |
|
|
|
|
|
|
|
|
|
|
|
646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
78,612 |
|
|
|
246,498 |
|
|
|
410,083 |
|
|
|
(345,703 |
) |
|
|
389,490 |
|
Long-term debt, less current portion |
|
|
954,813 |
|
|
|
|
|
|
|
763 |
|
|
|
|
|
|
|
955,576 |
|
Deferred revenue |
|
|
|
|
|
|
621 |
|
|
|
|
|
|
|
|
|
|
|
621 |
|
Deferred tax liabilities, net |
|
|
|
|
|
|
92,754 |
|
|
|
21,131 |
|
|
|
(6,955 |
) |
|
|
106,930 |
|
Liabilities for uncertain tax positions |
|
|
|
|
|
|
16,008 |
|
|
|
731 |
|
|
|
|
|
|
|
16,739 |
|
Intercompany payables |
|
|
|
|
|
|
267,320 |
|
|
|
150,000 |
|
|
|
(417,320 |
) |
|
|
|
|
Other liabilities |
|
|
|
|
|
|
59,264 |
|
|
|
6,477 |
|
|
|
|
|
|
|
65,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities |
|
|
954,813 |
|
|
|
435,967 |
|
|
|
179,102 |
|
|
|
(424,275 |
) |
|
|
1,145,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,033,425 |
|
|
|
682,465 |
|
|
|
589,185 |
|
|
|
(769,978 |
) |
|
|
1,535,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Valeant stockholders equity |
|
|
352,987 |
|
|
|
546,142 |
|
|
|
668,634 |
|
|
|
(1,214,776 |
) |
|
|
352,987 |
|
Noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
352,987 |
|
|
|
546,142 |
|
|
|
668,656 |
|
|
|
(1,214,776 |
) |
|
|
353,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,386,412 |
|
|
$ |
1,228,607 |
|
|
$ |
1,257,841 |
|
|
$ |
(1,984,754 |
) |
|
$ |
1,888,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet
December 31, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI |
|
|
Guarantors |
|
|
Non-Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
26,182 |
|
|
$ |
41,898 |
|
|
$ |
|
|
|
$ |
68,080 |
|
Marketable securities |
|
|
|
|
|
|
13,781 |
|
|
|
4 |
|
|
|
|
|
|
|
13,785 |
|
Accounts receivable, net |
|
|
|
|
|
|
80,443 |
|
|
|
90,706 |
|
|
|
(141 |
) |
|
|
171,008 |
|
Intercompany receivables |
|
|
|
|
|
|
93,488 |
|
|
|
32,128 |
|
|
|
(125,616 |
) |
|
|
|
|
Inventories, net |
|
|
|
|
|
|
21,159 |
|
|
|
85,086 |
|
|
|
(345 |
) |
|
|
105,900 |
|
Prepaid expenses |
|
|
116 |
|
|
|
12,700 |
|
|
|
3,773 |
|
|
|
|
|
|
|
16,589 |
|
Current deferred tax assets, net |
|
|
|
|
|
|
69,917 |
|
|
|
7,351 |
|
|
|
|
|
|
|
77,268 |
|
Income taxes receivable |
|
|
|
|
|
|
1,630 |
|
|
|
1,954 |
|
|
|
|
|
|
|
3,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
116 |
|
|
|
319,300 |
|
|
|
262,900 |
|
|
|
(126,102 |
) |
|
|
456,214 |
|
Property, plant and equipment, net |
|
|
|
|
|
|
10,437 |
|
|
|
116,374 |
|
|
|
|
|
|
|
126,811 |
|
Deferred tax assets, net |
|
|
9,575 |
|
|
|
23,406 |
|
|
|
4,656 |
|
|
|
|
|
|
|
37,637 |
|
Goodwill |
|
|
|
|
|
|
118,706 |
|
|
|
76,644 |
|
|
|
|
|
|
|
195,350 |
|
Intangible assets, net |
|
|
|
|
|
|
370,988 |
|
|
|
99,358 |
|
|
|
|
|
|
|
470,346 |
|
Investment in subsidiaries |
|
|
524,457 |
|
|
|
12,613 |
|
|
|
|
|
|
|
(537,070 |
) |
|
|
|
|
Intercompany receivables |
|
|
426,124 |
|
|
|
150,000 |
|
|
|
100,905 |
|
|
|
(677,029 |
) |
|
|
|
|
Other assets |
|
|
9,510 |
|
|
|
3,384 |
|
|
|
6,227 |
|
|
|
|
|
|
|
19,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets |
|
|
969,666 |
|
|
|
689,534 |
|
|
|
404,164 |
|
|
|
(1,214,099 |
) |
|
|
849,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
969,782 |
|
|
$ |
1,008,834 |
|
|
$ |
667,064 |
|
|
$ |
(1,340,201 |
) |
|
$ |
1,305,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables |
|
$ |
|
|
|
$ |
9,426 |
|
|
$ |
27,979 |
|
|
$ |
|
|
|
$ |
37,405 |
|
Intercompany payables |
|
|
|
|
|
|
32,127 |
|
|
|
93,489 |
|
|
|
(125,616 |
) |
|
|
|
|
Accrued liabilities |
|
|
|
|
|
|
165,681 |
|
|
|
50,415 |
|
|
|
(164 |
) |
|
|
215,932 |
|
Notes payable and current portion of long-term debt |
|
|
47,618 |
|
|
|
14 |
|
|
|
830 |
|
|
|
|
|
|
|
48,462 |
|
Deferred revenue |
|
|
|
|
|
|
21,330 |
|
|
|
282 |
|
|
|
|
|
|
|
21,612 |
|
Income taxes payable |
|
|
|
|
|
|
1,995 |
|
|
|
4,725 |
|
|
|
|
|
|
|
6,720 |
|
Current deferred tax liabilities, net |
|
|
|
|
|
|
|
|
|
|
358 |
|
|
|
|
|
|
|
358 |
|
Current liabilities for uncertain tax positions |
|
|
|
|
|
|
646 |
|
|
|
|
|
|
|
|
|
|
|
646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
47,618 |
|
|
|
231,219 |
|
|
|
178,078 |
|
|
|
(125,780 |
) |
|
|
331,135 |
|
Long-term debt, less current portion |
|
|
551,005 |
|
|
|
|
|
|
|
1,122 |
|
|
|
|
|
|
|
552,127 |
|
Deferred tax liabilities, net |
|
|
|
|
|
|
|
|
|
|
7,728 |
|
|
|
|
|
|
|
7,728 |
|
Liabilities for uncertain tax positions |
|
|
|
|
|
|
12,391 |
|
|
|
724 |
|
|
|
|
|
|
|
13,115 |
|
Intercompany payables |
|
|
|
|
|
|
527,029 |
|
|
|
150,000 |
|
|
|
(677,029 |
) |
|
|
|
|
Other liabilities |
|
|
|
|
|
|
23,740 |
|
|
|
6,455 |
|
|
|
|
|
|
|
30,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities |
|
|
551,005 |
|
|
|
563,160 |
|
|
|
166,029 |
|
|
|
(677,029 |
) |
|
|
603,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
598,623 |
|
|
|
794,379 |
|
|
|
344,107 |
|
|
|
(802,809 |
) |
|
|
934,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Valeant stockholders equity |
|
|
371,159 |
|
|
|
214,455 |
|
|
|
322,937 |
|
|
|
(537,392 |
) |
|
|
371,159 |
|
Noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
371,159 |
|
|
|
214,455 |
|
|
|
322,957 |
|
|
|
(537,392 |
) |
|
|
371,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
969,782 |
|
|
$ |
1,008,834 |
|
|
$ |
667,064 |
|
|
$ |
(1,340,201 |
) |
|
$ |
1,305,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Operations
For the Three Months Ended June 30, 2010
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI |
|
|
Guarantors |
|
|
Non-Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
$ |
|
|
|
$ |
91,072 |
|
|
$ |
130,467 |
|
|
$ |
(2,081 |
) |
|
$ |
219,458 |
|
Service revenue |
|
|
|
|
|
|
2,314 |
|
|
|
2,084 |
|
|
|
(2 |
) |
|
|
4,396 |
|
Alliance revenue |
|
|
|
|
|
|
31,720 |
|
|
|
|
|
|
|
|
|
|
|
31,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
125,106 |
|
|
|
132,551 |
|
|
|
(2,083 |
) |
|
|
255,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization) |
|
|
|
|
|
|
13,174 |
|
|
|
49,706 |
|
|
|
(2,242 |
) |
|
|
60,638 |
|
Cost of services |
|
|
|
|
|
|
1,655 |
|
|
|
1,624 |
|
|
|
|
|
|
|
3,279 |
|
Selling, general and administrative |
|
|
|
|
|
|
32,528 |
|
|
|
40,957 |
|
|
|
|
|
|
|
73,485 |
|
Research and development costs, net |
|
|
|
|
|
|
9,450 |
|
|
|
2,501 |
|
|
|
|
|
|
|
11,951 |
|
Special charges and credits |
|
|
|
|
|
|
1,012 |
|
|
|
|
|
|
|
|
|
|
|
1,012 |
|
Restructuring and acquisition-related costs |
|
|
|
|
|
|
8,110 |
|
|
|
2,596 |
|
|
|
|
|
|
|
10,706 |
|
Amortization expense |
|
|
|
|
|
|
16,089 |
|
|
|
6,246 |
|
|
|
|
|
|
|
22,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
|
|
|
|
82,018 |
|
|
|
103,630 |
|
|
|
(2,242 |
) |
|
|
183,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
|
|
|
|
43,088 |
|
|
|
28,921 |
|
|
|
159 |
|
|
|
72,168 |
|
Other income (expense), net including translation and exchange |
|
|
48,883 |
|
|
|
(1,939 |
) |
|
|
527 |
|
|
|
(48,883 |
) |
|
|
(1,412 |
) |
Interest income |
|
|
|
|
|
|
924 |
|
|
|
236 |
|
|
|
(773 |
) |
|
|
387 |
|
Interest expense |
|
|
(20,241 |
) |
|
|
(239 |
) |
|
|
(851 |
) |
|
|
773 |
|
|
|
(20,558 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
28,642 |
|
|
|
41,834 |
|
|
|
28,833 |
|
|
|
(48,724 |
) |
|
|
50,585 |
|
Provision (benefit) for income taxes |
|
|
(3,611 |
) |
|
|
16,842 |
|
|
|
5,117 |
|
|
|
|
|
|
|
18,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
32,253 |
|
|
|
24,992 |
|
|
|
23,716 |
|
|
|
(48,724 |
) |
|
|
32,237 |
|
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
|
27 |
|
|
|
(10 |
) |
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
32,253 |
|
|
|
25,019 |
|
|
|
23,706 |
|
|
|
(48,724 |
) |
|
|
32,254 |
|
Less: Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Valeant |
|
$ |
32,253 |
|
|
$ |
25,019 |
|
|
$ |
23,705 |
|
|
$ |
(48,724 |
) |
|
$ |
32,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Operations
For the Three Months Ended June 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI |
|
|
Guarantors |
|
|
Non-Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
$ |
|
|
|
$ |
71,958 |
|
|
$ |
95,980 |
|
|
$ |
(1,073 |
) |
|
$ |
166,865 |
|
Service revenue |
|
|
|
|
|
|
3,730 |
|
|
|
1,915 |
|
|
|
(39 |
) |
|
|
5,606 |
|
Alliance revenue |
|
|
|
|
|
|
19,227 |
|
|
|
|
|
|
|
|
|
|
|
19,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
94,915 |
|
|
|
97,895 |
|
|
|
(1,112 |
) |
|
|
191,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization) |
|
|
|
|
|
|
10,771 |
|
|
|
33,606 |
|
|
|
(1,627 |
) |
|
|
42,750 |
|
Cost of services |
|
|
|
|
|
|
4,121 |
|
|
|
1,216 |
|
|
|
|
|
|
|
5,337 |
|
Selling, general and administrative |
|
|
|
|
|
|
32,161 |
|
|
|
29,465 |
|
|
|
|
|
|
|
61,626 |
|
Research and development costs, net |
|
|
|
|
|
|
7,955 |
|
|
|
1,191 |
|
|
|
|
|
|
|
9,146 |
|
Special charges and credits |
|
|
|
|
|
|
|
|
|
|
1,974 |
|
|
|
|
|
|
|
1,974 |
|
Restructuring and acquisition-related costs |
|
|
|
|
|
|
1,694 |
|
|
|
909 |
|
|
|
|
|
|
|
2,603 |
|
Amortization expense |
|
|
|
|
|
|
15,475 |
|
|
|
1,630 |
|
|
|
|
|
|
|
17,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
|
|
|
|
72,177 |
|
|
|
69,991 |
|
|
|
(1,627 |
) |
|
|
140,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
|
|
|
|
22,738 |
|
|
|
27,904 |
|
|
|
515 |
|
|
|
51,157 |
|
Other income (expense), net including translation and exchange |
|
|
40,316 |
|
|
|
(83 |
) |
|
|
(563 |
) |
|
|
(40,316 |
) |
|
|
(646 |
) |
Gain on early extinguishment of debt |
|
|
2,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,777 |
|
Interest income |
|
|
|
|
|
|
371 |
|
|
|
355 |
|
|
|
|
|
|
|
726 |
|
Interest expense |
|
|
(8,254 |
) |
|
|
(243 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
(8,551 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
34,839 |
|
|
|
22,783 |
|
|
|
27,642 |
|
|
|
(39,801 |
) |
|
|
45,463 |
|
Provision for income taxes |
|
|
1,979 |
|
|
|
2,480 |
|
|
|
7,968 |
|
|
|
|
|
|
|
12,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
32,860 |
|
|
|
20,303 |
|
|
|
19,674 |
|
|
|
(39,801 |
) |
|
|
33,036 |
|
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
|
(469 |
) |
|
|
294 |
|
|
|
|
|
|
|
(175 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
32,860 |
|
|
|
19,834 |
|
|
|
19,968 |
|
|
|
(39,801 |
) |
|
|
32,861 |
|
Less: Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Valeant |
|
$ |
32,860 |
|
|
$ |
19,834 |
|
|
$ |
19,967 |
|
|
$ |
(39,801 |
) |
|
$ |
32,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Operations
For the Six Months Ended June 30, 2010
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI |
|
|
Guarantors |
|
|
Non-Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
$ |
|
|
|
$ |
178,112 |
|
|
$ |
249,451 |
|
|
$ |
(3,598 |
) |
|
$ |
423,965 |
|
Service revenue |
|
|
|
|
|
|
5,702 |
|
|
|
3,654 |
|
|
|
|
|
|
|
9,356 |
|
Alliance revenue |
|
|
|
|
|
|
54,244 |
|
|
|
|
|
|
|
|
|
|
|
54,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
238,058 |
|
|
|
253,105 |
|
|
|
(3,598 |
) |
|
|
487,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization) |
|
|
|
|
|
|
26,159 |
|
|
|
91,995 |
|
|
|
(3,313 |
) |
|
|
114,841 |
|
Cost of services |
|
|
|
|
|
|
3,511 |
|
|
|
2,934 |
|
|
|
|
|
|
|
6,445 |
|
Selling, general and administrative |
|
|
|
|
|
|
66,748 |
|
|
|
77,278 |
|
|
|
|
|
|
|
144,026 |
|
Research and development costs, net |
|
|
|
|
|
|
17,689 |
|
|
|
4,664 |
|
|
|
|
|
|
|
22,353 |
|
Special charges and credits |
|
|
|
|
|
|
1,550 |
|
|
|
|
|
|
|
|
|
|
|
1,550 |
|
Restructuring and acquisition-related costs |
|
|
|
|
|
|
8,238 |
|
|
|
3,492 |
|
|
|
|
|
|
|
11,730 |
|
Amortization expense |
|
|
|
|
|
|
31,942 |
|
|
|
9,723 |
|
|
|
|
|
|
|
41,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
|
|
|
|
155,837 |
|
|
|
190,086 |
|
|
|
(3,313 |
) |
|
|
342,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
|
|
|
|
82,221 |
|
|
|
63,019 |
|
|
|
(285 |
) |
|
|
144,955 |
|
Other income (expense), net including translation and exchange |
|
|
91,630 |
|
|
|
(1,640 |
) |
|
|
(296 |
) |
|
|
(91,630 |
) |
|
|
(1,936 |
) |
Interest income |
|
|
|
|
|
|
1,797 |
|
|
|
605 |
|
|
|
(1,556 |
) |
|
|
846 |
|
Interest expense |
|
|
(33,232 |
) |
|
|
(363 |
) |
|
|
(1,609 |
) |
|
|
1,556 |
|
|
|
(33,648 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
58,398 |
|
|
|
82,015 |
|
|
|
61,719 |
|
|
|
(91,915 |
) |
|
|
110,217 |
|
Provision (benefit) for income taxes |
|
|
(9,871 |
) |
|
|
34,066 |
|
|
|
18,183 |
|
|
|
|
|
|
|
42,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
68,269 |
|
|
|
47,949 |
|
|
|
43,536 |
|
|
|
(91,915 |
) |
|
|
67,839 |
|
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
|
23 |
|
|
|
409 |
|
|
|
|
|
|
|
432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
68,269 |
|
|
|
47,972 |
|
|
|
43,945 |
|
|
|
(91,915 |
) |
|
|
68,271 |
|
Less: Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Valeant |
|
$ |
68,269 |
|
|
$ |
47,972 |
|
|
$ |
43,943 |
|
|
$ |
(91,915 |
) |
|
$ |
68,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Operations
For the Six Months Ended June 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI |
|
|
Guarantors |
|
|
Non-Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
$ |
|
|
|
$ |
139,846 |
|
|
$ |
182,219 |
|
|
$ |
(2,367 |
) |
|
$ |
319,698 |
|
Service revenue |
|
|
|
|
|
|
8,930 |
|
|
|
3,525 |
|
|
|
(111 |
) |
|
|
12,344 |
|
Alliance revenue |
|
|
|
|
|
|
37,579 |
|
|
|
|
|
|
|
|
|
|
|
37,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
186,355 |
|
|
|
185,744 |
|
|
|
(2,478 |
) |
|
|
369,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization) |
|
|
|
|
|
|
22,360 |
|
|
|
63,703 |
|
|
|
(3,616 |
) |
|
|
82,447 |
|
Cost of services |
|
|
|
|
|
|
7,368 |
|
|
|
2,295 |
|
|
|
|
|
|
|
9,663 |
|
Selling, general and administrative |
|
|
|
|
|
|
67,891 |
|
|
|
57,951 |
|
|
|
|
|
|
|
125,842 |
|
Research and development costs, net |
|
|
|
|
|
|
16,019 |
|
|
|
1,871 |
|
|
|
(10 |
) |
|
|
17,880 |
|
Special charges and credits |
|
|
|
|
|
|
|
|
|
|
1,974 |
|
|
|
|
|
|
|
1,974 |
|
Restructuring and acquisition-related costs |
|
|
|
|
|
|
2,905 |
|
|
|
909 |
|
|
|
|
|
|
|
3,814 |
|
Amortization expense |
|
|
|
|
|
|
31,195 |
|
|
|
2,914 |
|
|
|
|
|
|
|
34,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
|
|
|
|
147,738 |
|
|
|
131,617 |
|
|
|
(3,626 |
) |
|
|
275,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
|
|
|
|
38,617 |
|
|
|
54,127 |
|
|
|
1,148 |
|
|
|
93,892 |
|
Other income (expense), net including translation and exchange |
|
|
76,155 |
|
|
|
(27 |
) |
|
|
593 |
|
|
|
(76,155 |
) |
|
|
566 |
|
Gain on early extinguishment of debt |
|
|
7,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,376 |
|
Interest income |
|
|
|
|
|
|
728 |
|
|
|
1,838 |
|
|
|
(6 |
) |
|
|
2,560 |
|
Interest expense |
|
|
(15,987 |
) |
|
|
(472 |
) |
|
|
(111 |
) |
|
|
6 |
|
|
|
(16,564 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
67,544 |
|
|
|
38,846 |
|
|
|
56,447 |
|
|
|
(75,007 |
) |
|
|
87,830 |
|
Provision for income taxes |
|
|
3,489 |
|
|
|
3,316 |
|
|
|
17,191 |
|
|
|
|
|
|
|
23,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
64,055 |
|
|
|
35,530 |
|
|
|
39,256 |
|
|
|
(75,007 |
) |
|
|
63,834 |
|
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
|
(590 |
) |
|
|
813 |
|
|
|
|
|
|
|
223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
64,055 |
|
|
|
34,940 |
|
|
|
40,069 |
|
|
|
(75,007 |
) |
|
|
64,057 |
|
Less: Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Valeant |
|
$ |
64,055 |
|
|
$ |
34,940 |
|
|
$ |
40,067 |
|
|
$ |
(75,007 |
) |
|
$ |
64,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 2010
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI |
|
|
Guarantors |
|
|
Non-Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(9,350 |
) |
|
|
243,176 |
|
|
|
(103,233 |
) |
|
|
(2,533 |
) |
|
|
128,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(486 |
) |
|
|
(8,056 |
) |
|
|
|
|
|
|
(8,542 |
) |
Proceeds from sale of assets |
|
|
|
|
|
|
|
|
|
|
417 |
|
|
|
|
|
|
|
417 |
|
Proceeds from investments |
|
|
|
|
|
|
13,584 |
|
|
|
4 |
|
|
|
|
|
|
|
13,588 |
|
Loans and advances (to) from joint ventures |
|
|
|
|
|
|
|
|
|
|
(628 |
) |
|
|
|
|
|
|
(628 |
) |
Acquisition of businesses, license rights and product lines |
|
|
|
|
|
|
(12,000 |
) |
|
|
(454,836 |
) |
|
|
|
|
|
|
(466,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities in continuing operations |
|
|
|
|
|
|
1,098 |
|
|
|
(463,099 |
) |
|
|
|
|
|
|
(462,001 |
) |
Cash flow from investing activities in discontinued operations |
|
|
|
|
|
|
3,308 |
|
|
|
(2,507 |
) |
|
|
|
|
|
|
801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
|
|
|
|
4,406 |
|
|
|
(465,606 |
) |
|
|
|
|
|
|
(461,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt and notes payable |
|
|
(2,600 |
) |
|
|
(3 |
) |
|
|
(6,260 |
) |
|
|
|
|
|
|
(8,863 |
) |
Proceeds from issuance of long-term debt and notes payable |
|
|
422,499 |
|
|
|
|
|
|
|
5,324 |
|
|
|
|
|
|
|
427,823 |
|
Stock option exercises and employee stock purchases |
|
|
26,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,847 |
|
Payments of employee withholding taxes related to equity awards |
|
|
(1,304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,304 |
) |
Excess tax deduction from stock options exercised |
|
|
3,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,239 |
|
Purchase of treasury stock |
|
|
(106,587 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106,587 |
) |
Intercompany |
|
|
(332,744 |
) |
|
|
(228,627 |
) |
|
|
558,838 |
|
|
|
2,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities in continuing operations |
|
|
9,350 |
|
|
|
(228,630 |
) |
|
|
557,902 |
|
|
|
2,533 |
|
|
|
341,155 |
|
Cash flow from financing activities in discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
9,350 |
|
|
|
(228,630 |
) |
|
|
557,902 |
|
|
|
2,533 |
|
|
|
341,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
(712 |
) |
|
|
|
|
|
|
(712 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
|
|
18,952 |
|
|
|
(11,649 |
) |
|
|
|
|
|
|
7,303 |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
26,182 |
|
|
|
41,898 |
|
|
|
|
|
|
|
68,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
45,134 |
|
|
$ |
30,249 |
|
|
$ |
|
|
|
$ |
75,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPI |
|
|
Guarantors |
|
|
Non-Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
56,519 |
|
|
$ |
72,744 |
|
|
$ |
39,099 |
|
|
$ |
(88,513 |
) |
|
$ |
79,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(2,725 |
) |
|
|
(6,383 |
) |
|
|
|
|
|
|
(9,108 |
) |
Proceeds from sale of assets |
|
|
|
|
|
|
|
|
|
|
484 |
|
|
|
|
|
|
|
484 |
|
Proceeds from sale of businesses |
|
|
|
|
|
|
3,342 |
|
|
|
|
|
|
|
|
|
|
|
3,342 |
|
Proceeds from investments |
|
|
|
|
|
|
19,280 |
|
|
|
1,128 |
|
|
|
|
|
|
|
20,408 |
|
Purchase of investments |
|
|
|
|
|
|
(107,210 |
) |
|
|
|
|
|
|
|
|
|
|
(107,210 |
) |
Loans and advances (to) from joint ventures |
|
|
|
|
|
|
|
|
|
|
(802 |
) |
|
|
|
|
|
|
(802 |
) |
Acquisition of businesses, license rights and product lines |
|
|
|
|
|
|
(53,953 |
) |
|
|
(30,145 |
) |
|
|
|
|
|
|
(84,098 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities in continuing operations |
|
|
|
|
|
|
(141,266 |
) |
|
|
(35,718 |
) |
|
|
|
|
|
|
(176,984 |
) |
Cash flow from investing activities in discontinued operations |
|
|
|
|
|
|
(12,732 |
) |
|
|
2,122 |
|
|
|
|
|
|
|
(10,610 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
(153,998 |
) |
|
|
(33,596 |
) |
|
|
|
|
|
|
(187,594 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt and notes payable |
|
|
(92,073 |
) |
|
|
(111 |
) |
|
|
(2,117 |
) |
|
|
|
|
|
|
(94,301 |
) |
Proceeds from issuance of long-term debt and notes payable |
|
|
346,838 |
|
|
|
|
|
|
|
2,765 |
|
|
|
|
|
|
|
349,603 |
|
Stock option exercises and employee stock purchases |
|
|
31,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,445 |
|
Excess tax deduction from stock options exercised |
|
|
734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
734 |
|
Purchase of treasury stock |
|
|
(25,706 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,706 |
) |
Intercompany and dividends |
|
|
(317,757 |
) |
|
|
314,179 |
|
|
|
(84,935 |
) |
|
|
88,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities in continuing operations |
|
|
(56,519 |
) |
|
|
314,068 |
|
|
|
(84,287 |
) |
|
|
88,513 |
|
|
|
261,775 |
|
Cash flow from financing activities in discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(56,519 |
) |
|
|
314,068 |
|
|
|
(84,287 |
) |
|
|
88,513 |
|
|
|
261,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
(7,992 |
) |
|
|
|
|
|
|
(7,992 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
|
|
232,814 |
|
|
|
(86,776 |
) |
|
|
|
|
|
|
146,038 |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
56,280 |
|
|
|
143,302 |
|
|
|
|
|
|
|
199,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
289,094 |
|
|
$ |
56,526 |
|
|
$ |
|
|
|
$ |
345,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19. Commitments and Contingencies
We are involved in several legal proceedings, including the following matters:
SEC Investigation: We are the subject of a Formal Order of Investigation with respect to
events and circumstances surrounding trading in our common stock, the public release of data from
our first pivotal Phase III trial for taribavirin in March 2006, statements made in connection with
the public release of data and matters regarding our stock option grants since January 1, 2000 and
our restatement of certain historical financial statements announced in March 2008. In September
2006, our board of directors established a Special Committee to review our historical stock option
practices and related accounting, and informed the SEC of these efforts. We have cooperated fully
and will continue to cooperate with the SEC in its investigation. We cannot predict the outcome of
the investigation.
Securities Class Actions: On June 22, 2010, a stockholder of the Company filed a purported
class action complaint in Superior Court for Orange County, California captioned Deckter v. Valeant
Pharmaceuticals International, et al., Case No. 30-2010-383335-CU-BT-CXC, on behalf of himself and
all other stockholders of the Company against the Company and eight of its directors. On July 1,
2010, a stockholder of the Company filed a purported class action complaint in Superior Court for
Orange County, California captioned Pronko v. Valeant Pharmaceuticals International, et al., Case
No. 30-2010-386784-CU-SL-CXC, on behalf of himself and all other stockholders of the Company
against the Company and its directors. On July 13, 2010, a stockholder of the Company filed a
purported class action complaint in Superior Court for Orange County, California captioned Martino
v. Pearson, et al., Case No. 30-2010-389330-CU-SL-CXC, on behalf of herself and all other
stockholders of the Company against the Company and its directors. On July 14, 2010, a stockholder
of the Company filed a purported class action complaint in Superior Court for Orange County,
California captioned Haro v. Pearson, et al., Case No. 30-2010-389773-CU-BT-CXC, on behalf of
himself and all other stockholders of the Company against the
35
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company, certain officers and
directors of the Company, Biovail, Biovail Americas Corp., a wholly owned subsidiary of Biovail
(BAC), and Beach Merger Corp., a newly formed wholly owned subsidiary of BAC (Merger Sub). The
complaints variously allege that the individual defendants, aided and abetted by the Company,
Biovail, BAC and Merger Sub, breached their fiduciary duties of care, loyalty, candor, good faith
and independence to stockholders in connection with the proposed merger of the Company with Biovail
(see Note 20). Among other things, the complaints allege that the merger agreement fixes a price
per share that is inadequate and unfair, and effectively caps the value of the Companys stock and
precludes competitive bidding through measures such as a termination fee, a requirement that any
prior or ongoing discussions with other potential suitors be discontinued, non-solicitation and
notification covenants, and granting Biovail the right to match any unsolicited proposal. The
complaints also allege that the individual defendants are using the proposed merger to
aggrandize their own financial position at the expense of the Companys stockholders and have
ignored purported conflicts of interests. The complaints seek various forms of relief, including
rescissory damages and declaratory and injunctive relief, including enjoining or rescinding the
merger to the extent already implemented and requiring the defendants to effect a transaction which
is in the best interests of the Companys stockholders.
On July 16, 2010, a stockholder of the Company filed a purported class action complaint in the
Court of Chancery for the State of Delaware captioned Porto v. Valeant Pharmaceuticals
International, et al., Case No. 5644, on behalf of himself and all other stockholders of the
Company against the Company, the Companys directors, Biovail, BAC and Merger Sub. On July 21,
2010, a stockholder of the Company filed a purported class action complaint in the Court of
Chancery for the State of Delaware captioned Marion v. Pearson, et al., Case No. 5658, on behalf of
himself and all other stockholders of the Company against the Company and its directors. On July
22, 2010, a stockholder of the Company filed a purported class action complaint in the Court of
Chancery for the State of Delaware captioned Soukup v. Valeant Pharmaceuticals International, et
al., Case No. 5664, on behalf of himself and all other stockholders of the Company against the
Company, the Companys directors, Biovail, BAC and Merger Sub. The complaints variously allege that
the individual defendants, aided and abetted by the Company, Biovail, BAC and Merger Sub, breached
their fiduciary duties of care, loyalty, candor, good faith and independence to stockholders in
connection with the proposed merger of the Company with Biovail. Among other things, the complaints
allege that the merger agreement fixes a price per share that is inadequate and unfair, and
effectively caps the value of the Companys stock and precludes competitive bidding through
measures such as a termination fee, a requirement that any prior or ongoing discussions with other
potential suitors be discontinued, non-solicitation and notification covenants, and granting
Biovail the right to match any unsolicited proposal. The complaints also allege that the individual
defendants are using the proposed merger to aggrandize their own financial position at the expense
of the Companys stockholders and have ignored purported conflicts of interests. On July 27, 2010,
the plaintiffs in the Porto and Marion actions filed amended complaints that include the additional
allegations that the defendants failed to disclose adequate information to ensure an informed
stockholder vote and disclosed materially misleading information. The
complaints and amended
complaints seek various forms of relief, including rescissory damages and declaratory and
injunctive relief, including enjoining or rescinding the merger to the extent already implemented
and requiring the defendants to effect a transaction which is in the best interests of the
Companys stockholders.
The cases have just been filed and we have not yet responded to any of the complaints. We
intend to vigorously defend the actions and believe we have meritorious defenses to all of the
claims asserted.
Permax Product Liability Cases: On August 27, 2008, we were served product liability
complaints related to the pharmaceutical Permax in six separate cases by plaintiffs Prentiss and
Carol Harvey; Robert and Barbara Branson; Dan and Mary Ellen Leach; Eugene and Bertha Nelson;
Beverly Polin; and Ira and Michael Price against Eli Lilly and Company and Valeant Pharmaceuticals
International in Superior Court, Orange County, California (the California Permax Actions). The
California Permax Actions were consolidated under the heading of Branson v. Eli Lilly and Company,
et al. On September 15, 2008, we were served a complaint in a case captioned Linda R. OBrien v.
Eli Lilly and Company, Valeant Pharmaceuticals International, Amarin Corporation, plc, Amarin
Pharmaceuticals Inc., Elan Pharmaceuticals, Inc., Athena Neurosciences, Inc., Teva Pharmaceutical
Industries, Ltd., Par Pharmaceutical Companies, Inc., and Ivax Corporation in the Circuit Court of
the 11th Judicial Circuit, Miami-Dade County, Florida. On March 24, 2009, we were named as a
defendant in the following cases: Richard Andrew Baker v. Eli Lilly and Company, Valeant
Pharmaceuticals International, Amarin Corporation, plc, Amarin Pharmaceuticals Inc., Elan
Pharmaceuticals, Inc., Athena Neurosciences, Inc., Par Pharmaceutical Companies, Inc., Pfizer, Inc.
and Pharmacia Corporation in the United States District Court for the Northern District of Ohio,
Eastern Division; Edwin Elling v. Eli Lilly and Company, Valeant Pharmaceuticals International,
Amarin Corporation, plc, Amarin Pharmaceuticals Inc., Elan Pharmaceuticals, Inc. and Athena
Neurosciences, Inc. in the United Stated District Court for the Northern District of Texas, Ft.
Worth Division; and Judith LaVois v. Eli Lilly and Company, Valeant Pharmaceuticals International,
Amarin Corporation, plc, Amarin Pharmaceuticals Inc., Elan Pharmaceuticals, Inc., Athena
Neurosciences, Inc. and Teva Pharmaceuticals USA, Inc. in the United States District Court for the
Southern District of Texas, Houston Division. On March 25, 2009, we were named as a defendant in a
case captioned Penny M. Hagerman v. Eli Lilly and Company, Valeant Pharmaceuticals International,
Amarin Corporation, plc, Amarin
36
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pharmaceuticals Inc., Elan Pharmaceuticals, Inc., and Athena
Neurosciences, Inc. in the United States District Court for the District of Colorado. Eli Lilly,
initial holder of the right granted by the FDA to market and sell Permax in the United States,
which right was licensed to Amarin Pharmaceuticals Inc. and assigned to Valeant, and the source of
the manufactured product, has also been named in the suits. On January 15, 2010, we reached an
agreement in principle with plaintiffs to settle the OBrien, Baker, Elling, LaVois and Hagerman
matters. The Hagerman and Baker matters have been settled, and the matters were dismissed on June
2, 2010 and June 25, 2010, respectively and we expect that the OBrien matter will be dismissed
shortly. Settlement documentation is being finalized for the Elling and LaVois matters. On May 5,
2010, we reached an agreement in principle with plaintiffs to settle the California Permax actions,
and are in the process of finalizing settlement documentation for those matters. The portion of
these settlements for which we are responsible will not have a material impact on our financial
results. In addition to the lawsuits described above, we have received, and from time to time
receive, communications from third parties relating to potential claims that may be asserted with
respect to Permax.
Eli Lilly: On January 12, 2009, we were served a complaint in an action captioned Eli Lilly
and Company v. Valeant Pharmaceuticals International, Case No. 1:08-cv-1720-SEB-TAB in the U.S.
District Court for the Southern District of Indiana, Indianapolis Division (the Lilly Action). In
the Lilly Action, Lilly brought a claim against us for breach of contract and seeks a declaratory
judgment arising out of a February 25, 2004 letter agreement between and among Lilly, Valeant and
Amarin Corporation, plc related to cost-sharing for Permax product liability claims. On February 2,
2009, we filed counterclaims against Lilly seeking a declaratory judgment and indemnification under
the letter agreement. We have responded to two motions for partial summary judgment brought by
Lilly, and are in the process of defending the Lilly Action. Non-expert discovery closed on July 1,
2010, and expert discovery is proceeding. Trial is scheduled for November 2010.
Tolmar Matter: On or around January 19, 2009, Tolmar, Inc. (Tolmar) notified Galderma
Laboratories, L.P. and Dow 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. The Court has
ordered preliminary mediation in the matter to be completed on or before September 9, 2010.
Galderma and Dow have served opposition to Tolmars Summary Judgment motion. A date for a hearing
on the Summary Judgment motion has not been assigned by the Court. 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 court, whichever is earlier.
Other: We are a party to other pending lawsuits and subject to a number of threatened
lawsuits. While the ultimate outcome of pending and threatened lawsuits or pending violations
cannot be predicted with certainty, and an unfavorable outcome could have a negative impact on us,
at this time in the opinion of management, the ultimate resolution of these matters will not have a
material effect on our consolidated financial position, results of operations or liquidity.
37
VALEANT PHARMACEUTICALS INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
20. Merger with Biovail
On June 20, 2010, we entered into
an Agreement and Plan of Merger (the Merger Agreement)
with Biovail, BAC and Merger Sub.
Pursuant to the Merger Agreement, Merger Sub will merge with and into Valeant with Valeant continuing as the
surviving corporation. On the date of the closing of the merger, Biovail will change its name
to Valeant Pharmaceuticals International, Inc.
We intend to pay, on the business day immediately
preceding the effective time of the merger, a special dividend of $16.77 per share of our common stock to Valeant stockholders
of record as of the close of business on such day (the
Pre-Merger Special Dividend). If the merger is completed, each share of
our common stock issued and outstanding immediately prior
to the completion of the merger, other than shares owned by Valeant, Biovail, BAC or Merger Sub (all of which will be cancelled),
and other than those shares with respect to which appraisal rights are properly exercised under Delaware law and not withdrawn,
will be converted into the right to receive 1.7809 Biovail common shares. In addition, our then outstanding convertible notes,
if not converted prior to the date of the closing of the merger, and warrants issued pursuant to an Exchange Agreement in August
2009, if not exercised or expired prior to the date of the closing of the merger, will become convertible into, or exercisable for,
Biovail common shares.
The completion of the merger is subject to the approval of our stockholders and Biovail
shareholders and consummation of the financing, the terms of which are set forth in the Commitment
Letter (as defined below), or alternative financing. In addition, the merger is subject to other customary closing
conditions and regulatory approvals, including, among others, (i) the declaration by the SEC of the effectiveness of the
Registration Statement on Form S-4 filed with the SEC by Biovail on July 21, 2010 and the approval
of the listing on the Toronto Stock Exchange and the New York Stock Exchange of the
common shares of the combined company to be issued in connection with the merger; (ii) the payment
of the Pre-Merger Special Dividend and (iii) receipt by each party of an opinion of counsel stating
that the merger (1) should qualify for U.S. Federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code (the Code) and (2) U.S. holders of our
common stock should not recognize gain under Section 367(a) of the Code on the exchange of their
Valeant common stock for Biovail common shares in the merger. On July 22, 2010, the Federal Trade Commission
announced the grant of early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, with respect to the proposed merger contemplated by the Merger Agreement.
Valeant and Biovail have entered into a commitment letter (the Commitment Letter), dated as
of June 20, 2010, with Goldman Sachs Bank USA, Goldman Sachs Lending Partners LLC, Jefferies Group,
Inc. and Morgan Stanley Senior Funding, Inc. (such financial institutions being referred to as the
Commitment Parties), pursuant to which the Commitment Parties have committed to provide up to
$3.022 billion in loans for the purposes of (1) refinancing our Senior Secured Term Loan, 8.375%
Senior Notes and 7.625% Senior Notes, (2) funding the Pre-Merger Special Dividend and certain
expenses incurred in connection with the merger, (3) providing post-closing liquidity to the
combined company and (4) funding a post-merger special dividend of $1.00 per common
share of the combined company anticipated to be paid on December 31,
2010, or on such other date as the board of directors of the combined company may determine, subject to
the discretion of the board of directors of the combined company and to
compliance with applicable law (the Post-Merger Special Dividend).
The Commitment Letter provides for the following facilities:
|
|
|
Revolver: $250 million under a senior secured revolving credit facility; |
|
|
|
|
Term Loan A: $500 million under a senior secured term loan facility; and |
|
|
|
|
Term Loan B: up to $2.272 billion under a senior secured term loan facility ($300
million of which is a delayed draw directly linked to the payment of the Post-Merger
Special Dividend. |
The financing commitments of the Commitment Parties are subject to various conditions set
forth in the Commitment Letter. It is expected that Valeant, Biovail and the Commitment Parties
will enter into definitive loan documents with respect to the financing as contemplated by the
Commitment Letter prior to the closing of the merger.
In connection with the proposed refinancing of our 8.375% Senior Notes and 7.625% Senior
Notes, we expect to incur prepayment penalties aggregating
approximately $160.0 million. The Merger Agreement contains specified termination rights for each of us
and Biovail and further provides that, upon termination of the Merger Agreement by Biovail or us under certain
circumstances, the terminating
party may be obligated to pay the other party a termination fee of $100.0 million.
38
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This discussion of our results of operations should be read in conjunction with our condensed
consolidated financial statements included elsewhere in this Quarterly Report.
Unless stated otherwise, all forward-looking information contained in this Quarterly Report
does not take into account or give effect to the impact of the proposed merger with Biovail.
Merger with Biovail
On June 20, 2010, we entered into an Agreement and Plan of Merger (the Merger Agreement)
with Biovail Corporation (Biovail), Biovail Americas Corp., a wholly owned subsidiary of Biovail
(BAC) and Beach Merger Corp., a newly formed wholly owned subsidiary of BAC (Merger Sub).
Pursuant to the Merger Agreement, Merger Sub will merge with and into Valeant with Valeant
continuing as the surviving corporation. On the date of the closing of the merger, Biovail will
change its name to Valeant Pharmaceuticals International, Inc. (the Combined Company).
Under the terms of the
Merger Agreement, if the merger is completed, each outstanding share of our common stock, issued and
outstanding immediately prior to the completion of the merger, other than shares owned by Valeant, Biovail,
BAC or Merger Sub (all of which will be cancelled), and other than those shares with respect to which appraisal rights are properly exercised under Delaware law and not withdrawn, will be converted into the right to receive 1.7809 Biovail common shares. In addition, our then outstanding convertible notes, if not converted prior to the date of the closing of the merger, and warrants issued pursuant to an Exchange Agreement in August 2009, if
not exercised or expired prior to the date of the closing of the
merger, will become convertible into, or exercisable for, Biovail
common shares. On the business day immediately preceding the effective time of the proposed merger, we intend to
pay a special cash dividend of $16.77 per share of our common stock to Valeant stockholders of record as of the
close of business on such day
(the Pre-Merger Special Dividend). Subject to the discretion of the board of directors of the Combined
Company, and to compliance with applicable law, it is anticipated that on December 31, 2010, or such other
date as the board of directors of the Combined Company may determine, a special cash dividend of $1.00 per share
will be paid to holders of common shares of the Combined Company. Upon completion of the merger, Valeant stockholders
will own approximately 49.5% and Biovail shareholders will own approximately 50.5% of the Combined Company, each on a fully diluted basis.
The Merger Agreement generally requires us to operate our business in the ordinary course
pending consummation of the proposed merger, but includes certain contractual restrictions on the
conduct of our business that may affect our ability to execute on our business strategies and
attain our financial goals. Additionally, the announcement of the proposed merger, whether or not
consummated, may impact our relationships with third parties, including collaboration partners,
suppliers, distributors, key opinion leaders, consumers and others. The consummation of the merger
could result in changes to the terms of, and/or trigger payments and other obligations under,
certain of our agreements, including contracts, employee benefit arrangements and debt instruments.
The completion of the merger is subject to the approval of our stockholders and Biovail
shareholders, consummation of the related financing (as described in the subsection Liquidity and
Capital Resources below) or alternative financing, and other
customary closing conditions and regulatory approvals, including, among others, (i) the
declaration by
the Securities and Exchange Commission (the SEC) of the effectiveness of the Registration
Statement on Form S-4 filed with the SEC by Biovail on July 21, 2010 and the approval of the
listing on the Toronto Stock Exchange and the New York Stock Exchange of the shares of common stock
of the Combined Company to be issued in connection with the merger; (ii) the payment of the
Pre-Merger Special Dividend and (iii) receipt by each party of an opinion of counsel stating that
the merger (1) should qualify for U.S. Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code (the Code) and (2) U.S. holders of our
common stock should not recognize gain under Section 367(a) of the Code on the exchange of their
Valeant common stock for Biovail common shares in the merger. On July 22, 2010, the Federal Trade Commission announced the
grant of early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
with respect to
the proposed merger contemplated by the Merger Agreement.
The Merger Agreement contains specified termination rights for each of us and Biovail and
further provides that, upon termination of the Merger Agreement by Biovail or us under certain
circumstances, the terminating party may be obligated to pay the
other party a termination fee of $100.0 million.
We incurred $4.8 million of acquisition-related transaction costs in the six months ended June
30, 2010. These costs primarily included legal and other professional fees. We also expect to incur
additional merger-related costs in the second half of 2010.
39
For additional information regarding the potential risks and uncertainties associated with the
proposed merger with Biovail, please see Part II, Item 1A, Risk Factors, of this Quarterly
Report.
Company Overview
Introduction
We are a multinational specialty pharmaceutical company that develops, manufactures and
markets a broad range of pharmaceutical products. Our specialty pharmaceutical and OTC products are
marketed under brand names and are sold in the United States, Canada, Australia and New Zealand,
where we focus most of our efforts on the dermatology and neurology therapeutic classes. We also
have branded generic and OTC operations in Europe and Latin America which focus on pharmaceutical
products that are bioequivalent to original products and are marketed under company brand names.
Business Strategy
Our strategy is to focus the business on core geographies and therapeutic classes, maximize
pipeline assets through strategic partnerships with other pharmaceutical companies and deploy cash
with an appropriate mix of selective acquisitions, share buybacks and debt repurchases, while
highlighting key opportunities for growth.
Since 2008, we have reduced our focus to two therapeutic classes, dermatology and neurology,
and to five geographic areas, U.S., Canada, Australia/New Zealand, Mexico/Brazil and Central
Europe.
Our leveraged research and development (R&D) model is a key element to our business
strategy. It allows us to progress development programs to drive future commercial growth, while
minimizing our R&D expense. This is achieved in four ways: (1) we structure partnerships and
collaborations so that our partner partially funds development work, e.g., collaboration on
ezogabine/retigabine with Glaxo Group Limited (GSK), a wholly owned subsidiary of GlaxoSmithKline
plc, (2) we bring products already developed for other markets to our territories, e.g., our joint
venture relationship in Canada, Australia and Mexico with Meda AB (Meda), an international
specialty pharmaceutical company located in Stockholm, Sweden, (3) we acquire dossiers and
registrations for branded generic products, which require limited and low risk manufacturing
start-up and development activities and (4) we have a dermatology service business that works with
external customers as well as progressing our internal development programs. This service business
model allows higher utilization and infrastructure cost absorption.
In the first half of 2010 we consummated the following acquisitions:
|
|
|
rights from Spear Pharmaceuticals, Inc. and Spear Dermatology Products, Inc.
(collectively, Spear) to commercialize Refissa®, a prescription based topical
tretinoin cream used to diminish fine lines and wrinkles and fade irregular pigmentation
due to sun damage (February 2010); |
|
|
|
|
Instituto Terapeutico Delta Ltda (Delta), a privately-held company located in
Brazil, whose portfolio consists of primarily branded generics and over the counter
(OTC) dermatological products, including a manufacturing plant in Brazil approved to
produce solids, semisolids and liquids (April 2010); |
|
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|
an additional privately-held pharmaceutical company located in Brazil, which
primarily focuses on branded generics and OTC dermatological products (April 2010); |
|
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|
rights to certain dermatology products in Poland (April 2010); |
|
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|
|
VitalScience Corp. (VitalScience), a privately-held OTC dermatology company located
in Canada (May 2010); and |
|
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|
|
Princeton Pharma Holdings LLC, a privately-held company located in the U.S., and its
wholly owned operating subsidiary, Aton Pharma, Inc., a U.S.-based specialty
pharmaceutical company focused on ophthalmology and certain orphan drug indications
(collectively, Aton) (May 2010). |
40
Segment Information
Our products are sold through three segments comprising Specialty pharmaceuticals, Branded
generics Europe and Branded generics Latin America. The Specialty pharmaceuticals segment
generates product revenues primarily from the United States, Canada, Australia and New Zealand. The
Branded generics Europe segment generates product revenues from branded generic pharmaceutical
products primarily in Poland, Hungary, the Czech Republic and Slovakia. The Branded generics
Latin America segment generates product revenues from branded generic pharmaceutical products and
OTC products primarily in Mexico and Brazil.
Additionally, within our Specialty pharmaceuticals segment, we generate alliance revenue and
service revenue from the licensing of dermatological products and from contract services in the
areas of dermatology and topical medication. Alliance revenue within our Specialty pharmaceuticals
segment currently includes profit sharing payments from the sale of a 1% clindamycin and 5% benzoyl
peroxide gel product (IDP-111) by Mylan Pharmaceuticals Inc. (Mylan), royalty payments on net
sales of Cesamet in the U.S. through a license agreement entered into with Meda in September 2009
and royalties from patent-protected formulations developed by our subsidiary, Dow Pharmaceutical
Sciences, Inc. (Dow), and licensed to third parties. In addition, we will receive future
royalties on net sales of two dermatology products in Europe pursuant to license agreements entered
into with Meda. Contract services are primarily focused on contract research for external
development and clinical research in areas such as formulations development, in vitro drug
penetration studies, analytical sciences and consulting in the areas of labeling and regulatory
affairs. We also generate revenues associated with the Collaboration Agreement with GSK (as defined
below).
Alliance Revenue (Ribavirin Royalties only)
Royalties are derived from sales of ribavirin by Merck & Co., Inc. (Merck) (formerly
Schering-Plough Ltd. (Schering-Plough)). Ribavirin is a nucleoside analog that we discovered. In
1995, Schering-Plough licensed from us all oral forms of ribavirin for the treatment of chronic
hepatitis C. Ribavirin royalties will be discontinued for sales in European countries after the
ten-year anniversary of the launch of the product, which varied by European country and started in
May 1999. We expect ribavirin royalties to continue to decline in 2010 predominantly due to
discontinued royalty payments for European countries and to be an insignificant portion of our
revenues after 2010.
Research and Development
Our research and development organization focuses on the development of products through
clinical trials. We currently have a number of compounds in clinical development, including, but
not limited to: ezogabine/retigabine, IDP-107, IDP-108, IDP-113 and IDP-115. See the Products in
Development section below for further discussion of these products.
Collaboration Agreement with GSK
In October 2008, we closed the worldwide License and Collaboration Agreement (the
Collaboration Agreement) with Glaxo Group Limited, a wholly owned subsidiary of GlaxoSmithKline
plc (GSK) to develop and commercialize a compound to treat adult epilepsy patients with
refractory partial-onset seizures, and its backup compounds. The generic name of this compound will
be ezogabine in the Untied States and retigabine in all other countries. Ezogabine/retigabine is a
first-in-class neuronal potassium channel opener.
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 ezogabine/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 of our
participatory obligations, which will end no later than the launch date of an ezogabine/retigabine
product (the Pre-Launch Period). We recognize alliance
41
revenue during the Pre-Launch Period as we
complete our performance obligations using the proportional performance model, which requires us to
determine and measure the completion of our expected development and pre-commercialization costs
during the Pre-Launch Period, in addition to our participation in the joint steering committee. We
expect to complete our research and development and pre-commercialization obligations in effect
during the Pre-Launch Period by the first quarter of 2011.
GSK has the right to terminate the Collaboration Agreement at any time prior to the receipt of
the approval by the U.S. Food and Drug Administration (FDA) of a new drug application (NDA) for
an ezogabine product, which right may be irrevocably waived at any time by GSK. The period of time
prior to such termination or waiver is referred to as the Review Period. If GSK terminates the
Collaboration Agreement prior to December 31, 2010, we would be required to refund to GSK a portion
of the upfront fee. In February 2009, the Collaboration Agreement was amended to, among other
matters, reduce the maximum amount that we would be required to refund to GSK to $20.0 million
through June 30, 2010, with additional ratable reductions in the amount of the required refund
during 2010 until reaching zero at December 31, 2010.
During the three and six months ended June 30, 2010, the combined research and development
expenses and pre-commercialization expenses incurred under the Collaboration Agreement by us and
GSK were $12.7 million and $24.0 million, respectively, compared to $13.5 million and $26.9 million
in the corresponding periods in 2009. Alliance revenue related to the
Collaboration Agreement in the second quarter of 2010 was $9.6 million compared to $2.8 million in the second quarter of 2009.
The increased alliance revenue
is a result of revised projections of the mix and level of activity undertaken by
us and GSK as we meet our remaining participatory obligations to the collaboration. Total combined
expenses by us and GSK for the Collaboration Agreement through June 30, 2010 were $102.3 million.
For further information regarding the Collaboration Agreement see Note 4 of notes to condensed
consolidated financial statements included elsewhere in this Quarterly Report.
Pharmaceutical Products
Product sales from our pharmaceutical segments accounted for 86% and 87% of our total revenues
from continuing operations for the three and six months ended June 30, 2010, respectively, compared
to 87% and 86% for the corresponding periods in 2009. Product sales increased $52.6 million (32%)
and $104.3 million (33%) for the three and six months ended June 30, 2010, respectively, compared
to the corresponding periods in 2009. The 32% increase in pharmaceutical product sales for the
three months ended June 30, 2010 was due to a 24% increase in volume, a 6% increase due to currency
fluctuations and a 2% increase in price. The 33% increase in pharmaceutical product sales for the
six months ended June 30, 2010 was due to a 20% increase in volume, a 9% increase due to currency
fluctuations and a 4% increase in price.
On March 23, 2010, the new healthcare legislation was signed into law by President Obama. The
law includes an increase in the basic Medicaid rebate rate from 15.1% to 23.1% and the requirement
to pay rebates on all Medicaid Managed Care. These changes resulted in reductions of $2.6 million
and $5.3 million in our consolidated revenues in the three and six months ended June 30, 2010,
respectively.
On October 12, 2007, we entered into a license agreement with Barr Laboratories (now Teva
Pharmaceuticals (Teva)), which granted Teva an exclusive license to launch a generic version of
Diastat under our NDA beginning on September 1, 2010. We have announced publicly that we will
follow a commercial strategy of treating our branded Diastat product as a generic product when Teva
launches its product. This strategy will include reduced pricing of Diastat. Implications of this
approach are not yet determinable.
We have experienced generic challenges and other competition to our products, as well as price
and currency challenges, and expect these challenges to continue in 2010 and beyond.
Results of Operations
Certain financial information for our business segments is set forth below. This discussion of
our results of operations should be read in conjunction with the condensed consolidated financial
statements included elsewhere in
this Quarterly Report. For additional financial information by business segment, see Note 15
of notes to condensed consolidated financial statements included elsewhere in this Quarterly
Report.
42
The following table summarizes revenues by reportable segments and operating expenses for the
three and six months ended June 30, 2010 and 2009:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals product sales |
|
$ |
126,901 |
|
|
$ |
96,634 |
|
|
$ |
247,643 |
|
|
$ |
182,947 |
|
Specialty pharmaceuticals service and alliance revenue |
|
|
30,143 |
|
|
|
12,196 |
|
|
|
52,666 |
|
|
|
24,101 |
|
Branded generics Europe product sales |
|
|
40,785 |
|
|
|
34,032 |
|
|
|
82,493 |
|
|
|
69,370 |
|
Branded generics Latin America product sales |
|
|
51,772 |
|
|
|
36,199 |
|
|
|
93,829 |
|
|
|
67,381 |
|
Alliances (ribavirin royalties only) |
|
|
5,973 |
|
|
|
12,637 |
|
|
|
10,934 |
|
|
|
25,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues |
|
|
255,574 |
|
|
|
191,698 |
|
|
|
487,565 |
|
|
|
369,621 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding amortization) |
|
|
60,638 |
|
|
|
42,750 |
|
|
|
114,841 |
|
|
|
82,447 |
|
Cost of services |
|
|
3,279 |
|
|
|
5,337 |
|
|
|
6,445 |
|
|
|
9,663 |
|
Selling, general and administrative |
|
|
73,485 |
|
|
|
61,626 |
|
|
|
144,026 |
|
|
|
125,842 |
|
Research and development costs, net |
|
|
11,951 |
|
|
|
9,146 |
|
|
|
22,353 |
|
|
|
17,880 |
|
Special charges and credits |
|
|
1,012 |
|
|
|
1,974 |
|
|
|
1,550 |
|
|
|
1,974 |
|
Restructuring and acquisition-related costs |
|
|
10,706 |
|
|
|
2,603 |
|
|
|
11,730 |
|
|
|
3,814 |
|
Amortization expense |
|
|
22,335 |
|
|
|
17,105 |
|
|
|
41,665 |
|
|
|
34,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
72,168 |
|
|
$ |
51,157 |
|
|
$ |
144,955 |
|
|
$ |
93,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computations of percentage change period over period are based upon our results, as rounded
and presented herein.
Product Sales Revenues: In the Specialty pharmaceuticals segment, revenues from product sales
for the three months ended June 30, 2010 were $126.9 million, compared to $96.6 million for the
corresponding period in 2009, representing an increase of $30.3 million (31%). Revenues from
product sales for the six months ended June 30, 2010 were $247.6 million, compared to $182.9
million for the corresponding period in 2009, representing an increase of $64.7 million (35%). The
increase in product sales in the three months ended June 30, 2010 was driven primarily by sales of
products acquired in 2010 as part of the acquisitions of Aton and VitalScience, which contributed
$11.0 million, and sales of products acquired in late 2009 as part of the acquisitions of Private
Formula International Holdings Pty Limited (PFI) and Laboratoire Dr. Renaud (Dr. Renaud), which
contributed $7.3 million in the three months ended June 30, 2010. Net sales growth of existing
products added $4.3 million in the three months ended June 30, 2010 and the appreciation of the
Canadian Dollar and Australian Dollar relative to the U.S. Dollar resulted in additional increases
of $3.6 million. Revenues also increased due to the completion
of our periodic review of our returns reserve in the
second quarter of 2010, which resulted in a $4.0 million reduction in estimated reserves for future
product returns to reflect the effect of recent actual product returns.
Product sales increases in the six months ended June 30, 2010 were driven
by net growth of $26.2 million in existing products, including Acanya which was launched
in March 2009; as well as from sales of products acquired in late 2009 as part of the acquisitions
of PFI and Dr. Renaud, which contributed $14.6 million and sales of products acquired in 2010 as
part of the acquisitions of Aton and VitalScience which contributed $11.0 million in the six months
ended June 30, 2010. In the six months ended June 30, 2010, the appreciation of the Canadian Dollar
and Australian Dollar relative to the U.S. Dollar resulted in additional increases of $8.9 million.
In the Branded generics Europe segment, revenues for the three months ended June 30, 2010
were $40.8 million, compared to $34.0 million for the corresponding period in 2009, representing an
increase of $6.8 million (20%). Revenues for the six months ended June 30, 2010 were $82.5 million,
compared to $69.4 million for the corresponding period in 2009, representing an increase of $13.1
million (19%). Sales increases in the three months ended June 30, 2010 were primarily attributable
to growth in sales of existing products of $2.4 million, incremental revenues of $1.9 million in
the three months ended June 30, 2010 from the April 2009 acquisition of EMO-FARM sp. z o.o
(Emo-Farm) and sales of products acquired in the second quarter of 2010 of $1.5 million. The
appreciation of foreign currencies, particularly the Polish Zloty, relative to the U.S. Dollar
resulted in increases of $0.9 million in
43
product sales revenue in the three months ended June 30, 2010. The appreciation of foreign
currencies, particularly the Polish Zloty, relative to the U.S. Dollar resulted in increases of
$7.7 million in product sales revenue in the six months ended June 30, 2010, in addition to
incremental revenues of $4.6 million in the six months ended June 30, 2010 from the April 2009
acquisition of Emo-Farm and $1.5 million from sales of products
acquired in 2010, offset in part by $0.7 million
attributable to decreases in sales of existing products.
In the Branded generics Latin America segment, revenues for the three months ended June 30,
2010 were $51.8 million, compared to $36.2 million for the corresponding period in 2009,
representing an increase of $15.6 million (43%). Revenues for the six months ended June 30, 2010
were $93.8 million, compared to $67.4 million for the corresponding period in 2009, representing an
increase of $26.4 million (39%). Revenues attributable to the April 2010 acquisitions in Brazil
contributed $7.7 million of revenues in the three and six months ended June 30, 2010. The third
quarter 2009 acquisition of Tecnofarma S.A. de C.V. (Tecnofarma) contributed an additional $5.2
million in the second quarter of 2010. Product sales revenue increased $2.3 million due to the
appreciation of foreign currencies, particularly the Mexican Peso, relative to the U.S. Dollar in
the three months ended June 30, 2010, and $0.3 million
attributable to increases in sales of existing products. Revenues attributable to the third quarter 2009 acquisition
of Tecnofarma contributed revenues of $9.9 million in the six months ended June 30, 2010. Product
sales revenue increased $7.4 million due to the appreciation of foreign currencies, particularly
the Mexican Peso, relative to the U.S. Dollar in the six months ended
June 30, 2010, and $1.4 million attributable to increases in
sales of existing products.
Specialty Pharmaceuticals Service and Alliance Revenue: Service and alliance revenue in the
Specialty pharmaceuticals segment consists of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue |
|
$ |
4,396 |
|
|
$ |
5,606 |
|
|
$ |
9,356 |
|
|
$ |
12,344 |
|
Specialty pharmaceuticals alliance revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties |
|
|
4,160 |
|
|
|
3,790 |
|
|
|
7,585 |
|
|
|
5,639 |
|
1% clindamycin and 5% benzoyl peroxide gel profit share |
|
|
11,232 |
|
|
|
|
|
|
|
20,530 |
|
|
|
|
|
License payments |
|
|
765 |
|
|
|
|
|
|
|
1,466 |
|
|
|
|
|
GSK Collaboration |
|
|
9,590 |
|
|
|
2,800 |
|
|
|
13,729 |
|
|
|
6,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty pharmaceuticals alliance revenue |
|
|
25,747 |
|
|
|
6,590 |
|
|
|
43,310 |
|
|
|
11,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty pharmaceuticals service and alliance revenue |
|
$ |
30,143 |
|
|
$ |
12,196 |
|
|
$ |
52,666 |
|
|
$ |
24,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We receive revenue from contract research services performed by Dow in the areas of
dermatology and topical medication. The services are primarily focused on contract research for
external development and clinical research in areas such as formulations development, in vitro drug
penetration studies, analytical sciences and consulting in the areas of labeling, and regulatory
affairs.
We receive royalties from patent protected formulations developed by Dow and licensed to third
parties. These royalties were $4.2 million and $7.6 million for the three and six months ended June
30, 2010, respectively, compared to $3.8 million and $5.6 million in the corresponding periods 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 $11.2 million and $20.5 million in the three and six months ended June 30,
2010, respectively. We received $0.8 million and $1.5 million in initial fees pursuant to licensing
agreements for various products in the three and six months ended June 30, 2010, respectively.
We also earned $9.6 million and $13.7 million under the GSK Collaboration Agreement for the
three and six months ended June 30, 2010, respectively, compared to $2.8 million and $6.1 million
in the corresponding periods in 2009. The increased alliance revenue is a result of revised projections of the mix
and level of activity undertaken by us and GSK as we meet our remaining participatory obligations to the collaboration.
Alliance Revenue (Ribavirin Royalties only): Ribavirin royalty revenue was $6.0 million and
$10.9 million for the three and six months ended June 30, 2010, respectively, compared to $12.6
million and $25.8 million in the corresponding periods in 2009. We expect ribavirin royalties to
continue to decline in 2010 as royalty payments from Merck will continue for European sales only
until the ten-year anniversary of the launch of the product, which varied by European country and
started in May 1999.
44
Gross Profit Margin: Gross profit margin on product sales, net of product-related intangible
amortization, was 63% and 64% for the three and six months ended June 30, 2010, respectively,
compared to 66% and 65% for the corresponding periods in 2009. Product amortization expense was
$19.9 million and $36.7 million in the three and six months ended June 30, 2010, respectively,
compared to $14.8 million and $29.5 million in the corresponding periods in 2009. The increase in
product amortization expense is primarily attributable to products acquired in the first half of
2010 and in the second through fourth quarters of 2009.
Gross profit margin on product sales (excluding product-related intangible amortization) was
72% and 73% for the three and six months ended June 30, 2010, respectively, compared to 74% in each
of the corresponding periods in 2009. The gross profit margin in the Specialty pharmaceuticals
segment was relatively flat in the three and six months ended June 30, 2010, compared to the
corresponding period in 2009, reflecting a 2% increase in the three-month period. The gross profit
margin in the Branded generics Latin America segment in the three and six months ended June 30,
2010 decreased primarily due to the inclusion of lower margin sales attributable to the July 2009 Tecnofarma
acquisition. The increase in the gross profit margin in the Branded generics Europe segment in
the three and six months ended June 30, 2010 is primarily due to lower sales from low-margin
distribution contracts, favorable manufacturing variances and favorable purchase price variances
attributable to the strengthening of the Polish Zloty against the Euro.
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
Increase |
|
|
Percentage |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit (excluding amortization) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals |
|
$ |
104,780 |
|
|
$ |
78,453 |
|
|
$ |
26,327 |
|
|
|
34 |
% |
% of product sales |
|
|
83 |
% |
|
|
81 |
% |
|
|
|
|
|
|
|
|
Branded generics Europe |
|
|
23,147 |
|
|
|
19,048 |
|
|
|
4,099 |
|
|
|
22 |
% |
% of product sales |
|
|
57 |
% |
|
|
56 |
% |
|
|
|
|
|
|
|
|
Branded generics Latin America |
|
|
31,116 |
|
|
|
26,601 |
|
|
|
4,515 |
|
|
|
17 |
% |
% of product sales |
|
|
60 |
% |
|
|
73 |
% |
|
|
|
|
|
|
|
|
Corporate |
|
|
(224 |
) |
|
|
13 |
|
|
|
(237 |
) |
|
|
NM |
|
% of product sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated gross profit |
|
$ |
158,819 |
|
|
$ |
124,115 |
|
|
$ |
34,704 |
|
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of product sales |
|
|
72 |
% |
|
|
74 |
% |
|
|
|
|
|
|
|
|
Amortization product related |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals |
|
$ |
17,259 |
|
|
$ |
13,443 |
|
|
$ |
3,816 |
|
|
|
28 |
% |
Branded generics Europe |
|
|
1,088 |
|
|
|
497 |
|
|
|
591 |
|
|
|
119 |
% |
Branded generics Latin America |
|
|
1,503 |
|
|
|
855 |
|
|
|
648 |
|
|
|
76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization product related |
|
$ |
19,850 |
|
|
$ |
14,795 |
|
|
$ |
5,055 |
|
|
|
34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit (including amortization) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals |
|
$ |
87,521 |
|
|
$ |
65,010 |
|
|
$ |
22,511 |
|
|
|
35 |
% |
% of product sales |
|
|
69 |
% |
|
|
67 |
% |
|
|
|
|
|
|
|
|
Branded generics Europe |
|
|
22,059 |
|
|
|
18,551 |
|
|
|
3,508 |
|
|
|
19 |
% |
% of product sales |
|
|
54 |
% |
|
|
55 |
% |
|
|
|
|
|
|
|
|
Branded generics Latin America |
|
|
29,613 |
|
|
|
25,746 |
|
|
|
3,867 |
|
|
|
15 |
% |
% of product sales |
|
|
57 |
% |
|
|
71 |
% |
|
|
|
|
|
|
|
|
Corporate |
|
|
(224 |
) |
|
|
13 |
|
|
|
(237 |
) |
|
|
NM |
|
% of product sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated gross profit |
|
$ |
138,969 |
|
|
$ |
109,320 |
|
|
$ |
29,649 |
|
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of product sales |
|
|
63 |
% |
|
|
66 |
% |
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
Increase |
|
|
Percentage |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit (excluding amortization) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals |
|
$ |
202,519 |
|
|
$ |
149,402 |
|
|
$ |
53,117 |
|
|
|
36 |
% |
% of product sales |
|
|
82 |
% |
|
|
82 |
% |
|
|
|
|
|
|
|
|
Branded generics Europe |
|
|
46,723 |
|
|
|
37,969 |
|
|
|
8,754 |
|
|
|
23 |
% |
% of product sales |
|
|
57 |
% |
|
|
55 |
% |
|
|
|
|
|
|
|
|
Branded generics Latin America |
|
|
60,208 |
|
|
|
49,886 |
|
|
|
10,322 |
|
|
|
21 |
% |
% of product sales |
|
|
64 |
% |
|
|
74 |
% |
|
|
|
|
|
|
|
|
Corporate |
|
|
(327 |
) |
|
|
(6 |
) |
|
|
(321 |
) |
|
|
NM |
|
% of product sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated gross profit |
|
$ |
309,123 |
|
|
$ |
237,251 |
|
|
$ |
71,872 |
|
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of product sales |
|
|
73 |
% |
|
|
74 |
% |
|
|
|
|
|
|
|
|
Amortization product related |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals |
|
$ |
32,251 |
|
|
$ |
27,114 |
|
|
$ |
5,137 |
|
|
|
19 |
% |
Branded generics Europe |
|
|
1,910 |
|
|
|
731 |
|
|
|
1,179 |
|
|
|
161 |
% |
Branded generics Latin America |
|
|
2,532 |
|
|
|
1,634 |
|
|
|
898 |
|
|
|
55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization product related |
|
$ |
36,693 |
|
|
$ |
29,479 |
|
|
$ |
7,214 |
|
|
|
24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit (including amortization) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty pharmaceuticals |
|
$ |
170,268 |
|
|
$ |
122,288 |
|
|
$ |
47,980 |
|
|
|
39 |
% |
% of product sales |
|
|
69 |
% |
|
|
67 |
% |
|
|
|
|
|
|
|
|
Branded generics Europe |
|
|
44,813 |
|
|
|
37,238 |
|
|
|
7,575 |
|
|
|
20 |
% |
% of product sales |
|
|
54 |
% |
|
|
54 |
% |
|
|
|
|
|
|
|
|
Branded generics Latin America |
|
|
57,676 |
|
|
|
48,252 |
|
|
|
9,424 |
|
|
|
20 |
% |
% of product sales |
|
|
61 |
% |
|
|
72 |
% |
|
|
|
|
|
|
|
|
Corporate |
|
|
(327 |
) |
|
|
(6 |
) |
|
|
(321 |
) |
|
|
NM |
|
% of product sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated gross profit |
|
$ |
272,430 |
|
|
$ |
207,772 |
|
|
$ |
64,658 |
|
|
|
31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of product sales |
|
|
64 |
% |
|
|
65 |
% |
|
|
|
|
|
|
|
|
Selling, General and Administrative Expenses: Selling, general and administrative
(SG&A) expenses were $73.5 million and $144.0 million in the three and six months ended June 30,
2010, respectively, compared to $61.6 million and $125.8 million in the corresponding periods in
2009. As a percent of product sales and service revenue, SG&A expenses were 33% for the three and
six months ended June 30, 2010, compared to 36% and 38% in the corresponding periods in 2009. The
increase in SG&A expenses was primarily due to increased costs aggregating $5.8 million and $11.4
million in the three and six months ended June 30, 2010, respectively, attributable to 2009
acquisitions that occurred between July and December, in addition to $4.9 million in the three and
six months ended June 30, 2010 attributable to second quarter 2010 business acquisitions. SG&A
expenses increased $2.9 million and $8.8 million, in the three and six months ended June 30, 2010,
respectively, due to unfavorable currency impact. Stock-based compensation expense increased $3.4
million and $4.1 million in the three and six months ended June 30, 2010, respectively. These
increases were offset in part by other expense decreases.
Research and Development Costs: R&D expenses were $12.0 million and $22.4 million in the three
and six months ended June 30, 2010, respectively, compared to $9.1 million and $17.9 million in the
corresponding periods
47
in 2009, reflecting increases of $2.9 million (32%) and $4.5 million (25%), respectively. The
increase in R&D expenses was primarily related to increased R&D activities at our Dow subsidiary
and to a lesser extent to R&D activities at Tecnofarma and Dr. Renaud, which were acquired in July
2009 and December 2009, respectively.
Special Charges and Credits: Special charges and credits of $1.0 million and $1.6 million in
the three and six months ended June 30, 2010, respectively, primarily related to settlement of
certain legal disputes and related legal fees.
Special charges and credits in the three and six months ended June 30, 2009 primarily consist
of an initial license fee related to an exclusive license agreement 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.
Restructuring Costs: Restructuring costs related to our 2008 restructuring were negligible and
$0.1 million in the three and six months ended June 30, 2010, respectively, compared to $1.7
million and $2.9 million in the corresponding periods in 2009. These costs primarily consist of
contract cancellation costs and severance costs for employees who have or are expected to be
terminated as a result of the 2008 restructuring. For additional information, see Note 2 of notes
to condensed consolidated financial statements included elsewhere in this Quarterly Report.
Acquisition-Related Costs: Acquisition-related costs were $10.6 million and $11.6 million in
the three and six months ended June 30, 2010, respectively, compared to $1.0 million in each of the
corresponding periods in 2009. These costs consist of legal, accounting and other costs directly
related to our business acquisitions and integration and other costs including severance for
employees related to acquired businesses, professional fees related to financial processes and
information systems and other integration activities and transitional expenses. Transaction costs
in the three and six months ended June 30, 2010, include $4.8 million related to our pending merger
with Biovail.
Amortization: Amortization expense was $22.3 million and $41.7 million for the three and six
months ended June 30, 2010, respectively, compared to $17.1 million and $34.1 million in the
corresponding periods in 2009, reflecting increases of $5.2 million (30%) and $7.6 million (22%),
respectively. Amortization increased by $1.5 million and $3.6 million in the three and six months
ended June 30, 2010, respectively, related to the intangible assets obtained in our 2009
acquisitions, which occurred between April and December. Amortization expense increased $3.3
million in the three and six months ended June 30, 2010 related to the intangible assets obtained
in our 2010 business acquisitions and other product rights acquisitions.
Interest Expense and Income: Interest income decreased $0.3 million and $1.7 million for the
three and six months ended June 30, 2010 compared to the corresponding periods in 2009. The
decrease was due to lower invested cash balances and lower average investment interest rates.
Interest expense increased $12.0 million and $17.1 million for the three and six months ended June
30, 2010 compared to the corresponding period in 2009, due primarily to interest expense on our
$400.0 million senior notes due 2020 (the 7.625% Senior Notes) issued in April 2010 and our
$365.0 million senior notes due 2016 (the 8.375% Senior Notes) issued in June 2009, offset in
part by a decrease in interest expense due to the purchase of a portion of our 3.0% Convertible
Subordinated Notes (the 3.0% Notes) and 4.0% Convertible Subordinated Notes (the 4.0% Notes)
during 2009.
Gain on Early Extinguishment of Debt: During the six months ended June 30, 2009, we purchased
an aggregate of $117.6 million principal amount of the 3.0% Notes and 4.0% Notes at a purchase
price of $115.2 million. The carrying amount, net of unamortized debt issuance costs, of the 3.0%
Notes and 4.0% Notes purchased was $109.2 million and the estimated fair value of the Notes
exclusive of the conversion feature was $101.8 million. The difference between the carrying amount
and the estimated fair value was recognized as a gain of $7.4 million upon early extinguishment of
debt.
Other Income/Expense, Net, Including Translation and Exchange: Other income (expense), net,
including translation and exchange was expense of $1.4 million and $1.9 million for the three and
six months ended June 30, 2010, respectively, compared to expense of $0.6 million and income of
$0.6 million in the corresponding periods in 2009. The expense in the three and six months ended
June 30, 2010 related primarily to losses related to our joint
48
venture with Meda in Canada, from the weakening of the Australian Dollar against the U.S.
Dollar denominated cash and receivables, from the weakening Polish Zloty against the U.S. Dollar
denominated payables, and from the strengthening Polish Zloty against certain Eastern Europe
denominated cash and net receivables. The expense in the three months ended June 30, 2009 primarily
related to the weakening of the U.S. Dollar relative to the Euro, the Swiss Franc and the British
Pound resulting in translation and exchange losses on foreign currency denominated liabilities in
our U.S. Dollar denominated subsidiaries. The income in the six months ended June 30, 2009 resulted
primarily from the weakening of the Polish Zloty against the U.S. Dollar denominated cash and
receivables balances in non-U.S. Dollar denominated subsidiaries.
Income Taxes: The income tax provisions in the three and six months ended June 30, 2010 is
determined using an estimated annual effective tax rate. Our effective tax rate may be subject to
fluctuations during the year as new information is obtained, which may affect the assumptions used
to estimate the annual effective tax rate, including factors such as the mix of pre-tax earnings in
the various tax jurisdictions in which we operate, valuation allowances against deferred tax
assets, the recognition or derecognition of tax benefits related to uncertain tax positions,
utilization of R&D tax credits and changes in or the interpretation of tax laws in jurisdictions
where we conduct business. We recognize deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of our assets and liabilities
along with net operating loss and tax credit carryovers.
We continue to provide residual U.S. tax on the unremitted earnings of our foreign
subsidiaries including applicable withholding taxes due upon repatriation.
The income tax provisions in the three and six months ended June 30, 2009 relate to the
profits of our foreign operations, foreign withholding taxes, the income tax effects on interest
paid on our integrated debt, penalties and interest associated with the settlement of U.S. tax
audits, and state and local taxes in the U.S. Because of our losses in prior periods, we were
required to maintain a valuation allowance offsetting our net U.S. deferred tax assets of
approximately $112.2 million as of June 30, 2009. See Note 11 of notes to condensed consolidated
financial statements included elsewhere in this Quarterly Report for a discussion of this valuation
allowance. The valuation allowance is reviewed quarterly and is maintained until sufficient
positive evidence exists to support the reversal. We released this valuation allowance in the
fourth quarter of 2009 when management determined that it was more likely than not that our
deferred tax assets will be realized.
Income/Loss from Discontinued Operations, Net: The results from discontinued operations were
negligible in the three months ended June 30, 2010, compared to a loss of $0.2 million for the
three months ended June 30, 2009. Income from discontinued operations was $0.4 million and $0.2
million for the six months ended June 30, 2010 and 2009, respectively. These amounts relate
primarily to our business operations located in Western and Eastern Europe, Middle East and Africa
(the WEEMEA business), which was sold in September 2008.
Sources and Uses of Cash
Cash and cash equivalents and marketable securities totaled $75.4 million at June 30, 2010
compared to $81.9 million at December 31, 2009. The decrease of $6.5 million primarily resulted
from the following:
Uses of Cash:
|
|
|
$442.1 million for acquisition of businesses; |
|
|
|
|
$106.6 million paid for the purchase of treasury stock; |
|
|
|
|
$15.2 million for acquisition of product intangibles; |
|
|
|
|
$12.0 million related to a co-marketing agreement with Spear; |
|
|
|
|
$8.9 million for payments on long-term debt and notes payable; and |
|
|
|
|
$8.5 million of payments made for capital expenditures. |
Sources of Cash:
|
|
|
$427.8 million of net proceeds from issuance of long-term debt and notes payable; |
|
|
|
|
$128.1 million of cash from operations; and |
|
|
|
|
$26.8 million of proceeds from stock option exercises and employee stock purchases. |
49
Working capital was $112.1 million (excluding assets held for sale of $1.6 million) at June
30, 2010, compared to $125.1 million at December 31, 2009. The decrease in working capital of $13.0
million primarily resulted from the increase in notes payable and current portion of long-term
debt, trade payables and accrued liabilities and a decrease in cash and cash equivalents and
marketable securities, offset by an increase in inventories, accounts receivables and current
deferred tax assets.
Cash provided by operating activities in continuing operations is expected to be our primary
source of funds for operations in 2010. During the six months ended June 30, 2010, cash provided by
operating activities in continuing operations totaled $128.1 million, compared to $82.3 million in
2009. The cash provided by operating activities in continuing operations for 2010 was primarily a
result of net income adjusted for non-cash charges and an increase in inventory, offset by a
reduction in trade payables and accrued liabilities. The cash provided by operating activities in
continuing operations for 2009 was primarily a result of net income adjusted for non-cash charges
and a reduction in accounts receivable, offset by a reduction in other liabilities.
Cash used in investing activities in continuing operations was $462.0 million for the six
months ended June 30, 2010, compared to cash used in investing activities in continuing operations
of $177.0 million in 2009. In 2010, cash used in investing activities consisted primarily of net
cash paid for business acquisitions of $439.6 million; $27.2 million paid for the acquisition of
product intangibles, primarily the $12.0 million upfront payment related to the co-marketing
agreement with Spear and $11.9 million paid for certain dermatology products in Poland; and capital
expenditures of $8.5 million, offset by proceeds from investments of $13.6 million. In 2009, cash
used in investing activities in continuing operations consisted primarily of the purchase of
investments of $107.2 million, $46.5 million paid for liabilities for the acquisition of Dow, $28.6
million, net of cash acquired, paid for the acquisition of Emo-Farm, capital expenditures of $9.1
million and $6.2 million for the acquisition of product rights in Australia and New Zealand, offset
in part by proceeds from investments of $20.4 million. Cash used in investing activities in
discontinued operations in 2009 of $10.6 million consisted primarily of $13.4 million paid for
liabilities related to the sale of the WEEMEA business, offset by $2.8 million received from Meda
for proceeds from a legal settlement.
Cash provided by financing activities in continuing operations was $341.2 million in the six
months ended June 30, 2010, and primarily consisted of $392.7 million of net proceeds from the
issuance of the 7.625% Senior Notes, $29.8 million of net proceeds from the issuance of the Senior
Secured Term Loan and $26.8 million of proceeds from stock option exercises and employee stock
purchases, offset by $106.6 million paid for the purchase of treasury stock. Cash provided by
financing activities in continuing operations in 2009 was $261.8 million and primarily consisted of
net proceeds of $346.0 million for the issuance of the 8.375% Senior Notes, proceeds from stock
option exercises and employee stock purchases of $31.5 million offset in part by the payments on
long-term debt and notes payable of $94.3 million and $25.7 million for the purchase of treasury
stock.
Liquidity and Capital Resources
Historically, our primary sources of liquidity have been our cash flow from operations and
issuances of long-term debt securities. We believe that existing cash and cash generated from
operations, supplemented with debt issuances as needed, will be sufficient to meet our liquidity
needs.
Our short-term debt maturities consist of $48.9 million
outstanding principal amount of our 3.0% Notes due August 16, 2010 and $30.0 million Senior Secured Term Loan due December 1, 2010
(described below). We believe our existing cash and cash generated from operations will be sufficient to cover these short-term debt
maturities.
Part of our business strategy
is to expand through strategic acquisitions which may require us to seek additional debt financing, issue additional
equity securities or sell assets, as necessary, to finance future acquisitions or for other general corporate purposes.
The Merger Agreement contains certain restrictions on our ability to, among other things, incur additional debt, issue
additional equity securities, sell assets and make acquisitions which may affect our ability to execute on our business
strategy prior to the merger or termination of the Merger Agreement.
On April 9, 2010, we issued $400.0 million of 7.625% Senior Unsecured Notes due March 15,
2020. The 7.625% Senior Notes are jointly and severally guaranteed by certain of our subsidiaries,
which are initially the same subsidiaries that guarantee our outstanding 8.375% Senior Notes due
2016. We used the net proceeds from this offering to finance various acquisitions, to repurchase
shares of our common stock and for other general corporate purposes.
On May 26, 2010, we entered into a Credit and Guaranty Agreement (the Credit Agreement) with
Goldman Sachs Credit Partners L.P. and Goldman Sachs Bank USA, which provides for a $30.0 million
senior secured term loan (the Senior Secured Term Loan). The Senior Secured Term Loan, together
with accrued interest, is due on
50
December 1, 2010. In connection with the Credit Agreement, we entered into a Pledge and
Security Agreement that provides the lender a security interest in and continuing lien on certain
of our assets until payment in full of the Senior Secured Term Loan. The Senior Secured Term Loan
is guaranteed by each of our subsidiaries that is presently a guarantor of the 7.625% Senior Notes
and the 8.375% Senior Notes. We used a portion of the proceeds from the Senior Secured Term Loan in
connection with the acquisition of Aton, and used the remaining proceeds for working capital and
general corporate purposes. In July 2010, we obtained a consent waiver from Goldman Sachs that will
allow us to pay the outstanding principal value of the 3.0% Notes due August 16, 2010.
If GSK terminates the Collaboration Agreement prior to December 31, 2010, we would be required
to refund to GSK up to $20.0 million of the upfront fee through June 30, 2010; however, the
refundable portion will be reduced ratably throughout 2010 until it reaches zero at December 31,
2010.
Together with Biovail, we entered into a commitment letter (the Commitment Letter), dated as
of June 20, 2010, with Goldman Sachs Bank USA, Goldman Sachs Lending Partners LLC, Jefferies Group,
Inc. and Morgan Stanley Senior Funding, Inc. (such financial institutions being referred to as the
Commitment Parties), pursuant to which the Commitment Parties have committed to provide up to
$3.022 billion in loans for the purposes of (1) refinancing our Senior Secured Term Loan, 8.375%
Senior Notes and 7.625% Senior Notes, (2) funding the Pre-Merger Special Dividend and certain
expenses incurred in connection with the merger, (3) providing post-closing liquidity to the
Combined Company and (4) funding the post-merger special dividend of $1.00 per common
share of the Combined Company anticipated to be paid on December 31,
2010, or on such other date as the board of directors of the Combined Company may determine, subject to the
discretion of the board of directors of the Combined Company and to compliance with applicable law (the Post-Merger Special
Dividend).
The Commitment Letter provides for the following facilities:
|
|
|
Revolver: $250 million under a senior secured revolving credit facility; |
|
|
|
|
Term Loan A: $500 million under a senior secured term loan facility; and |
|
|
|
|
Term Loan B: up to $2.272 billion under a senior secured term loan facility ($300
million of which is a delayed draw directly linked to the payment of the Post-Merger
Special Dividend). |
The financing commitments of the Commitment Parties are subject to various conditions set
forth in the Commitment Letter. It is expected that we, Biovail and the Commitment Parties will
enter into definitive loan documents with respect to the financing as contemplated by the
Commitment Letter prior to the closing of the merger. In connection with the proposed refinancing
of our 8.375% Senior Notes and 7.625% Senior Notes, we expect to incur prepayment penalties
aggregating approximately $160.0 million.
Upon termination of the Merger Agreement under specified circumstances, including termination
of the Merger Agreement by us or Biovail as a result of an adverse change in the recommendation of
the other partys board of directors, we or Biovail may be required to pay to the other party a
termination fee of $100.0 million.
We did not pay dividends for either the three months ended June 30, 2010 or the twelve months
ended December 31, 2009.
Off-Balance Sheet Arrangements
We do not use special purpose entities or other off-balance sheet financing techniques except
for operating leases disclosed in our Annual Report on Form 10-K for the year ended December 31,
2009 (the 2009 Form 10-K). Our 3.0% Notes and 4.0% Notes include conversion features that are
considered off-balance sheet arrangements under SEC requirements. For further discussion of the
3.0% Notes and 4.0% Notes, please refer to the preceding section Liquidity and Capital Resources
and to Note 10 of notes to condensed consolidated financial statements included elsewhere in this
Quarterly Report.
Products in Development
Ezogabine/Retigabine
Subject to the terms of the Collaboration Agreement with GSK, we are developing a compound as
an adjunctive treatment for partial-onset seizures in patients with epilepsy whose generic name
will be ezogabine in the United
51
States and retigabine in all other countries. Ezogabine/retigabine stabilizes hyper-excited
neurons primarily by opening neuronal potassium channels. On October 30, 2009, the NDA was filed
for ezogabine 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. The FDA also announced that the Peripheral and Central Nervous System Drugs
Advisory Committee will meet on August 11, 2010 to discuss the NDA for ezogabine. In addition, the
European Medicines Evaluation Agency (EMEA) confirmed on November 17, 2009 that the Marketing
Authorization Application (MAA) filed on October 30, 2009 for retigabine was successfully
validated, thus enabling the MAA review to commence. Ezogabine/retigabine has been in development
by us since our acquisition of Xcel Pharmaceuticals, Inc. in 2005.
In September 2009, a Phase I clinical study was initiated for three additional
ezogabine/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. We continue to make progress
with identification and selection of a lead modified release
formulation to advance. The results from the
Phase I study are now available and formulation optimization is ongoing.
As discussed in more detail in the subsection Collaboration Agreement with GSK, in October
2008, we closed the worldwide Collaboration Agreement with GSK to develop and commercialize
ezogabine/retigabine and its backup compounds and received $125.0 million in upfront fees from GSK
upon the closing.
External research and development expenses for ezogabine/retigabine were $2.6 million ($3.7
million total research and development expenses) and $5.2 million ($7.4 million total research and
development expenses) prior to the credit from the GSK Collaboration Agreement for the three and
six months ended June 30, 2010, respectively, compared to $3.9 million ($5.5 million total research
and development expenses) and $10.1 million ($13.4 million total research and development expenses)
for the corresponding periods in 2009.
Taribavirin
Taribavirin (formerly referred to as viramidine) is a nucleoside (guanosine) analog that is
converted into ribavirin by adenosine deaminase in the liver and intestine. Taribavirin was in
development in oral form for the treatment of hepatitis C. During 2009, we ceased any further
independent development work on taribavirin and we are seeking potential partners for the
taribavirin program.
Dermatology Products
A number of dermatology product candidates in development were acquired as part of the
acquisition of Dow in December 2008. These include, but are not limited to:
|
|
|
IDP-107 is an oral treatment for moderate to severe acne vulgaris. Acne is a disorder of
the pilosebaceous unit characterized by the presence of inflammatory (pimples) and
non-inflammatory (whiteheads and blackheads) lesions, predominately on the face. Acne
vulgaris is a common skin disorder that affects about 85% of people at some point in their
lives. |
|
|
|
|
IDP-108, a novel triazole compound, is an antifungal targeted to treat onychomycosis, a
fungal infection of the fingernails and toenails primarily in older adults. The mechanism
of antifungal activity appears similar to other antifungal triazoles, i.e. ergosterol
synthesis inhibition. IDP-108 is a non-lacquer formulation designed for topical delivery
into the nail. We are currently enrolling patients in a Phase III clinical trial to
evaluate the safety and efficacy of IDP-108. |
|
|
|
|
IDP-113 has the same active pharmaceutical ingredient as IDP-108. IDP-113 is a topical
therapy for the treatment of tinea capitis, which is a fungal infection of the scalp
characterized by redness, scaling and bald patches, particularly in children. There are
currently no approved topical treatments for this scalp condition. |
|
|
|
|
IDP-115 combines an established anti-rosacea active ingredient with sunscreen agents to
provide sun protection in the same topical treatment for rosacea patients. Rosacea is a
common condition treated by |
52
|
|
|
dermatologists and characterized by multiple signs and symptoms including papules, pustules
and erythema, most commonly on the central area of the face. |
Foreign Operations
Approximately 54% and 58% of our consolidated revenues, for the six months ended June 30, 2010
and 2009, respectively, were generated from operations or otherwise earned outside the United
States. All of our foreign operations are subject to risks inherent in conducting business abroad,
including price and currency exchange controls, fluctuations in the relative values of currencies,
political instability and restrictive governmental actions including possible nationalization or
expropriation. Changes in the relative values of currencies may, in some instances, materially
affect our results of operations. The effect of these risks remains difficult to predict.
Critical Accounting Policies and Estimates
The condensed consolidated financial statements appearing elsewhere in this Quarterly Report
have been prepared in conformity with accounting principles generally accepted in the United
States. The preparation of these statements requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. On an on-going basis, we evaluate our estimates, including
those related to product returns, alliance revenue and expense offsets recognized under the GSK
Collaboration Agreement, collectibility of receivables, inventories, intangible assets, income
taxes and contingencies and litigation. The actual results could differ materially from those
estimates. See Item 7, Managements Discussion and Analysis of Financial Condition and Results of
Operations, in our 2009 Form 10-K for a discussion of our critical accounting estimates.
Our significant accounting policies are described in Note 1 to the consolidated financial
statements included in our 2009 Form 10-K. There were no new significant accounting estimates in
the second quarter of 2010, nor were there any material changes to the critical accounting
estimates discussed in our 2009 Form 10-K.
Recent Accounting Standards
Information regarding recent accounting pronouncements is contained in Note 1 of notes to
condensed consolidated financial statements included elsewhere in this Quarterly Report.
Other Financial Information
With respect to the unaudited condensed consolidated financial information of Valeant
Pharmaceuticals International for the three and six months ended June 30, 2010 and 2009 included in
this Quarterly Report, PricewaterhouseCoopers LLP reported that they have applied limited
procedures in accordance with professional standards for a review of such information. However,
their separate report dated August 3, 2010, appearing herein states that they did not audit and
they do not express an opinion on that unaudited condensed consolidated financial information.
Accordingly, the degree of reliance on their report on such information should be restricted in
light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not
subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended (the
Securities Act) for their report on the unaudited condensed consolidated financial information
because that report is not a report or a part of a registration statement prepared or certified
by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Securities Act.
Forward-Looking Statements
Except for the historical information contained herein, the matters addressed in Managements
Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this
Quarterly Report constitute forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act). Forward-looking statements may be identified by the use of the words
anticipates, expects, intends, plans, should, could, would, may, will,
believes, estimates, potential or continue and variations or similar expressions. These
53
forward-looking statements are subject to a variety of risks and uncertainties that could
cause actual results to differ materially from those anticipated by our management. Factors that
might cause or contribute to these differences include the factors discussed in Part I, Item 1A,
Risk Factors, in our 2009 Form 10-K, as updated by Part II, Item 1A, Risk Factors, of this
Quarterly Report, and other risks and uncertainties relating to the proposed merger with Biovail, as detailed from
time to time in Valeants and Biovails filings with the SEC and, in Biovails case, the Canadian
Securities Administrators (CSA), which factors are incorporated herein by reference. Readers are
cautioned not to place undue reliance on any of these forward-looking
statements, which speak only as of the date of this report. We undertake no obligation to update
any of these forward-looking statements to reflect events or circumstances after the date of this
report or to reflect actual outcomes.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our business and financial results are affected by fluctuations in world financial markets. We
evaluate our exposure to such risks on an ongoing basis, and seek ways to manage these risks to an
acceptable level, based on managements judgment of the appropriate trade-off between risk,
opportunity and cost. We do not hold any significant amount of market risk sensitive instruments
whose value is subject to market price risk. Our significant foreign currency exposure relates to
the Polish Zloty, the Mexican Peso, the Australian Dollar, and the Canadian Dollar. During 2010 and
2009, we entered into various forward foreign currency contracts to: a) hedge our net investment in
our Polish and Brazilian subsidiaries, b) reduce our exposure to various currencies as a result of
repetitive short-term intercompany investments and obligations, and c) reduce our exposure to
forecasted Japanese Yen denominated royalty revenue. In the normal course of business, we also face
risks that are either non-financial or non-quantifiable. Such risks principally include country
risk, credit risk and legal risk and are not discussed or quantified in the following analysis. At
June 30, 2010, the fair value of our derivatives was (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional/ |
|
Assets (net) |
|
|
Contract |
|
Carrying |
|
Fair |
Description |
|
Amount |
|
Value |
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
Undesignated hedges |
|
$ |
20,452 |
|
|
$ |
278 |
|
|
$ |
278 |
|
We currently do not hold financial instruments for trading or speculative purposes. Our
financial assets are not subject to significant interest rate risk due to their short duration. A
100 basis-point increase in interest rates affecting our financial instruments would not have had a
material effect on our 2010 pretax earnings. In addition, we had $1.039 billion principal amount of
fixed rate debt as of June 30, 2010 that required U.S. Dollar repayment. To the extent that we
require, as a source of debt repayment, earnings and cash flow from some of our subsidiaries
located in foreign countries, we are subject to risk of changes in the value of certain currencies
relative to the U.S. Dollar.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable
assurance that information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and forms
and that such information is accumulated and communicated to our management, including the chief
executive officer and chief financial officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and procedures, we
recognize that any controls and procedures, no matter how well designed and operated, cannot
provide absolute assurance of achieving the desired control objectives, and that we necessarily are
required to apply our judgment in evaluating the cost-benefit relationship of possible controls and
procedures. In addition, no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within a company have been detected.
As of June 30, 2010, we conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act). This evaluation was carried out under the supervision and with the participation of
our management, including the chief executive officer and chief financial officer. Based on this
evaluation, our chief executive officer and chief financial officer have concluded that, as of the
end of the period covered by this report, our disclosure controls and procedures were effective to
provide reasonable assurance that information we are required to disclose in the reports that we
file or
54
submit under the Exchange Act, is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms relating to us, including our consolidated
subsidiaries, and was accumulated and communicated to our management, including our chief executive
officer and chief financial officer, as appropriate, to allow timely decisions regarding required
disclosure.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal controls over financial reporting that occurred
during the quarter ended June 30, 2010 that has materially affected, or is reasonably likely to
materially affect, the internal controls over financial reporting.
55
PART II OTHER INFORMATION
Item 1. Legal Proceedings
See Note 19, Commitments and Contingencies, of notes to condensed consolidated financial
statements included elsewhere in this Quarterly Report, which is incorporated herein by reference.
Item 1A. Risk Factors
In addition to the other information
contained in this Quarterly Report on Form 10-Q, you should
carefully consider the factors discussed in Part I, Item 1A Risk Factors in our 2009 Form 10-K in
evaluating our business, financial position, future results, and prospects. The information presented below
updates and supplements those risk factors for events, changes and developments since the filing of the
2009 Form 10-K and should be read in conjunction with the risks and other information contained in the
2009 Form 10-K. The risks described in our 2009 Form 10-K, as updated below, are not the only risks we
face. Additional risks that we do not presently know or that we currently believe are not material could also
materially adversely affect our business, financial position, future results and prospects. Additional
uncertainties relating to the proposed merger with Biovail are discussed under the heading Risk Factors
in the preliminary joint proxy statement/prospectus contained in the registration statement on Form S-4
filed by Biovail on July 21, 2010 with the SEC and will be included in the definitive version thereof when
it becomes available.
Our proposed merger with Biovail may cause disruption in our business.
The merger agreement generally requires us
to operate our business in the ordinary course pending
consummation of the proposed merger, but includes certain contractual restrictions on the conduct of our
business that may affect our ability to execute on our business strategies and attain our financial goals.
Additionally, the announcement of the proposed merger, whether or not consummated, may adversely
impact our relationships with third parties, including customers, suppliers and other business partners.
Furthermore, our employees may experience uncertainty about their future role with Valeant or the
combined company to be formed by our merger with Biovail. These potential distractions of the merger
may adversely affect our ability to attract, motivate and retain executives and other key employees and
keep them focused on applicable strategies and goals. A failure to retain and motivate executives and other
key employees during the period prior to the completion of the merger could have an adverse impact on the
business of Valeant. The foregoing disruptions could be exacerbated by a delay in the completion of the
merger or termination of the merger agreement.
Failure to complete the proposed merger with Biovail could
negatively impact our stock price and future business and financial results.
There is no assurance that the proposed
merger will occur, and we cannot predict the exact timing of the
consummation of the transaction. Consummation of the proposed merger is subject to the satisfaction or
waiver of various conditions, and we cannot predict whether those conditions will be satisfied or waived.
As a result, we cannot assure you that the proposed merger will be completed. If the closing conditions for
the proposed merger set forth in the merger agreement are not satisfied or waived (if permissible under
applicable law), or if the transaction is not completed for any other reason, the market price of our common
stock may decline. In addition, if the proposed merger does not occur and the merger agreement is
terminated, we may be required to pay Biovail a termination fee under the merger agreement of $100
million, and we will remain liable for significant expenses that we have incurred related to the transaction,
including expenses such as legal, accounting, financial advisor, filing, printing and mailing fees. The
foregoing risks, or other risks arising in connection with the failure of the merger, including the diversion
of management attention from conducting the business of the Company and pursuing other opportunities
during the pendency of the merger, may have an adverse effect on our business, operations, financial results
and stock price.
56
If completed, Valeants merger with Biovail may not achieve its intended results.
We entered into the merger with Biovail with the expectation that the merger would result in various benefits, including cost savings, from combining the businesses of Valeant and Biovail. To realize these anticipated benefits, the businesses of Valeant and Biovail must be successfully integrated. This integration will be complex and time-consuming. The
failure to integrate successfully and to manage successfully the challenges presented by the integration process may result in the combined company not fully achieving the anticipated benefits of the merger.
Following the integration of Valeant
and Biovail, the size of the combined companys business will be dramatically larger than the size of Valeants business today. The combined companys future success depends, in part, upon its ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to
the management and monitoring of new operations and associated increased costs and complexity. In addition, the indebtedness
of the combined company may decrease its business flexibility and increase its borrowing costs, and the combined companys
substantial debt and debt service obligations may adversely affect the combined company. Valeant cannot assure you that the combined
company will be successful or that the combined company will realize the expected operating efficiencies, synergies, cost savings,
revenue enhancements and other benefits currently anticipated from the merger.
Lawsuits have been filed against Valeant relating to the proposed merger with Biovail. The outcome of these lawsuits is uncertain and an adverse ruling in any such lawsuits may prevent the proposed merger from being completed.
Since the proposed merger with Biovail was announced
on June 21, 2010, Valeant, certain Valeant officers and directors, Biovail, BAC and Merger Sub have been named as defendants in
one or more of the four purported stockholder class actions filed in the Superior Court of California, County of Orange and
the three purported stockholder class actions filed in the Court of Chancery of the State of Delaware by stockholders of the
Company challenging the proposed merger. The actions seek, among other things, to enjoin the defendants from completing the
merger on the agreed upon terms. In addition, other lawsuits may be brought against us related to the proposed merger. We may
be required to defend such lawsuits, thus incurring significant expenses. If these actions or similar actions that may be
brought are successful, the merger could be delayed or prevented. See Note 19 to our unaudited condensed consolidated financial
statements contained elsewhere in this Quarterly Report for further information on pending litigation related to the merger.
Legislative or regulatory reform of the healthcare system may affect our ability to sell our
products profitably.
In both the United States and certain foreign jurisdictions, there have been a number of
legislative and regulatory proposals to change the healthcare system in ways that could impact our
ability to sell our products profitably. On March 23, 2010, President Obama signed into law the
Patient Protection and Affordable Care Act (PPACA), which includes a number of health care reform
provisions and requires most U.S. citizens to have health insurance. Effective January 1, 2010, the
new law increases the minimum Medicaid drug rebates for pharmaceutical companies, expands the 340B
drug discount program, and makes changes to affect the Medicare Part D coverage gap, or donut
hole. The law also revises the definition of average manufacturer price for reporting purposes
(effective October 1, 2010), which could increase the amount of our Medicaid drug rebates to
states, once the provision is effective. The new law also imposes a significant annual fee on
companies that manufacture or import branded prescription drug products (beginning in 2011).
Substantial new provisions affecting compliance also have been added, which may require us to
modify our business practices with health care practitioners.
The reforms imposed by the new law will significantly impact the pharmaceutical industry;
however, the full effects of PPACA cannot be known until these provisions are implemented and the
Centers for Medicare & Medicaid Services and other federal and state agencies issue applicable
regulations or guidance. Moreover, in the coming years, additional changes could be made to
governmental healthcare programs that could significantly impact the success of our products.
The high cost of pharmaceuticals continues to generate substantial governmental interest. We
expect to experience pricing pressures in connection with the sale of our products due to the trend
toward managed health care, the increasing influence of managed care organizations and additional
legislative proposals. Our results of operations could be adversely affected by current and future
health care reforms.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In October 2008, our board of directors authorized us to repurchase up to $200.0 million of
our outstanding securities in a 24-month period ending October 2010, unless earlier terminated or
completed. In May 2009, our
57
board of directors increased the authorization to $500.0 million, over a period ending in May
2011. In March 2010, our board of directors further increased the authorization to $1.0 billion
over a period ending in March 2013. Under the program, purchases of outstanding senior notes,
convertible subordinated notes or common stock may be made from time to time on the open market, in
privately negotiated transactions, pursuant to tender offers or otherwise, including pursuant to
one or more trading plans, at times and in amounts as we see appropriate. The amount of securities
to be purchased and the timing of such purchases are subject to various factors, which may include
the price of the securities, general market conditions, corporate and regulatory requirements and
alternate investment opportunities. The securities repurchase program may be modified or
discontinued by the board of directors at any time. During the three and six months ended June 30,
2010, we purchased 2,637,545 shares of our common stock for a total of $106.6 million. As of June
30, 2010, we have repurchased an aggregate 9,886,438 shares of our common stock for $315.1 million
under this program, in addition to the purchase of $206.1 million aggregate principal amount of our
3.0% Notes and 4.0% Notes at a purchase price of $207.3 million, including cash and warrants.
Set forth below is the information regarding shares repurchased under the securities
repurchase program during the three months ended June 30, 2010:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Value of Shares that |
|
|
|
Total Number of |
|
|
Average Price |
|
|
Shares Purchased |
|
|
May Yet Be |
|
|
|
Shares |
|
|
Paid Per |
|
|
as Part of Publicly |
|
|
Purchased under |
|
Period |
|
Repurchased |
|
|
Share |
|
|
Announced Plan |
|
|
the Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/10 - 4/30/10 |
|
|
2,637,545 |
|
|
$ |
40.41 |
|
|
|
2,637,545 |
|
|
$ |
478,746 |
|
5/1/10 - 5/31/10 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
478,746 |
|
6/1/10 - 6/30/10 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
478,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,637,545 |
|
|
$ |
40.41 |
|
|
|
2,637,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 6. Exhibits
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
|
2.1 |
* |
|
Membership Interest Purchase Agreement, dated as of May 3, 2010,
by and among the Registrant, Princeton Pharma Holdings LLC and
the other parties named therein, previously filed as Exhibit 2.1
to the Registrants Current Report on Form 8-K, filed June 2,
2010, which is incorporated herein by reference. |
|
2.2 |
* |
|
Agreement and Plan of Merger, dated as of June 20, 2010, by and
among the Registrant, Biovail Corporation, Biovail Americas Corp.
and Beach Merger Corp., previously filed as Exhibit 2.1 to the
Registrants Current Report on Form 8-K, filed June 23, 2010,
which is incorporated herein by reference. |
|
3.1 |
|
|
Restated Certificate of Incorporation, as amended to date,
previously filed as Exhibit 3.1 to the Registrants Quarterly
Report on Form 10-Q for the quarter ended September 30, 2003 (No.
03995078), which is incorporated herein by reference. |
|
3.2 |
|
|
Certificate of Designation, Preferences and Rights of Series A
Participating Preferred Stock, previously filed as Exhibit 3.1 to
the Registrants Current Report on Form 8-K, filed October 6,
2004 (No. 041068838), which is incorporated herein by reference. |
|
3.3 |
|
|
Amended and Restated Bylaws of the Registrant, previously filed
as Exhibit 3.3 to the Registrants Annual Report on Form 10-K for
the year ended December 31, 2009, which is incorporated herein by
reference. |
|
4.1 |
|
|
Form of Rights Agreement, dated as of November 2, 1994, between
the Registrant and American Stock Transfer & Trust Company, as
Trustee, previously filed as Exhibit 4.3 to the Registrants
Registration Statement on Form 8-A, filed November 10, 1994 (No.
94558814), which is incorporated herein by reference. |
|
4.2 |
|
|
Amendment No. 1 to Rights Agreement, dated as of October 5, 2004,
previously filed as Exhibit 4.1 to the Registrants Current
Report on Form 8-K, filed October 6, 2004 (No. 041068838), which
is incorporated herein by reference. |
58
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
|
4.3 |
|
|
Amendment No. 2 to Rights Agreement, dated as of June 5, 2008, by
and between Valeant Pharmaceuticals International and American
Transfer & Trust Company as Rights Agent, previously filed as
Exhibit 4.3 to the Registrants Amendment No. 4 to Form 8-A/A,
filed June 6, 2008, which is incorporated herein by reference. |
|
4.4 |
|
|
Amendment No. 3 to Rights Agreement, dated as of May 15, 2009, by
and between Valeant Pharmaceuticals International and American
Transfer & Trust Company as Rights Agent, previously filed as
Exhibit 4.4 to the Registrants Amendment No. 5 to Form 8-A/A,
filed May 15, 2009, which is incorporated herein by reference. |
|
10.1 |
|
|
Exchange and Registration Rights Agreement, dated as of April 9,
2010, by and among the Registrant, Goldman, Sachs & Co. as
Representative of the several Initial Purchasers named therein
and the Guarantors (as defined therein), relating to the 7.625%
Senior Notes due 2020, previously filed as Exhibit 99.1 to the
Registrants Current Report on Form 8-K, filed April 12, 2010,
which is incorporated herein by reference. |
|
10.2 |
|
|
Indenture, dated as of April 9, 2010, by and among the
Registrant, the Guarantors named therein and The Bank of New York
Mellon Trust Company, N.A., as Trustee, relating to the 7.625%
Senior Notes due 2020, previously filed as Exhibit 99.2 to the
Registrants Current Report on Form 8-K, filed April 12, 2010,
which is incorporated herein by reference. |
|
10.3 |
|
|
Purchase Agreement, dated as of April 6, 2010, by and among the
Registrant, the Purchasers named in Schedule I thereto and the
Guarantors (as defined therein), relating to the 7.625% Senior
Notes due 2020, previously filed as Exhibit 99.3 to the
Registrants Current Report on Form 8-K, filed April 12, 2010,
which is incorporated herein by reference. |
|
10.4 |
|
|
Amendment, dated as of March 3, 2010 and approved by stockholders
on May 11, 2010, to the Valeant Pharmaceuticals International
2006 Equity Incentive Plan, previously filed as Annex A to the
Registrants Definitive Proxy Statement on Schedule 14A, filed
March 23, 2010, which is incorporated herein by reference. |
|
10.5 |
|
|
Purchase and Sale Agreement, dated as of April 30, 2010, by and
among the Registrant and ValueAct Capital Master Fund, L.P.,
previously filed as Exhibit 99.1 to the Registrants Current
Report on Form 8-K, filed May 3, 2010, which is incorporated
herein by reference. |
|
10.6 |
* |
|
Credit and Guaranty Agreement, dated as of May 26, 2010, by and
among the Registrant, the guarantors named therein, Goldman Sachs
Bank USA and the other parties named therein, previously filed as
Exhibit 10.1 to the Registrants Current Report on Form 8-K,
filed June 2, 2010, which is incorporated herein by reference. |
|
10.7 |
* |
|
Pledge and Security Agreement, dated as of May 26, 2010, by and
among the Registrant, Goldman Sachs Bank USA and the other
grantors named therein, previously filed as Exhibit 10.2 to the
Registrants Current Report on Form 8-K, filed June 2, 2010,
which is incorporated herein by reference. |
|
10.8 |
|
|
Commitment Letter, dated as of June 20, 2010, by and among the
Registrant, Biovail Corporation, Goldman Sachs Lending Partners
LLC, Goldman Sachs Bank USA, Morgan Stanley Senior Funding, Inc.
and Jefferies Group, Inc., previously filed as Exhibit 10.1 to
the Registrants Current Report on Form 8-K, filed June 23, 2010,
which is incorporated herein by reference. |
|
10.9 |
|
|
Voting Agreement, dated as of June 20, 2010, by and among the
Registrant, Biovail Corporation and ValueAct Capital Master Fund L.P., previously
filed as Exhibit 10.2 to the Registrants Current Report on Form
8-K, filed June 23, 2010, which is incorporated herein by
reference. |
|
15.1 |
|
|
Review Report of Independent Registered Public Accounting Firm. |
|
15.2 |
|
|
Awareness Letter of Independent Registered Public Accounting Firm. |
|
31.1 |
|
|
Certification of Chief Executive Officer pursuant to Rule
13a-14(a) under the Exchange Act and Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
31.2 |
|
|
Certification of Chief Financial Officer pursuant to Rule
13a-14(a) under the Exchange Act and Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
32 |
|
|
Certification of Chief Executive Officer and Chief Financial
Officer of Periodic Financial Reports pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350. |
|
101 |
|
|
The following financial statements from the Quarterly Report on
Form 10-Q of the Registrant for the quarter ended June 30, 2010,
formatted in Extensible Business Reporting Language (XBRL): (i)
the |
59
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets, (ii) the Condensed
Consolidated Statements of Operations, (iii) Condensed
Consolidated Statements of Comprehensive Income, (iv) the
Condensed Consolidated Statements of Cash Flows, and (v) the
Notes to the Condensed Consolidated Statements tagged as blocks
of text. |
|
|
|
|
|
Management contract or compensatory plan or arrangement. |
|
|
|
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 SEC. |
|
* |
|
Certain schedules and exhibits have been omitted. The Registrant
hereby undertakes to furnish supplementally copies of any of the
omitted schedules and exhibits upon request by the SEC. |
60
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto
duly authorized.
Valeant Pharmaceuticals International
Registrant
/s/ J. Michael Pearson
J. Michael Pearson
Chairman and Chief Executive Officer
Date:
August 3, 2010
/s/ Peter J. Blott
Peter J. Blott
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date:
August 3, 2010
61
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
|
2.1 |
* |
|
Membership Interest Purchase Agreement, dated as of May 3, 2010,
by and among the Registrant, Princeton Pharma Holdings LLC and
the other parties named therein, previously filed as Exhibit 2.1
to the Registrants Current Report on Form 8-K, filed June 2,
2010, which is incorporated herein by reference. |
|
2.2 |
* |
|
Agreement and Plan of Merger, dated as of June 20, 2010, by and
among the Registrant, Biovail Corporation, Biovail Americas Corp.
and Beach Merger Corp., previously filed as Exhibit 2.1 to the
Registrants Current Report on Form 8-K, filed June 23, 2010,
which is incorporated herein by reference. |
|
3.1 |
|
|
Restated Certificate of Incorporation, as amended to date,
previously filed as Exhibit 3.1 to the Registrants Quarterly
Report on Form 10-Q for the quarter ended September 30, 2003 (No.
03995078), which is incorporated herein by reference. |
|
3.2 |
|
|
Certificate of Designation, Preferences and Rights of Series A
Participating Preferred Stock, previously filed as Exhibit 3.1 to
the Registrants Current Report on Form 8-K, filed October 6,
2004 (No. 041068838), which is incorporated herein by reference. |
|
3.3 |
|
|
Amended and Restated Bylaws of the Registrant, previously filed
as Exhibit 3.3 to the Registrants Annual Report on Form 10-K for
the year ended December 31, 2009, which is incorporated herein by
reference. |
|
4.1 |
|
|
Form of Rights Agreement, dated as of November 2, 1994, between
the Registrant and American Stock Transfer & Trust Company, as
Trustee, previously filed as Exhibit 4.3 to the Registrants
Registration Statement on Form 8-A, filed November 10, 1994 (No.
94558814), which is incorporated herein by reference. |
|
4.2 |
|
|
Amendment No. 1 to Rights Agreement, dated as of October 5, 2004,
previously filed as Exhibit 4.1 to the Registrants Current
Report on Form 8-K, filed October 6, 2004 (No. 041068838), which
is incorporated herein by reference. |
|
4.3 |
|
|
Amendment No. 2 to Rights Agreement, dated as of June 5, 2008, by
and between Valeant Pharmaceuticals International and American
Transfer & Trust Company as Rights Agent, previously filed as
Exhibit 4.3 to the Registrants Amendment No. 4 to Form 8-A/A,
filed June 6, 2008, which is incorporated herein by reference. |
|
4.4 |
|
|
Amendment No. 3 to Rights Agreement, dated as of May 15, 2009, by
and between Valeant Pharmaceuticals International and American
Transfer & Trust Company as Rights Agent, previously filed as
Exhibit 4.4 to the Registrants Amendment No. 5 to Form 8-A/A,
filed May 15, 2009, which is incorporated herein by reference. |
|
10.1 |
|
|
Exchange and Registration Rights Agreement, dated as of April 9,
2010, by and among the Registrant, Goldman, Sachs & Co. as
Representative of the several Initial Purchasers named therein
and the Guarantors (as defined therein), relating to the 7.625%
Senior Notes due 2020, previously filed as Exhibit 99.1 to the
Registrants Current Report on Form 8-K, filed April 12, 2010,
which is incorporated herein by reference. |
|
10.2 |
|
|
Indenture, dated as of April 9, 2010, by and among the
Registrant, the Guarantors named therein and The Bank of New York
Mellon Trust Company, N.A., as Trustee, relating to the 7.625%
Senior Notes due 2020, previously filed as Exhibit 99.2 to the
Registrants Current Report on Form 8-K, filed April 12, 2010,
which is incorporated herein by reference. |
|
10.3 |
|
|
Purchase Agreement, dated as of April 6, 2010, by and among the
Registrant, the Purchasers named in Schedule I thereto and the
Guarantors (as defined therein), relating to the 7.625% Senior
Notes due 2020, previously filed as Exhibit 99.3 to the
Registrants Current Report on Form 8-K, filed April 12, 2010,
which is incorporated herein by reference. |
|
10.4 |
|
|
Amendment, dated as of March 3, 2010 and approved by stockholders
on May 11, 2010, to the Valeant Pharmaceuticals International
2006 Equity Incentive Plan, previously filed as Annex A to the
Registrants Definitive Proxy Statement on Schedule 14A, filed
March 23, 2010, which is incorporated herein by reference. |
|
10.5 |
|
|
Purchase and Sale Agreement, dated as of April 30, 2010, by and
among the Registrant and ValueAct Capital Master Fund, L.P.,
previously filed as Exhibit 99.1 to the Registrants Current
Report on Form 8-K, filed May 3, 2010, which is incorporated
herein by reference. |
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
|
10.6 |
* |
|
Credit and Guaranty Agreement, dated as of May 26, 2010, by and
among the Registrant, the guarantors named therein, Goldman Sachs
Bank USA and the other parties named therein, previously filed as
Exhibit 10.1 to the Registrants Current Report on Form 8-K,
filed June 2, 2010, which is incorporated herein by reference. |
|
10.7 |
* |
|
Pledge and Security Agreement, dated as of May 26, 2010, by and
among the Registrant, Goldman Sachs Bank USA and the other
grantors named therein, previously filed as Exhibit 10.2 to the
Registrants Current Report on Form 8-K, filed June 2, 2010,
which is incorporated herein by reference. |
|
10.8 |
|
|
Commitment Letter, dated as of June 20, 2010, by and among the
Registrant, Biovail Corporation, Goldman Sachs Lending Partners
LLC, Goldman Sachs Bank USA, Morgan Stanley Senior Funding, Inc.
and Jefferies Group, Inc., previously filed as Exhibit 10.1 to
the Registrants Current Report on Form 8-K, filed June 23, 2010,
which is incorporated herein by reference. |
|
10.9 |
|
|
Voting Agreement, dated as of June 20, 2010, by and among the
Registrant, Biovail Corporation and ValueAct Capital Master Fund, L.P., previously
filed as Exhibit 10.2 to the Registrants Current Report on Form
8-K, filed June 23, 2010, which is incorporated herein by
reference. |
|
15.1 |
|
|
Review Report of Independent Registered Public Accounting Firm. |
|
15.2 |
|
|
Awareness Letter of Independent Registered Public Accounting Firm. |
|
31.1 |
|
|
Certification of Chief Executive Officer pursuant to Rule
13a-14(a) under the Exchange Act and Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
31.2 |
|
|
Certification of Chief Financial Officer pursuant to Rule
13a-14(a) under the Exchange Act and Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
32 |
|
|
Certification of Chief Executive Officer and Chief Financial
Officer of Periodic Financial Reports pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350. |
|
101 |
|
|
The following financial statements from the Quarterly Report on
Form 10-Q of the Registrant for the quarter ended June 30, 2010,
formatted in Extensible Business Reporting Language (XBRL): (i)
the Condensed Consolidated Balance Sheets, (ii) the Condensed
Consolidated Statements of Operations, (iii) Condensed
Consolidated Statements of Comprehensive Income, (iv) the
Condensed Consolidated Statements of Cash Flows, and (v) the
Notes to the Condensed Consolidated Statements tagged as blocks
of text. |
|
|
|
|
|
Management contract or compensatory plan or arrangement. |
|
|
|
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 SEC. |
|
* |
|
Certain schedules and exhibits have been omitted. The Registrant
hereby undertakes to furnish supplementally copies of any of the
omitted schedules and exhibits upon request by the SEC. |