Use these links to rapidly review the document
TABLE OF CONTENTS GENERAL INFORMATION

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


FORM 10-K

ý   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

OR

 
 
 
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                    to                                   

Commission file number 001-14956

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)

CANADA
State or other jurisdiction of
incorporation or organization		   98-0448205
(I.R.S. Employer Identification No.)

7150 Mississauga Road
Mississauga, Ontario
CANADA, L5N 8M5
(Address of principal executive offices)

Registrant's telephone number, including area code (905) 286-3000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class    Name of each exchange on which registered 
Common Shares, No Par Value   New York Stock Exchange, Toronto Stock Exchange

Securities registered pursuant to section 12(g) of the Act:

None
(Title of class)

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

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

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

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

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

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

Large accelerated filer ý   Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)   Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

The aggregate market value of the common shares held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second fiscal quarter was $3,051,152,000 based on the last reported sale price on the New York Stock Exchange on June 30, 2010.

The number of outstanding shares of the registrant's common stock, as of February 23, 2011 was 304,219,307.

DOCUMENTS INCORPORATED BY REFERENCE

          Part III incorporates certain information by reference from the registrant's proxy statement for the 2011 Annual Meeting of Shareholders. Such proxy statement will be filed no later than 120 days after the close of the registrant's fiscal year ended December 31, 2010.


TABLE OF CONTENTS

GENERAL INFORMATION

 
    
    
   Page
PART I
Item 1.   Business   1
Item 1A.   Risk Factors   13
Item 1B.   Unresolved Staff Comments   21
Item 2.   Properties   22
Item 3.   Legal Proceedings   22
Item 4.   (Removed and Reserved)   22

PART II
Item 5.   Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   23
Item 6.   Selected Financial Data   28
Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations   29
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk   79
Item 8.   Financial Statements and Supplementary Data   79
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   79
Item 9A.   Controls and Procedures   79
Item 9B.   Other Information   80

PART III
Item 10.   Directors, Executive Officers and Corporate Governance   81
Item 11.   Executive Compensation   81
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   81
Item 13.   Certain Relationships and Related Transactions, and Director Independence   81
Item 14.   Principal Accounting Fees and Services   81

PART IV
Item 15.   Exhibits and Financial Statement Schedules   82
SIGNATURES   89

i

Basis of Presentation

General

        On September 28, 2010, Biovail Corporation ("Biovail") completed the acquisition of Valeant Pharmaceuticals International ("Valeant") through a wholly-owned subsidiary, pursuant to an Agreement and Plan of Merger, dated as of June 20, 2010, with Valeant surviving as a wholly-owned subsidiary of Biovail (the "Merger"). In connection with the Merger, Biovail was renamed "Valeant Pharmaceuticals International, Inc." Biovail is both the legal and accounting acquirer in the Merger. Accordingly, the pre-acquisition consolidated financial statements of Biovail will be treated as the historical financial statements of the Company going forward such that the accompanying financial statements reflect Biovail's stand-alone operations as they existed prior to the completion of the Merger. The results of Valeant's business have been included in the financial statements only for periods subsequent to the completion of the Merger.

        Except where the context otherwise requires, all references in this Annual Report on Form 10-K ("Form 10-K") to the "Company", "we", "us", "our" or similar words or phrases are to Valeant Pharmaceuticals International, Inc. and its subsidiaries, taken together. In this Form 10-K, references to "$" and "US$" are to United States dollars and references to "C$" are to Canadian dollars. Unless otherwise indicated, the statistical and financial data contained in this Form 10-K are presented as of December 31, 2010.

Trademarks

        The following words are trademarks of our Company and are the subject of either registration, or application for registration, in one or more of Canada, the United States of America (the "U.S.") or certain other jurisdictions: ACANYA®, ATTENADE™, A Tablet Design (Apex Down)®, A Tablet Design (Apex Up)®, APLENZIN®, ATIVAN®, ATRALIN®, ASOLZA™, BEDOYECTA®, BIOVAIL®, BIOVAIL CORPORATION INTERNATIONAL®, BIOVAIL & SWOOSH DESIGN®, BISOCARD®, BPI®, BVF®, CARDISENSE™, CARDIZEM®, CEFORM®, CERAVE®, CESAMET®, CHOLESTAGEL®, CRYSTAAL CORPORATION & DESIGN®, DEMSER®, DERMAVEEN®, DIASTAT®, DIASTAT® ACUDIAL™, DITECH™, DR. LEWINN'S®, FLASHDOSE®, GLUMETZA®, INSTATAB™, ISORDIL®, JOVOLA™, JUBLIA™, KINERASE®, LABORATOIRE DR RENAUD®, LACRISERT®, MEPHYTON®, MESTINON®, MIGRANAL®, MIVURA™, M.V.I.®, NITOMAN®, NYAL®, ONELZA™, ONEXTEN™, ORAMELT™, PALVATA™, PERMAX®, RALIVIA®, SHEARFORM™, SMARTCOAT®, SOLBRI™, SYPRINE®, TESIVEE™, TIAZAC®, TITRADOSE®, TOVALT™, UPZIMIA™, VALEANT®, VALEANT V & DESIGN®, VALEANT PHARMACEUTICALS & DESIGN®, VASERETIC®, VASOTEC®, VEMRETA™, VITALSCIENCE®, VOLZELO™, XENAZINE®, XENAZINA®, and ZILERAN™.

        WELLBUTRIN®, WELLBUTRIN® SR, WELLBUTRIN® XL, WELLBUTRIN® XR, ZOVIRAX® and ZYBAN® are trademarks of The GlaxoSmithKline Group of Companies and are used by us under license. ULTRAM® is a trademark of Ortho-McNeil, Inc. (now known as PriCara, a division of Ortho-McNeil-Janssen Pharmaceuticals, Inc.) and is used by us under license. ACZONE™ is a trademark that is the subject of a trademark application by Allergan Sales, LLC and is used by us under license. MVE® is a registered trademark of Healthpoint, Ltd. and is used by us under license.

        In addition, we have filed trademark applications for many of our other trademarks in Barbados, the U.S., Canada, and in other jurisdictions and have implemented, on an ongoing basis, a trademark protection program for new trademarks.

Forward-Looking Statements

        Caution regarding forward-looking information and statements and "Safe Harbor" statements under the U.S. Private Securities Litigation Reform Act of 1995:

        To the extent any statements made in this Annual Report on Form 10-K contain information that is not historical, these statements are 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, and may be forward-looking information within the meaning defined under applicable Canadian securities legislation (collectively, "forward-looking statements").

ii

        These forward-looking statements relate to, among other things: the expected benefits of the Merger, such as cost savings, operating synergies and growth potential of the Company; business plans and prospects, prospective products or product approvals, future performance or results of current and anticipated products; the impact of healthcare reform; exposure to foreign currency exchange rate changes and interest rate changes; the outcome of contingencies, such as certain litigation and regulatory proceedings; general market conditions; and our expectations regarding our financial performance, including revenues, expenses, gross margins, liquidity and income taxes.

        Forward-looking statements can generally be identified by the use of words such as "believe", "anticipate", "expect", "intend", "estimate", "plan", "continue", "will", "may", "could", "would", "target", "potential" and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements may not be appropriate for other purposes. Although we have indicated above certain of these statements set out herein, all of the statements in this Form 10-K that contain forward-looking statements are qualified by these cautionary statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, including, but not limited to, factors and assumptions regarding the items outlined above. Actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from these expectations include, among other things, the following:

iii

        Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found elsewhere in this Form 10-K, under Item 1A. "Risk Factors", and in the Company's other filings with the SEC and CSA. We caution that the foregoing list of important factors that may affect future results is not exhaustive. When relying on our forward-looking statements to make decisions with respect to our Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. These forward-looking statements speak only as of the date made.

iv


 PART I

Item 1.    Business

        Biovail Corporation ("Biovail") was formed under the Business Corporations Act (Ontario) on February 18, 2000, as a result of the amalgamation of TXM Corporation and Biovail Corporation International. Biovail was continued under the Canada Business Corporations Act (the "CBCA") effective June 29, 2005. On September 28, 2010 (the "Merger Date"), Biovail completed the acquisition of Valeant Pharmaceuticals International ("Valeant") through a wholly-owned subsidiary pursuant to an Agreement and Plan of Merger, dated as of June 20, 2010, with Valeant surviving as a wholly-owned subsidiary of Biovail (the "Merger"). In connection with the Merger, Biovail was renamed "Valeant Pharmaceuticals International, Inc." The accompanying financial statements reflect Biovail's stand-alone operations as they existed prior to the completion of the Merger. The results of Valeant's business have been included in the financial statements only for periods subsequent to the completion of the Merger.

        Unless the context indicates otherwise, when we refer to "we", "us", "our" or the "Company" in this Annual Report on Form 10-K ("Form 10-K"), we are referring to Valeant Pharmaceuticals International, Inc. and its subsidiaries on a consolidated basis.

Introduction

        We are a multinational, specialty pharmaceutical company that develops, manufactures and markets a broad range of pharmaceutical products. Our specialty pharmaceutical and over-the-counter ("OTC") products are marketed under brand names and are sold in the United States ("U.S."), Canada, Australia and New Zealand, where we focus most of our efforts on products in 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

        Since the Merger, our strategy has been to focus the business on core geographies and therapeutic classes, manage pipeline assets through strategic partnerships with other pharmaceutical companies and deploy cash with an appropriate mix of selective acquisitions, share buybacks and debt repurchases. We believe this strategy will allow us to improve both the growth rates and profitability of the Company and to enhance shareholder value, while exploiting the benefits of the Merger.

        Our leveraged research and development model is one key element to this business strategy. It will allow us to progress development programs to drive future commercial growth, while minimizing our research and development expense. This will be achieved in four ways:

Focused Diversification across Geographies, Therapeutic Areas and Products with Limited Patent Exposure

        As a combined company, we are diverse not only in our sources of revenue from our broad drug portfolio, but also among the therapeutic classes and geographic segments we serve. We have a focused geographic footprint and focus on those businesses that we view to have the potential for strong operating margins and solid growth, while providing natural balance across geographies.

1

        In addition, we have an established portfolio of specialty pharmaceutical, branded generic and OTC products with a focus in the dermatology therapeutic areas. We believe dermatology is particularly attractive given that many of the products are:

Acquisitions

Cholestagel®

        On February 9, 2011, we acquired the Canadian rights to Cholestagel®, an oral bile acid sequestrant for hypercholesterolemia, from Genzyme Corporation for a $2.0 million upfront payment, to be followed by potential additional milestone payments totaling up to $7.0 million.

ACZONE®

        On February 7, 2011, we entered into an agreement to license the Canadian rights to ACZONE® Gel 5%, a topical formulation of dapsone used in the treatment of acne vulgaris, from Allergan, Inc. for an upfront payment of approximately $0.5 million and subsequent additional payments based on net sales.

Zovirax®

        On February 2, 2011, we entered into an asset purchase agreement to acquire U.S. rights to non-ophthalmic topical formulations of Zovirax® from GlaxoSmithKline LLC (the entities within The Glaxo Group of Companies are referred to throughout as "GSK"). Following receipt of Hart-Scott-Rodino regulatory clearance, we closed the U.S. transaction on February 22, 2011. In addition, concurrent with the execution of the U.S. agreement, we entered into a binding letter of intent with GSK to acquire the Canadian rights to non-ophthalmic topical formulations of Zovirax® and we are in the process of negotiating a definitive agreement for such acquisition. Pursuant to the terms of the asset purchase agreement, we paid to GSK an aggregate amount of $300.0 million in cash for both the U.S. and Canadian rights upon the closing of the U.S. transaction. No additional payments will be made to GSK upon the closing of the Canadian transaction. We have been marketing Zovirax® in the U.S. since January 1, 2002, under a 20-year exclusive distribution agreement with GSK, which distribution agreement terminated following the closing of the U.S. transaction. Upon the closing of the U.S. transaction, we entered into a new supply agreement and a new trademark and domain name license agreement with GSK with respect to the U.S. territory. Pursuant to the terms of the trademark and domain name license agreement, we have been granted an exclusive royalty-free license, terminable only for breach or by mutual agreement of the parties, to use the Zovirax® mark and trade dress and the zovirax.com domain name in connection with the advertising, promotion, manufacture, sale and distribution, in the U.S., of topical non-ophthalmic products containing acyclovir (including Zovirax® Ointment and Zovirax® Cream).

        The asset purchase agreement with GSK is attached as Exhibit 2.8 to this Form 10-K and the trademark and domain name license agreement with GSK is attached as Exhibit 10.31 to this Form 10-K.

PharmaSwiss

        On January 31, 2011, we entered into a stock purchase agreement to purchase all of the issued and outstanding stock of PharmaSwiss S.A. ("PharmaSwiss"), a privately-owned branded generics and OTC pharmaceutical company based in Zug, Switzerland. The aggregate consideration payable is €350.0 million (approximately $479.0 million as of January 31, 2011) plus up to an additional €30.0 million (approximately

2


$41.0 million as of January 31, 2011) in contingent payments if certain net sales milestones of PharmaSwiss are achieved for the calendar year ended 2011.

        PharmaSwiss is an existing partner to several large pharmaceutical and biotech companies offering regional expertise in such functions as regulatory, compliance, sales, marketing and distribution, in addition to developing its own product portfolio. Through its business operations, PharmaSwiss offers a broad product portfolio in seven therapeutic areas and operations in 19 countries throughout Central and Eastern Europe, including Poland, Hungary, the Czech Republic and Serbia, as well as in Greece and Israel.

        The transaction, which is subject to customary closing conditions, including certain regulatory approvals, is expected to close in the first quarter of 2011.

Ribavirin/Taribavirin Agreements

        On November 1, 2010, we entered into two strategic agreements for the development and commercialization of taribavirin and the commercial marketing of ribavirin in the treatment of viral diseases, including hepatitis C virus (HCV). Under the terms of the first agreement, Valeant paid Kadmon Pharmaceuticals LLC ("Kadmon") $7.5 million for exclusive rights to all Kadmon dosage forms of ribavirin, including 200 mg, 400 mg, and 600 mg tablets and capsules, in Poland, Hungary, the Czech Republic, Slovakia, Romania and Bulgaria. Valeant will source these products from Kadmon. Under the terms of a second agreement, Valeant granted Kadmon an exclusive, worldwide license to taribavirin, excluding the territory of Japan, in exchange for an upfront payment of $5.0 million, other development milestones, and royalty payments in the range of 8-12% of future net sales. The fair value associated with taribavirin was included in the acquired in-process research and development ("IPR&D") assets identified as of the Merger Date.

Hamilton Brands

        On October 29, 2010, we acquired several privately-owned pharmacy skin care brands in Australia. The leading brands, including well-established local brands such as Hamilton's Suncare and Hamilton's Skin Therapy, are ranked number 2 in suncare in the Australian pharmacy market. Total annualized sales of the acquired products are approximately $10.0 million.

Istradefylline

        On June 2, 2010, we entered into a license agreement with Kyowa Hakko Kirin Co., Ltd. ("Kyowa Hakko Kirin") to acquire the U.S. and Canadian rights to develop and commercialize products containing istradefylline — a new chemical entity targeted for the treatment of Parkinson's disease. Under the terms of the license agreement, we paid an upfront fee of $10.0 million, and we could pay up to $20.0 million in potential development milestones through U.S. Food and Drug Administration ("FDA") approval and up to an additional $35.0 million if certain sales-based milestones are met. We will also make tiered royalty payments of up to 30% on net commercial sales of products containing istradefylline. This acquisition was accounted for as a purchase of IPR&D assets with no alternative future use. Accordingly, the $10.0 million upfront payment, together with $0.2 million of acquisition costs, was charged to acquired IPR&D expense in the second quarter of 2010. In connection with this acquisition, we also entered into an agreement with Kyowa Hakko Kirin for the supply of the istradefylline compound.

AMPAKINE®

        On March 25, 2010, we acquired certain AMPAKINE® compounds, including associated intellectual property, from Cortex Pharmaceuticals, Inc. ("Cortex") for use in the field of respiratory depression, a brain-mediated breathing disorder. This acquisition was accounted for as a purchase of IPR&D assets with no alternative future use. Accordingly, the $9.0 million upfront payment and the $1.0 million transition payment made by us to Cortex, together with $0.7 million of acquisition costs, were charged to acquired IPR&D expense in the first quarter of 2010. As described below under "Products in Development", we have suspended development of the AMPAKINE® compounds and are reviewing our options with Cortex.

3

Staccato® Loxapine

        On February 9, 2010, we entered into a collaboration and license agreement with Alexza Pharmaceuticals, Inc. ("Alexza") to acquire the U.S. and Canadian development and commercialization rights to AZ-004 for the treatment of psychiatric and/or neurological indications and the symptoms associated with these indications. This acquisition was accounted for as a purchase of IPR&D assets with no alternative future use. Accordingly, the $40.0 million upfront payment made by us to Alexza, together with $0.3 million of acquisition costs, was charged to acquired IPR&D expense in the first quarter of 2010. As described below under "Products in Development", by notice to Alexza dated October 18, 2010, we terminated our agreement with Alexza, effective January 16, 2011.

        For more information regarding these acquisitions, see Note 4 of notes to consolidated financial statements in Item 15 of this Form 10-K.

Segment Information

        Since the Merger, we have operated in five business segments comprising (i) U.S. Neurology and Other, (ii) U.S Dermatology, (iii) Canada and Australia, (iv) Branded Generics — Europe, and (v) Branded Generics — Latin America. Within our U.S. Dermatology and U.S. Neurology and Other segments, we generate alliance revenue from the licensing of products we developed or acquired. Additionally, within our U.S. Dermatology segment we generate service revenue from contract services in the areas of dermatology and topical medication. We have realigned segment financial data for the years ended December 31, 2009 and 2008 to reflect changes in our organizational structure that occurred in 2010. Comparative segment information for 2010, 2009 and 2008 is presented in Note 26 of notes to consolidated financial statements in Item 15 of this Form 10-K.

        Our current product portfolio comprises approximately 490 products, with approximately 2,500 stock keeping units ("SKUs"). In 2010, 2009 and 2008, Wellbutrin XL® represented 21%, 22% and 17%, respectively, and Zovirax® represented 14%, 19% and 21%, respectively, of our consolidated revenues. We anticipate that the percentage of consolidated revenue represented by these two products will decline in 2011 with the inclusion of a full year of revenue from both the Valeant and Biovail products.

U.S. Neurology and Other

        The U.S. Neurology and Other segment generates product revenues from pharmaceutical and OTC products. These pharmaceutical products are marketed and sold primarily through wholesalers.

        Neurology and Other Products — our principal Neurology and Other products are:

        U.S. Neurology and Other Alliance Revenue — We generate alliance revenue from the licensing of various products we have developed or acquired.

U.S. Dermatology

        The U.S. Dermatology segment generates product revenues from pharmaceutical and OTC products. These pharmaceutical products are marketed and sold primarily through wholesalers and to a lesser extent through retail and direct-to-physician channels.

4

        Dermatology Products — Our principal dermatology products are:

        OTC Products — our principal OTC products are:

        U.S. Dermatology Service and Alliance Revenue — We generate alliance revenue and service revenue from the licensing of dermatological products and from contract services in the areas of dermatology and topical medication. Alliance revenue within our U.S Dermatology 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., and royalties from patent-protected formulations developed by our Dow Pharmaceutical Sciences, Inc. subsidiary and licensed to third parties. 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.

Canada and Australia

        The Canada and Australia segment generates product revenues from pharmaceutical and OTC products. These pharmaceutical products are marketed and sold primarily through wholesalers and to a lesser extent through retail and direct-to-physician channels.

        Canada — our principal products sold in the Canadian market are:

5

        Australia — From and after the Merger, we have sold topical OTC products under the tradenames Dermaveen®, Dr. LeWinn's® and Hamilton's in Australia, as well as Nyal®, an Australian range of over-the-counter products covering an extensive range of tablets, liquids and nasal sprays to treat cough, cold, flu, sinus and hayfever symptoms.

Branded Generics — Europe

        The Branded Generics — Europe segment generates revenues from branded generic pharmaceutical products primarily in Poland, Hungary, the Czech Republic and Slovakia. Our Branded Generics — Europe segment develops, manufactures and markets products that are the therapeutic equivalent to their brand name counterparts, which are developed when patents or other regulatory exclusivity no longer protect an originator's brand product. Our branded generics strategy is to develop a commercialization strategy to differentiate these products through innovative marketing tactics. Our products in this region are sold under the ICN Polfa brand name and we market our portfolio of generic branded products to doctors and pharmacists through approximately 300 sales professionals.

        Our branded generics cover a broad range of treatments including antibiotics, treatments for cardivascular diseases, antifungal medications and diabetic therapies among many others. Our largest product in this market is Bisocard®, a Beta-blocker that is indicated to treat hypertension and angina pectoris. Syncumar is a courmarin that is used as an anti-coagulant for the treatment and prevention of thromboembolic diseases. Sinupret is an herbal supplement that is claimed to be beneficial for supporting healthy sinus and respiratory function. It is commonly used for the treatment of allergies, coughs, colds and sinus infections.

        Tetrabenazine has also been approved for use in a number of countries in Europe and we have distribution arrangements for tetrabenazine in Denmark, Finland, France, Germany, Ireland, Israel, Italy, the Netherlands, Portugal, Spain, Switzerland and the United Kingdom.

        On January 31, 2011, we entered into a stock purchase agreement to purchase all of the issued and outstanding stock of PharmaSwiss, a privately-owned branded generics and OTC pharmaceutical company with a broad product portfolio in seven therapeutic areas and operations in 19 countries throughout Central and Eastern Europe, including Poland, Hungary, the Czech Republic and Serbia, as well as in Greece and Israel.

Branded Generics — Latin America

        The Branded Generics — Latin America segment generates revenues from branded generic pharmaceutical products and OTC products in Mexico and Brazil and exports out of Mexico to other Latin American markets. The Mexico domestic market represents approximately 62% of revenues in this segment for the year ended December 31, 2010. Our branded generic and generic products are developed when patents or other regulatory exclusivity no longer protect an originator's brand product. Our branded generic products are primarily marketed to physicians and pharmacies through approximately 500 sales professionals under the Grossman and Tecnofarma brands. Our Tecnofarma generic portfolio is primarily sold through Mexico's Government Health Care System, which awards its business through a tender process.

        Our portfolio covers a broad range of therapeutic classes including vitamin deficiency, antibacterials and dermatology. Our largest product in this market is Bedoyecta®, a brand of vitamin B complex (B1, B6 and B12 vitamins) products. Bedoyecta® products act as energy improvement agents for fatigue related to age or chronic diseases, and as nervous system maintenance agents to treat neurotic pain and neuropathy. Bedoyecta® is sold in an injectable form as well as in a tablet form in Mexico and has strong brand recognition in Mexico.

6


Our second largest product, M.V.I.®, multi-vitamin infusion, is a hospital dietary supplement used in treating trauma and burns.

        For detailed information regarding the revenues, operating profits and identifiable assets attributable to our operating segments, see Note 26 of notes to consolidated financial statements in Item 15 of this Form 10-K.

Collaboration Agreement

        In October 2008, Valeant closed the worldwide License and Collaboration Agreement (the "Collaboration Agreement") with GSK to develop and commercialize ezogabine/retigabine, a first-in-class neuronal potassium channel opener for the treatment of adult epilepsy patients with refractory partial onset seizures, and its backup compounds. We agreed to share equally with GSK the development and pre-commercialization expenses of ezogabine/retigabine in the U.S., Australia, New Zealand, Canada and Puerto Rico (the "Collaboration Territory") and GSK will develop and commercialize ezogabine/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. See Note 5 of notes to consolidated financial statements in Item 15 of this Form 10-K for further information.

        GSK has the right to terminate the Collaboration Agreement at any time prior to the receipt of the approval by the FDA of an NDA for an ezogabine/retigabine product, which right may be irrevocably waived at any time by GSK.

        Our rights to ezogabine/retigabine are subject to an Asset Purchase Agreement between Meda Pharma GmbH & Co. KG ("Meda Pharma") and Xcel Pharmaceuticals, Inc. ("Xcel"), which was acquired by Valeant in 2005 (the "Meda Pharma Agreement"). Under the Meda Pharma agreement, we are required to make certain milestone and royalty payments to Meda Pharma. Within the Collaboration Territory, any royalties payable to Meda Pharma will be paid by us and GSK. In the rest of the world, we will be responsible for the payment of these royalties to Meda Pharma out of the royalty payments we receive from GSK.

Research and Development

        Our research and development organization focuses on the development of products through clinical trials. We currently have a number of compounds in clinical development: ezogabine/retigabine, IDP-107, IDP-108, IDP-109, IDP-115, IDP-118, istradefylline and several lifecycle management projects. Our research and development expenses for the years ended December 31, 2010, 2009 and 2008 were $68.3 million, $47.6 million and $69.8 million, respectively.

        As of December 31, 2010, approximately 300 employees were involved in our research and development efforts.

Products in Development

        Prior to the Merger, Biovail's product development and business development efforts were focused on unmet medical needs in specialty central nervous system ("CNS") disorders. Since the Merger, the Company has been employing a leveraged research and development model that will allow it to progress development programs, while minimizing research and development expense, through partnerships and other means. In consideration of this model, following the Merger, the Company conducted a strategic and financial review of the Biovail product development pipeline and identified the programs that did not align with the Company's new research and development model, as outlined in the table below. In respect of the Staccato® loxapine, GDNF, fipamezole and pimavanserin programs, the Company provided notices of termination to, or entered into

7


termination agreements with, the counterparties to the agreements. Regarding the AMPAKINE® program, the Company has suspended development of these compounds and is reviewing its options with Cortex.

Program
  Counterparty   Compound   Contingent
Milestone
Obligations
Terminated(1) 		  Termination
Charges 		 
 
    
    
   ($ in 000s)
    
  
  AZ-004   Alexza Pharmaceuticals, Inc.   Staccato® loxapine   $ 90,000     Nil  
  BVF-007   Cortex Pharmaceuticals, Inc.   AMPAKINE®   $ 15,000     Nil  
  BVF-014   MedGenesis Therapeutix Inc.   GDNF   $ 20,000   $ 5,000 (2)
  BVF-018   LifeHealth Limited   Tetrabenazine     Nil   $ 28,000 (3)
  BVF-025   Santhera Pharmaceuticals (Switzerland) Ltd.   Fipamezole   $ 200,000     Nil  
  BVF-036, -040, -048   ACADIA Pharmaceuticals Inc.   Pimavanserin   $ 365,000   $ 8,750 (2)
(1)
Represents the maximum amount of previously disclosed milestone payments we could have been required to make to the counterparty under each agreement. These milestone payments were contingent on the achievement of specific developmental, regulatory and commercial milestones. In addition, we could have been obligated to make royalty payments based on future net sales of the products if regulatory approval was obtained. As a consequence of the termination of these arrangements, we have no ongoing or future obligation in respect of these milestone or royalty payments.

(2)
Represents the amount of negotiated settlements with each counterparty that we recognized and paid in the fourth quarter of 2010.

(3)
Represents the carrying amount of related IPR&D asset capitalized in connection with the acquisition of the worldwide development and commercialization rights to tetrabenazine in June 2009.

        We currently have the following products, among others, in clinical development:

•
Ezogabine/retigabine  

        In collaboration 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 U.S. and retigabine in all other countries. Ezogabine/retigabine stabilizes hyper-excited neurons primarily by opening neuronal potassium channels. On October 30, 2009, an NDA was filed for ezogabine for the treatment of refractory partial-onset seizures and the FDA accepted the NDA for review on December 29, 2009. On August 30, 2010, the FDA extended the Prescription Drug User Fee Act ("PDUFA") goal date for ezogabine to November 30, 2010 due to the recent submission of a solicited formal Risk Evaluation and Mitigation Strategy ("REMS"). The REMS was requested by the FDA in correspondence dated August 16, 2010, and was submitted to the FDA on August 26, 2010. On November 30, 2010, we received a Complete Response Letter from the FDA for ezogabine. We are evaluating the Complete Response Letter in which the FDA cited non-clinical reasons for this action and believe that these items can be addressed and are working for a timely response to the FDA as soon as possible in 2011.

        Also, the European Medicines Evaluation Agency ("EMEA") confirmed on November 17, 2009 that the Marketing Authorization Application ("MAA") filed on October 30, 2009 for ezogabine/retigabine was successfully validated, thus enabling the MAA review to commence. In January 2011, the European Medicines Agency's Committee for Medicinal Products for Human Use ("CHMP") issued an opinion recommending marketing authorization for Trobalt™ (retigabine) as an adjunctive (add-on) treatment of partial-onset seizures, with or without secondary generalization in adults aged 18 years and above with epilepsy. Additionally, retigabine received a preliminary approval from the Swiss Agency for Therapeutic Products, Swissmedic, in December 2010.

•
Dermatology Products  

        A number of dermatology product candidates are in development including:

8

•
Istradefylline  

        On June 2, 2010, Biovail entered into a license agreement with Kyowa Hakko Kirin to acquire the U.S. and Canadian rights to develop and commercialize products containing istradefylline. In April 2007, Kyowa Hakko Kirin filed an NDA for istradefylline, which received a Not Approvable letter from the FDA in February 2008. The FDA has requested a Complete Response to the Not Approvable letter before it will consider meeting with us to discuss the regulatory approval process for istradefylline.

•
Lifecycle Management Projects  

        Through Valeant's acquisition of Aton Pharma, Inc. in May 2010, we have ongoing lifecycle management programs in place for several of our specialty CNS compounds, including Syprine® and Mephyton®, as well as Lacrisert®, which is in our dermatology portfolio. We are developing improvements to these compounds in order to better meet the needs expressed by the medical community.

Licenses and Patents (Proprietary Rights)

        We rely on a combination of regulatory and patent rights to protect the value of our investment in the development of our products.

        A patent is the grant of a property right which allows its holder to exclude others from, among other things, selling the subject invention in, or importing such invention into, the jurisdiction that granted the patent. In the U.S., Canada and the European Union, patents expire 20 years from the date of application.

        In the U.S., the Hatch-Waxman Act provides nonpatent regulatory exclusivity for five years from the date of the first FDA approval of a new drug compound in an NDA. The FDA is prohibited during those five years from approving a generic, or ANDA, that references the NDA. Protection under the Hatch-Waxman Act will not prevent the filing or approval of another full NDA. However, the NDA applicant would be required to conduct its own pre-clinical, adequate and well-controlled clinical trials to independently demonstrate safety and effectiveness.

        A similar data exclusivity scheme exists in the European Union, whereby only the pioneer drug company can use data obtained at the pioneer's expense for up to eight years from the date of the first approval of a drug by the EMEA and no generic drug can be marketed for ten years from the approval of the innovator product. Under both the U.S. and the European Union data exclusivity programs, products without patent protection can be marketed by others so long as they repeat the clinical trials necessary to show safety and efficacy. Canada employs a similar regulatory regime.

9

        We own a U.S. composition of matter patent (which will expire in 2013) directed to ezogabine/retigabine without regard to crystalline form. We anticipate that this patent will be extended to 2018 upon approval of ezogabine/retigabine pursuant to the patent term restoration provisions of the Hatch-Waxman Act. We also own two U.S. patents (both of which will expire in 2018) that are directed to specific crystalline forms of ezogabine/retigabine. In addition, we own a number of U.S. patents and pending applications, with expiration dates ranging from 2016 to 2023, directed to the use of ezogabine/retigabine to treat a variety of disease indications. We also own several patents and pending applications in foreign countries with expiration dates ranging from 2012 to 2024.

        Upon regulatory approval, we expect to obtain five years of data exclusivity in the U.S. and ten years in Europe for ezogabine/retigabine.

Government Regulations

        Government authorities in the U.S., at the federal, state and local level, in Canada and in other countries extensively regulate, among other things, the research, development, testing, approval, manufacturing, labeling, post-approval monitoring and reporting, packaging, promotion, storage, advertising, distribution, marketing and export and import of pharmaceutical products. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. FDA approval must be obtained in the U.S., approval of Health Canada's Therapeutic Products Directorate ("TPD") must be obtained in Canada, EMEA approval must be obtained for countries that are part of the European Union and approval must be obtained from comparable agencies in other countries prior to marketing or manufacturing new pharmaceutical products for use by humans.

        Manufacturers of drug products are required to comply with manufacturing regulations, including current good manufacturing regulations enforced by the FDA and the TPD and similar regulations enforced by regulatory agencies outside the U.S. and Canada. In addition, we are subject to price control restrictions on our pharmaceutical products in many countries in which we operate.

        We are also subject to extensive health care marketing and fraud and abuse regulation in the U.S. by the federal and state governments, such as the federal False Claims Act, and similar regulations in Canada and foreign countries in which we may conduct our business. The federal False Claims Act imposes civil and criminal liability on individuals or entities who submit (or cause the submission of) false or fraudulent claims for payment to the government. If our operations are found to be in violation of any of these laws, regulations, rules or policies or any other law or governmental regulation, or if interpretations of the foregoing change, we may be subject to civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment or restructuring of our operations.

Environmental Regulation

        We are subject to national, state and local environmental laws and regulations, including those governing the handling and disposal of hazardous wastes, wastewater, solid waste and other environmental matters. Our development and manufacturing activities involve the controlled use of hazardous materials.

Marketing and Customers

        Prior to the Merger, our primary markets were the U.S. and Canada. Subsequent to the Merger, our four major geographic markets are: the U.S., Canada, Mexico and Poland.

10

        The following table identifies external customers that accounted for 10% or more of our total revenue during the year ended December 31, 2010:

 
   Percentage of
Total Revenue 		 
 
   2010  

McKesson Corporation

     28%  

Cardinal Health, Inc

     24%  

AmerisourceBergen Corporation

     12%  

        No other country, or single customer, generated over 10% of our total product net sales.

        We currently promote our pharmaceutical products to physicians, hospitals, pharmacies and wholesalers through our own sales force and sell through wholesalers. In some limited markets, we additionally sell directly to physicians, hospitals and large drug store chains and we sell through distributors in countries where we do not have our own sales staff. As part of our marketing program for pharmaceuticals, we use direct mailings, advertise in trade and medical periodicals, exhibit products at medical conventions and sponsor medical education symposia.

Competition

        Our competitors include specialty and large pharmaceutical companies, biotechnology companies, OTC companies, academic and other research and development institutions and generic manufacturers, both in the U.S., Canada and abroad. The dermatology competitive landscape is highly fragmented, with a large number of mid-size and smaller companies competing in both the prescription sector and the OTC and cosmeceutical sectors. Our competitors are pursuing the development of pharmaceuticals and OTC products that target the same diseases and conditions that we are targeting in neurology, dermatology and other therapeutic areas.

        We sell a broad range of products, and competitive factors vary by product line and geographic area in which the products are sold.

        Our competitors are developing products and product candidates that would compete with ezogabine/retigabine. The success of any of our competitors' products or product candidates could adversely affect our expected revenues for ezogabine/retigabine, if approved. In addition, there are several generic compounds that currently compete in this market, which could limit the success of ezogabine/retigabine.

        We also face increased competition from manufacturers of generic pharmaceutical products when patents covering certain of our currently marketed products expire or are successfully challenged. Generic versions are generally significantly less expensive than branded versions, and, where available, may be required in preference to the branded version under third-party reimbursement programs, or substituted by pharmacies. If competitors introduce new products, delivery systems or processes with therapeutic or cost advantages, our products can be subject to progressive price reductions or decreased volume of sales, or both. Most new products that we introduce must compete with other products already on the market or products that are later developed by competitors. Manufacturers of generic pharmaceuticals typically invest far less in research and development than research-based pharmaceutical companies and therefore can price their products significantly lower than branded products. Accordingly, when a branded product loses its market exclusivity, it normally faces intense price competition from generic forms of the product. To successfully compete for business with managed care and pharmacy benefits management organizations, we must often demonstrate that our products offer not only medical benefits but also cost advantages as compared with other forms of care.

11

        We have two significant products, Cesamet® and Zovirax®, which do not currently have generic competition and are not protected by patent or regulatory exclusivity.

        Cardizem® CD faces many generic competitors on the majority of the available SKUs; however to date, the Cardizem® CD 360mg SKU has not faced a generic competitor. As of the present date, Sun Pharmaceuticals' ANDA authorizing marketing of its 360 mg dosage formulation of diltiazem hydrochloride extended release capsules corresponding to Cardizem® CD has not been approved. Biovail Laboratories International SRL and the Company recently received a Paragraph IV Notice from Actavis, Inc. ("Actavis") dated February 9, 2011 in regard to 360 mg dosage diltiazem hydrochloride extended release capsules corresponding to Cardizem® CD. Actavis subsequently converted its Paragraph IV filing to a Paragraph III filing and will not launch until after the expiration of the last patent covering Cardizem® CD expires in August 2012.

        On October 12, 2007, Valeant settled a patent infringement lawsuit with Kali Laboratories, Inc. ("Kali") regarding Kali's submission of an ANDA with the FDA seeking approval for a generic version of Diastat® (a diazepam rectal gel). Under the terms of this settlement, Valeant agreed to allow Barr Laboratories (now Teva Pharmaceuticals ("Teva")), with whom Kali has a marketing agreement, to introduce a generic version of Diastat® and Diastat® AcuDial™ on or after September 1, 2010, or earlier under certain circumstances. Pursuant to this agreement, Teva launched a generic competitor to Diastat® and Diastat® AcuDial™ in September 2010.

Manufacturing

        We currently operate 13 manufacturing plants worldwide. All of our manufacturing facilities that require certification from the FDA, TPD or foreign agencies have obtained such approval.

        We also subcontract the manufacturing of certain of our products, including products manufactured under the rights acquired from other pharmaceutical companies. Generally, acquired products continue to be produced for a specific period of time by the selling company. During that time, we integrate the products into our own manufacturing facilities or initiate toll manufacturing agreements with third parties.

        We estimate that products representing approximately 40% of our product sales are produced by third party manufacturers under toll manufacturing arrangements.

        The principal raw materials used by us for our various products are purchased in the open market. Most of these materials are available from several sources.

Employees

        As of December 31, 2010, we had approximately 4,300 employees. These employees included approximately 2,400 in production, 1,100 in sales and marketing, 300 in research and development and 500 in general and administrative positions. Collective bargaining exists for some employees in a number of markets. We currently consider our relations with our employees to be good and have not experienced any work stoppages, slowdowns or other serious labor problems that have materially impeded our business operations.

Product Liability Insurance

        We have product liability insurance to cover damages resulting from the use of our products. We have in place clinical trial insurance in the major markets where we conduct clinical trials.

Seasonality of Business

        Our results of operations have not been materially impacted by seasonality.

Geographic Areas

        A significant portion of our revenues are generated from operations or otherwise earned outside the U.S. and Canada. 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

12


values of currencies may materially affect our results of operations. For a discussion of these risks, see Item 1A., Risk Factors in this Form 10-K.

        See Note 26 of notes to consolidated financial statements in Item 15 of this Form 10-K for detailed information regarding revenues by geographic area.

        A significant portion of our revenue and income is earned in Barbados, which has low domestic tax rates. See Item 1A., Risk Factors in this Form 10-K.

Available Information

        Our Internet address is www.valeant.com. We post links on our website to the following filings as soon as reasonably practicable after they are electronically filed or furnished to the SEC: annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendment to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. All such filings are available through our website free of charge. The information on our Internet website is not incorporated by reference into this Form 10-K or our other securities filings and is not a part of such filings.

        We are also required to file reports and other information with the securities commissions in all provinces in Canada. You are invited to read and copy any reports, statements or other information, other than confidential filings, that we file with the provincial securities commissions. These filings are also electronically available from the Canadian System for Electronic Document Analysis and Retrieval ("SEDAR") (http://www.sedar.com), the Canadian equivalent of the SEC's electronic document gathering and retrieval system.

        Our filings may also be read and copied at the SEC's Public Reference Room at 100 F. Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC.

Item 1A.    Risk Factors

        The Company's business, operations and financial condition are subject to various risks and uncertainties. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Form 10-K, including those risks set forth under the heading entitled "Forward-Looking Statements", and in other documents that the Company files with the SEC and the CSA, before making any investment decision with respect to its securities. If any of the risks or uncertainties actually occur or develop, the Company's business, financial condition, results of operations and future growth prospects could change. Under these circumstances, the market value of the Company's securities could decline, and you could lose all or part of your investment in the Company's securities.

        We operate in an extremely competitive industry. If competitors develop or acquire more effective or less costly drugs for our target indications, our business could be seriously harmed.

        Many of our competitors, particularly large pharmaceutical companies, have substantially greater financial, technical and human resources than we do. Many of our competitors spend significantly more on research and development related activities than we do. Others may succeed in developing or acquiring products that are more effective than those currently marketed or proposed for development by us. In addition, academic institutions, government agencies and other public and private organizations conducting research may seek patent protection with respect to potentially competitive products. They may also establish exclusive collaborative or licensing relationships with our competitors.

        The failure to integrate successfully the businesses of Valeant and Biovail in the expected time frame could adversely affect the Company's future results.

        The success of the combined Company going forward will depend, in large part, on the ability of the Company to realize the anticipated 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. While the integration process is well underway, it is complex and time-consuming. The failure to

13


integrate successfully and to manage successfully the challenges presented by the integration process would result in the Company not achieving the anticipated benefits of the Merger. We cannot assure you that the Company will be successful or that the Company will realize the expected operating efficiencies, synergies, cost savings, revenue enhancements and other benefits anticipated from the Merger.

        Potential difficulties that may be encountered in the integration process include the following:

        The Company estimates that it will incur costs in the range of $135 million and $180 million in connection with its integration initiatives; however, there are many factors beyond its control that could affect the total amount or the timing of the integration expenses.

        The Company has operations in various countries that have differing tax laws and rates. The Company's tax reporting is supported by current domestic tax laws in the countries in which the Company operates and the application of tax treaties between the various countries in which the Company operates. The Company's income tax reporting will be, and the historic tax reporting of each of Valeant and Biovail is, subject to audit by domestic and foreign authorities. The Company's effective tax rate may change from year to year based on changes in the mix of activities and income allocated or earned among the different jurisdictions in which it operates; changes in tax laws in these jurisdictions; changes in the tax treaties between various countries in which it operates; changes in its eligibility for benefits under those tax treaties; and changes in the estimated values of deferred tax assets and liabilities. Such changes could result in a substantial increase in the effective tax rate on all or a portion of the Company's income.

        The Company's provision for income taxes is based on certain estimates and assumptions made by management. The Company's consolidated income tax rate is affected by the amount of net income earned in its various operating jurisdictions, the availability of benefits under tax treaties, and the rates of taxes payable in respect of that income. The Company enters into many transactions and arrangements in the ordinary course of business in respect of which the tax treatment is not entirely certain. The Company therefore makes estimates and judgments based on its knowledge and understanding of applicable tax laws and tax treaties, and the

14


application of those tax laws and tax treaties to its business, in determining its consolidated tax provision. For example, certain countries could seek to tax a greater share of income than will be provided for by the Company. The final outcome of any audits of the Company by taxation authorities may differ from the estimates and assumptions the Company may use in determining its consolidated tax provisions and accruals. This could result in a material adverse effect on the Company's consolidated income tax provision, financial condition and the net income for the period in which such determinations are made.

        The Company's deferred tax liabilities, deferred tax assets and any related valuation allowances are affected by events and transactions arising in the ordinary course of business, acquisitions of assets and businesses, and non-recurring items. The assessment of the appropriate amount of a valuation allowance against the deferred tax assets is dependent upon several factors, including estimates of the realization of deferred income tax assets, which realization will be primarily based on forecasts of future taxable income. Significant judgment is applied to determine the appropriate amount of valuation allowance to record. Changes in the amount of any valuation allowance required could materially increase or decrease the Company's provision for income taxes in a given period.

        The Company has incurred significant indebtedness, which indebtedness may restrict the manner in which the Company conducts business and limit the Company's ability to implement elements of its growth strategy.

        The Company has incurred significant indebtedness in connection with and following the Merger. We may also incur additional long-term debt and working capital lines of credit to meet future financing needs which, subject to certain restrictions under our indebtedness, including the Credit Facilities and the Senior Notes, would increase our total debt. This indebtedness may restrict the manner in which the Company conducts business and limit the Company's ability to implement elements of its growth strategy, including with respect to:

        Part of our business strategy includes acquiring and integrating complementary businesses, products, technologies or other assets, and forming strategic alliances, joint ventures and other business combinations, to help drive future growth. We may also in-license new products or compounds. Acquisitions or similar arrangements may be complex, time consuming and expensive. We may not consummate some negotiations for acquisitions or other arrangements, which could result in significant diversion of management and other employee time, as well as substantial out-of-pocket costs. If the acquisition is consummated, the integration of the acquired business, product or other assets into our company may be also be complex and time-consuming and, if such businesses, products and assets are not successfully integrated, we may not achieve the anticipated benefits, cost-savings or growth opportunities. Furthermore, these acquisitions and other arrangements, even if successfully integrated, may fail to further our business strategy as anticipated, expose us to increased competition or challenges with respect to our products or geographic markets, and expose us to additional liabilities associated with an acquired business, product, technology or other asset or arrangement. Any one of

15

these challenges or risks could impair our ability to realize any benefit from our acquisition or arrangement after we have expended resources on them.

        The FDA and TPD approval must be obtained in the U.S. and Canada, respectively, and approval must be obtained from comparable agencies in other countries prior to marketing or manufacturing new pharmaceutical products for use by humans. Obtaining FDA, TPD and other regulatory approval for new products and manufacturing processes can take a number of years and involves the expenditure of substantial resources. Even if such products appear promising in large-scale Phase 3 clinical trials, regulatory approval may not be achieved and no assurance can be given that we will obtain approval in the U.S., Canada or any other country. Nor can any assurance be given that if such approval is secured, the approved labeling will not have significant labeling limitations or that this approval may include limitations on the indications for which we can market a product or onerous risk management programs.

        Following initial regulatory approval of any drugs we or our partners may develop, we will be subject to continuing regulatory review by the FDA, the TPD and other regulatory authorities in countries where our products are marketed or intended to be marketed, including the review of adverse drug events and clinical results that are reported after product candidates become commercially available. The manufacturing, labeling, packaging, storage, distribution, advertising, promotion, reporting and recordkeeping related to the product will also be subject to extensive ongoing regulatory requirements. If we fail to comply with U.S. and Canadian regulatory requirements and those in other countries where our products are sold, we could lose our marketing approvals or be subject to fines or other sanctions. In addition, incidents of adverse drug reactions ("ADRs"), unintended side effects or misuse relating to our products could result in additional regulatory controls or restrictions, or even lead to withdrawal of a product from the market. As a condition to granting marketing approval of a product, the FDA and TPD may require a company to conduct additional clinical trials, the results of which could result in the subsequent loss of marketing approval, changes in product labeling or new or increased concerns about side effects or efficacy of a product.

        Our approved products may not achieve or maintain expected levels of market acceptance, which could have a material adverse effect on our business, financial condition and results of operations.

        Even if we are able to obtain and maintain regulatory approvals for our new pharmaceutical products, generic or branded, the success of these products is dependent upon achieving and maintaining market acceptance. Commercializing products is time consuming, expensive and unpredictable. There can be no assurance that we will be able to, either by ourselves or in collaboration with our partners or through our licensees, successfully commercialize new products or gain market acceptance for such products. New product candidates that appear promising in development may fail to reach the market or may have only limited or no commercial success. Levels of market acceptance for our new products could be impacted by several factors, many of which are not within our control, including but not limited to the:

        Further, the discovery of significant problems with a product similar to one of our products that implicate (or are perceived to implicate) an entire class of products could have an adverse effect on sales of the affected products. Accordingly, new data about our products, or products similar to our products, could negatively impact

16


demand for our products due to real or perceived side effects or uncertainty regarding efficacy and, in some cases, could result in product withdrawal.

        We will not be able to commercialize our pipeline products if preclinical studies do not produce successful results or if clinical trials do not demonstrate safety and efficacy in humans.

        The Company and its development partners, as applicable, conduct extensive preclinical studies and clinical trials to demonstrate the safety and efficacy in humans of our pipeline products in order to obtain regulatory approval for the sale of our pipeline products. Preclinical studies and clinical trials are expensive, can take many years and have uncertain outcomes.

        If we or our third-party manufacturers are unable to manufacture our products or the manufacturing process is interrupted due to failure to comply with regulations or for other reasons, the interruption of the manufacture of our products could adversely affect our business. Other manufacturing difficulties or delays may also adversely affect our business, financial condition and results of operations.

        Our manufacturing facilities and those of our contract manufacturers must be inspected and found to be in full compliance with current good manufacturing ("cGMP") or similar standards before approval for marketing. Our failure or that of our contract manufacturers to comply with cGMP regulations or similar regulations outside of the U.S. can result in enforcement action by the FDA or its foreign counterparts, including, among other things, warning letters, fines, injunctions, civil or criminal penalties, recall or seizure of products, total or partial suspension of production, suspension or withdrawal of regulatory approval for approved or in-market products, refusal of the government to renew marketing applications or approve pending applications or supplements, suspension of ongoing clinical trials, imposition of new manufacturing requirements, closure of facilities and criminal prosecution.

        Our manufacturing and other processes use complicated and sophisticated equipment, which sometimes requires a significant amount of time to obtain and install. Manufacturing complexity, testing requirements and safety and security processes combine to increase the overall difficulty of manufacturing these products and resolving manufacturing problems that we may encounter. Although we endeavor to properly maintain our equipment, including through on-site quality control and experienced manufacturing supervision, and have key spare parts on hand, our business could suffer if certain manufacturing or other equipment, or all or a portion of our facilities, were to become inoperable for a period of time. This could occur for various reasons, including catastrophic events, such as hurricanes, earthquakes or other natural disasters, explosions, environmental accidents, pandemics, quarantine, equipment failures or delays in obtaining components or replacements, construction delays or defects and other events, both within and outside of our control. We could experience substantial production delays in the event of any such occurrence until we build or locate replacement equipment or a replacement facility, as applicable, and seek to obtain necessary regulatory approvals for such replacement. Any interruption in our manufacture of products could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our common shares to decline.

        Our dependence upon others to manufacture our products may adversely affect our profit margins and our ability to develop and obtain approval for our products on a timely and competitive basis, if at all. In addition, delays or difficulties by us or with our contract manufacturers in producing, packaging, or distributing our products could adversely affect the sales of our current products or introduction of other products.

        If we are unable to obtain components or raw materials, or products supplied by third parties, our ability to manufacture and deliver our products to the market would be impeded, which could have a material adverse effect on our business, financial condition and results of operations.

        Some components and raw materials used in our manufactured products, and some products sold by us, are currently available only from one or a limited number of domestic or foreign suppliers. In the event an existing supplier becomes unavailable through business interruption or financial insolvency or loses its regulatory status as an approved source or we are unable to renew current supply agreements when such agreements expire and we do not have a second supplier, we may be unable to obtain the required components, raw materials or products on a timely basis or at commercially reasonable prices. A prolonged interruption in the supply of a single-sourced raw material, including the active pharmaceutical ingredient, could have a material adverse effect

17


on our business, financial condition and results of operations, and the market value of our common shares could decline.

        Disruptions of delivery of our products could adversely impact our business, financial condition and results of operations.

        The supply of our products to our customers is subject to and dependent upon the use of transportation services. Disruption of transportation services could adversely impact our financial results.

        We have entered into distribution agreements with other companies to distribute certain of our products at supply prices based on net sales. Declines in the pricing and/or volume, over which we have no control, of such products, and therefore the amounts paid to us, may have a material adverse effect on our business and results of operations.

        Our portfolio of generic products is the subject of various agreements, pursuant to which we manufacture and sell generic products to other companies, which distribute such products at a supply price typically based on net sales. These companies make all distribution and pricing decisions independently of us. If the pricing or volume of such generic products declines, our revenues would be adversely impacted which could have a material adverse effect on our business and results of operations and could cause the market value of our common shares to decline.

        Our marketing, promotional and pricing practices, as well as the manner in which sales forces interact with purchasers, prescribers and patients, are subject to extensive regulation and any material failure to comply could result in significant sanctions against the Company.

        The marketing, promotional, and pricing practices of pharmaceutical companies, as well as the manner in which companies, in-house or third-party sales forces interact with purchasers, prescribers, and patients, are subject to extensive regulation, enforcement of which may result in the imposition of civil and/or criminal penalties, injunctions, and/or limitations on marketing practice for our products. Many companies, including the Company, have been the subject of claims related to these practices asserted by federal authorities. These claims have resulted in fines and other consequences to the Company. We are now operating under a CIA that requires us to maintain a comprehensive compliance program governing our sales, marketing and government pricing and contracting functions. Material failures to comply with the CIA could result in significant sanctions to the Company, including monetary penalties and exclusion from federal health care programs.

        Companies may not promote drugs for "off-label" uses — that is, uses that are not described in the product's labeling and that differ from those approved by the FDA, TPD or other applicable regulatory agencies. A company that is found to have improperly promoted off-label uses may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions. In addition, management's attention could be diverted from our business operations and our reputation could be damaged.

        Products representing a significant amount of our revenue are not protected by patent or data exclusivity rights.

        A significant amount of the products we sell have no meaningful exclusivity protection via patent or data exclusivity rights. These products represent a significant amount of our revenues. Without exclusivity protection, competitors face fewer barriers in introducing competing products. The introduction of competing products could adversely affect our results of operations and financial condition.

        Our business, financial condition and results of operations are subject to risks arising from the international scope of our operations.

        We conduct a significant portion of our business outside the U.S. and Canada. We sell our pharmaceutical products in many countries around the world. All of our foreign operations are subject to risks inherent in conducting business abroad, including possible nationalization or expropriation, price and currency exchange controls, fluctuations in the relative values of currencies, political instability and restrictive governmental actions.

18

        Due to the large portion of our business conducted outside the United States, we have significant foreign currency risk.

        We sell products in many countries that are susceptible to significant foreign currency risk. In some of these markets we sell products for U.S. dollars. While this eliminates our direct currency risk in such markets, it increases our risk that we could lose market share to competitors because if a local currency is devalued significantly, it becomes more expensive for customers in that market to purchase our products in U.S. dollars. The international scope of our operations may also lead to volatile financial results and difficulties in managing our operations.

        We also face foreign currency exposure on the translation of our operations in Canada from Canadian dollars to U.S. dollars. Where possible, we manage foreign currency risk by managing same currency assets in relation to same currency liabilities, and same currency revenue in relation to same currency expenses. As a result, both favorable and unfavorable foreign currency impacts to our foreign currency-denominated operating expenses are mitigated to a certain extent by the natural, opposite impact on our foreign currency-denominated revenue. We also have additional foreign currency exposure related to the Polish zloty (and other Eastern European currencies), the Mexican peso, the Brazilian real and the Australian dollar.

        The Company must continue to retain, motivate and recruit executives and other key employees, and failure to do so could negatively affect the Company.

        The Company must continue to retain, motivate and recruit executives and other key employees. A failure by the Company to retain and motivate executives and other key employees could have an adverse impact on the Company's business.

        The general business and economic conditions in the U.S., Canada and other countries in which we conduct business could have a material adverse impact on our liquidity and capital resources, revenues and operating results.

        We may be impacted by general economic conditions and factors over which we have no control, such as changes in inflation, interest rates and foreign currency rates, lack of liquidity in certain markets and volatility in capital markets. Similarly, adverse economic conditions impacting our customers could cause purchases of our products to decline, which could adversely affect our revenues and operating results. Moreover, our projected revenues and operating results are based on assumptions concerning certain levels of customer spending. Any failure to attain our projected revenues and operating results as a result of adverse economic or market conditions could have a material adverse effect on our business and result in a decline in the price of our common stock.

        The primary objective of investing our excess cash is the protection of principal and, accordingly, we invest in investment grade securities with varying maturities, but typically less than one year. Our Credit Facility bears interest based on U.S. dollar London Interbank Offering Rates, or U.S. Prime Rate, or Federal Funds effective rate. Thus, a change in the short-term interest rate environment could have a material adverse effect on our results of operations, financial condition or cash flows. As of December 31, 2010, we do not have any outstanding interest rate swap contracts.

        We are involved in various legal proceedings that could adversely affect us.

        We are involved in several legal proceedings, including those described in Note 24 of notes to consolidated financial statements in Item 15 of this Form 10-K. Defending against claims and any unfavorable legal decisions, settlements or orders could have a material adverse effect on us.

        If our products cause, or are alleged to cause, serious or widespread personal injury, we may have to withdraw those products from the market and/or incur significant costs, including payment of substantial sums in damages, and we may be subject to exposure relating to product liability claims.

        We face an inherent business risk of exposure to significant product liability and other claims in the event that the use of our products caused, or is alleged to have caused, adverse effects. Furthermore, our products may cause, or may appear to have caused, adverse side effects (including death) or potentially dangerous drug

19


interactions that we may not learn about or understand fully until the drug has been administered to patients for some time. The withdrawal of a product following complaints and/or incurring significant costs, including the requirement to pay substantial damages in personal injury cases or product liability cases, could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our common shares to decline. Our product liability insurance coverage may not be sufficient to cover our claims and we may not be able to obtain sufficient coverage at a reasonable cost in the future.

        We may become involved in infringement actions which are uncertain, costly and time-consuming and could have a material adverse effect on our business, results of operations, financial condition and cash flows.

        The pharmaceutical industry historically has generated substantial litigation concerning the manufacture, use and sale of products and we expect this litigation activity to continue. As a result, we expect that patents related to our products will be routinely challenged, and our patents may not be upheld. In order to protect or enforce patent rights, we may initiate litigation against third parties. If we are not successful in defending an attack on our patents and maintaining exclusive rights to market one or more of our major products still under patent protection, we could lose a significant portion of sales in a very short period. We may also become subject to infringement claims by third parties and may have to defend against charges that we violated patents or the proprietary rights of third parties. If we infringe the intellectual property rights of others, we could lose our right to develop, manufacture or sell products, including our generic products, or could be required to pay monetary damages or royalties to license proprietary rights from third parties. The outcomes of infringement action are uncertain and infringement actions are costly and divert technical and management personnel from their normal responsibilities.

        We are subject to various laws and regulations, including "fraud and abuse" laws and anti-bribery laws, and a failure to comply with such laws and regulations or prevail in any litigation related to noncompliance could harm our business.

        Pharmaceutical and biotechnology companies have faced lawsuits and investigations pertaining to violations of health care "fraud and abuse" laws, such as the federal False Claims Act, the federal Anti-Kickback Statute, the U.S. Foreign Corrupt Practices Act ("FCPA") and other state and federal laws and regulations. We also face increasingly strict data privacy and security laws in the U.S. and in other countries, the violation of which could result in fines and other sanctions. Increasingly, states require pharmaceutical companies to have comprehensive compliance programs and to disclose certain payments made to healthcare providers or funds spent on marketing and promotion of drug products. If we are in violation of any of these requirements or any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines, exclusion from federal healthcare programs or other sanctions.

        The FCPA and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that have experienced governmental corruption to some degree and in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices or may require us to interact with doctors and hospitals, some of which may be state controlled, in a manner that is different than in the U.S. and Canada. We cannot assure you that our internal control policies and procedures always will protect us from reckless or criminal acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our financial condition, results of operations and cash flows.

        Our failure to comply with applicable environmental laws and regulations worldwide could have a material adverse effect on our business, financial condition and results of operations.

        We are subject to laws and regulations concerning the environment, safety matters, regulation of chemicals and product safety in the countries where we manufacture and sell our products or otherwise operate our business. These requirements include regulation of the handling, manufacture, transportation, use and disposal of materials, including the discharge of pollutants into the environment. In the normal course of our business, hazardous substances may be released into the environment, which could cause environmental or property damage or personal injuries, and which could subject us to remediation obligations regarding contaminated soil

20


and groundwater or potential liability for damage claims. Under certain laws, we may be required to remediate contamination at certain of our properties regardless of whether the contamination was caused by us or by previous occupants of the property or by others. In recent years, the operations of all companies have become subject to increasingly stringent legislation and regulation related to occupational safety and health, product registration and environmental protection. Such legislation and regulations are complex and constantly changing, and future changes in laws or regulations may require us to install additional controls for certain of our emission sources, to undertake changes in our manufacturing processes or to remediate soil or groundwater contamination at facilities where such cleanup is not currently required.

        We are exposed to risks if we are unable to comply with laws and future changes to laws affecting public companies, including the Sarbanes-Oxley Act of 2002 ("SOX"), and also to increased costs associated with complying with such laws.

        Any future changes to the laws and regulations affecting public companies, as well as compliance with existing provisions of SOX in the U.S. and Part XXIII.1 of the Securities Act (Ontario), R.S.O. 1990, c. S.5 (the "Ontario Securities Act") and related rules and applicable stock exchange rules and regulations, may cause us to incur increased costs as we evaluate the implications of new rules and respond to new requirements. Delays, or a failure to comply with any laws, rules and regulations that apply to us, could result in enforcement actions, the assessment of other penalties and civil suits. New laws and regulations could make it more expensive for us under indemnities we provide to our officers and directors and could make it more difficult for us to obtain certain types of insurance, including liability insurance for directors and officers; as such, we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on the board of directors or as officers. We are required annually to review and report on the effectiveness of our internal control over financial reporting in accordance with applicable securities laws. Our registered public accounting firm is also required to report on the effectiveness of our internal control over financial reporting. If we fail to maintain effective internal controls over our financial reporting, there is the possibility of errors or omissions occurring or misrepresentations in our disclosures which could have a material adverse effect on our business and financial condition and the value of our common shares.

        Legislative or regulatory reform of the healthcare system may affect our ability to sell our products profitably and could adversely affect our business.

        In the U.S. 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 increased the minimum Medicaid drug rebates for pharmaceutical companies, expanded the 340B drug discount program, and made changes to affect the Medicare Part D coverage gap, or "donut hole." The law also revised the definition of "average manufacturer price" for reporting purposes, which may increase the amount of our Medicaid drug rebates to states. Beginning in 2011, the new law imposes a significant annual fee on companies that manufacture or import branded prescription drug products. Substantial new provisions affecting compliance also have been added, which may require us to modify our business practices with health care practitioners. A variety of federal and state agencies are responsible for implementing the law, including through the issuance of rules, regulations or guidance that materially affect our business. Various legal challenges have been filed against the law, with some lower courts reaching conflicting decisions, and we cannot predict at this time what impact these challenges will have on our business.

Item 1B.    Unresolved Staff Comments

        None.

21

Item 2.    Properties

        We believe that we have sufficient facilities to conduct our operations during 2011. The following table lists the location, use, size and ownership interest of our principal properties:

Location
  Purpose   Owned
or
Leased 		  Approximate
Square
Footage 		 

Mississauga, Ontario, Canada

   Corporate Headquarters   Leased     79,000 (1)

Aliso Viejo, California

   Corporate offices and administration   Leased     110,000 (1)

Bridgewater, New Jersey

   Administration   Leased     110,000  

Christ Church, Barbados

   Commercial, IP and strategic planning   Owned     23,000  

U.S. Dermatology

                

Petaluma, California

   Offices and laboratories   Leased     50,000  

U.S. Neurology and Other

                

Chantilly, Virginia

   Research and development services   Leased     80,000 (2)

Canada and Australia

                

Montreal, Quebec, Canada

   Offices, manufacturing and warehouse facility   Owned     94,000  

Steinbach, Manitoba, Canada

   Offices, manufacturing and warehouse facility   Owned     250,000  

Branded Generics — Latin America

                

Mexico City, Mexico

   Offices and manufacturing facility   Leased     102,000  

Mexico City, Mexico

   Offices and manufacturing facility   Owned     211,000  

San Juan del Rio, Mexico

   Manufacturing facility   Owned     96,000  

Indaiatuba, Brazil

   Manufacturing facility   Owned     165,000  

Branded Generics — Europe

                

Rzeszow, Poland

   Offices and manufacturing facility   Owned     447,000  

Warszawa (Marynarska), Poland

   Offices   Leased     124,000  
(1)
In the first half of 2011, we plan to vacate our corporate headquarters in Mississauga and our corporate offices in Aliso Viejo and relocate to other smaller leased facilities.

(2)
Following the completion of certain activities associated with the termination of certain of our research and development projects, we intend to vacate our leased facility in Chantilly, Virginia.

        We believe our facilities are in satisfactory condition and are suitable for their intended use, although some limited investments to improve our manufacturing and other related facilities are contemplated, based on the needs and requirements of our business.

Item 3.    Legal Proceedings

        See Note 24 of notes to consolidated financial statements in Item 15 of this Form 10-K, which is incorporated by reference herein.

Item 4. (Removed and Reserved)

        Not applicable.

22


 PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

        Our common shares are traded on the New York Stock Exchange ("NYSE") and on the Toronto Stock Exchange ("TSX") under the symbol "VRX". The following table sets forth the high and low per share sales prices for our common shares on the NYSE and TSX for the periods indicated.

 
   NYSE   TSX  
 
   High
$ 		  Low
$ 		  High
C$ 		  Low
C$ 		 

2009

                          

First quarter

     12.15     9.41     14.53     10.30  

Second quarter

     13.75     9.26     15.90     10.90  

Third quarter

     15.50     12.14     16.59     13.45  

Fourth quarter

     15.49     12.91     16.55     13.78  

2010

                          

First quarter

     16.97     13.64     17.26     14.60  

Second quarter

     19.81     13.66     20.87     14.34  

Third quarter

     27.74     18.07     28.50     19.25  

Fourth quarter

     30.80     24.06     30.85     24.41  

Source: NYSEnet, TSX Historical Data Access

Market Price Volatility of Common Shares

        Market prices for the securities of pharmaceutical and biotechnology companies, including our securities, have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Factors such as fluctuations in our operating results, the aftermath of public announcements by us, concern as to safety of drugs and general market conditions can have an adverse effect on the market price of our common shares and other securities.

Holders

        The approximate number of holders of record of our common shares as of February 23, 2011 is 2,580.

Performance Graph

        The following graph compares the cumulative total return on our common shares with the cumulative return on the S&P 500 Index, the TSX/S&P Composite Index and a 10-stock Custom Composite Index for the five years ended December 31, 2010, in all cases, assuming reinvestment of dividends. The Custom Composite Index consists of Allergan, Inc.; Cephalon, Inc.; Endo Pharmaceuticals Holdings Inc.; Forest Laboratories, Inc.; Gilead Sciences, Inc.; King Pharmaceuticals, Inc.; Medicis Pharmaceutical Corporation; Mylan Inc.; Perrigo Company; Shire Pharmaceuticals Group plc; and Watson Pharmaceuticals, Inc.

23

GRAPHIC

Dividends

        During 2009 and 2010, we declared dividends per common share as follows:

Date Declared
  Dividend per Share   Payment Date

February 26, 2009

   $ 0.375   April 6, 2009

May 6, 2009

   $ 0.09   July 6, 2009

August 6, 2009

   $ 0.09   October 5, 2009

November 5, 2009

   $ 0.09   January 4, 2010

February 25, 2010

   $ 0.09   April 5, 2010

May 6, 2010

   $ 0.095   July 5, 2010

August 5, 2010

   $ 0.095   October 4, 2010

November 4, 2010

   $ 1.00   December 22, 2010
         

Total

   $ 1.925    
         

        On November 4, 2010, our board of directors declared a special dividend of $1.00 (the "post-Merger special dividend") per common share, no par value. Shareholders of record as of the close of business on November 15, 2010 (the "record date") were entitled to receive the post-Merger special dividend on December 22, 2010. In connection with the post-Merger special dividend, we established a special dividend reinvestment plan under which eligible shareholders of record as of the record date could elect to reinvest the post-Merger special dividend (net of any applicable withholding tax) in additional common shares of the Company. Following the payment of the post-Merger special dividend, the special dividend reinvestment plan was terminated. The aggregate cash post-Merger special dividend paid was $297.6 million and we issued 72,283 additional shares to shareholders that elected to reinvest in additional common shares of the Company.

        While our board of directors will review our dividend policy from time to time, we currently do not intend to pay dividends in the foreseeable future.

        See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operation — Selected Financial Information — Cash Dividends", for additional details about our dividend payments.

24

Restrictions on Share Ownership by Non-Canadians

        There are no limitations under the laws of Canada or in our organizational documents on the right of foreigners to hold or vote securities of our Company, except that the Investment Canada Act (Canada) (the "Investment Canada Act") may require review and approval by the Minister of Industry (Canada) of certain acquisitions of "control" of our Company by a "non-Canadian".

Investment Canada Act

        An acquisition of control of a Canadian business by a non-Canadian is either reviewable (a "Reviewable Transaction"), in which case it is subject to both a reporting obligation and an approval process, or notifiable, in which case it is subject to only a post-closing reporting obligation. In the case of a Reviewable Transaction, the non-Canadian acquirer must submit an application for review with the prescribed information. The responsible Minister is then required to determine whether the Reviewable Transaction is likely to be of net benefit to Canada, taking into account the assessment factors specified in the Investment Canada Act and any written undertakings that may have been given by the non-Canadian acquirer.

        In March 2009, the Investment Canada Act was amended to provide that any investment by a non-Canadian in a Canadian business, even where control has not been acquired, can be reviewed on grounds of whether it may be injurious to national security. Where an investment is determined to be injurious to national security, Cabinet can prohibit closing or, if closed, can order the investor to divest control. Short of a prohibition or divestment order, Cabinet can impose terms or conditions on the investment or can require the investor to provide binding undertakings to remove the national security concern.

Competition Act

        Part IX of the Competition Act (Canada) (the "Competition Act") requires that a pre-merger notification filing be submitted to the Commissioner of Competition (the "Commissioner") in respect of certain classes of merger transactions that exceed certain prescribed thresholds. If a proposed transaction exceeds such thresholds, subject to certain exceptions, the notification filing must be submitted to the Commissioner and the statutory waiting period must expire or be terminated early or waived by the Commissioner before the transaction can be completed.

        All mergers, regardless of whether they are subject to Part IX of the Competition Act, are subject to the substantive mergers provisions under Section 92 of the Competition Act. In particular, the Commissioner may challenge a transaction before the Competition Tribunal where the transaction prevents or lessens, or is likely to prevent or lessen, competition substantially in a market. The Commissioner may not make an application to the Competition Tribunal under Section 92 of the Competition Act more than one year after the merger has been substantially completed.

Exchange Controls

        Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to non-resident holders of our securities, except as discussed in "Taxation" below.

Taxation

Canadian Federal Income Taxation

        The following discussion is a summary of the principal Canadian federal income tax considerations generally applicable to a holder of our common shares who, at all relevant times, for purposes of the Income Tax Act (Canada) and the Income Tax Regulations (collectively, the "Canadian Tax Act") deals at arm's-length with, and is not affiliated with, our Company, beneficially owns its common shares as capital property and does not use or hold and is not deemed to use or hold such common shares in carrying on a business in Canada and who, at all relevant times, for purposes of the application of the Canadian Tax Act and the Canada-U.S. Income Tax Convention (1980, as amended) (the "U.S. Treaty"), is resident in the U.S., is not, and is not deemed to be,

25


resident in Canada and is eligible for benefits under the U.S. Treaty (a "U.S. Holder"). Special rules, which are not discussed in the summary, may apply to a non-resident holder that is an insurer that carries on an insurance business in Canada and elsewhere or that is an "authorized foreign bank" as defined in the Canadian Tax Act.

        The U.S. Treaty includes limitation on benefits rules that restrict the ability of certain persons who are resident in the U.S. to claim any or all benefits under the U.S. Treaty. Furthermore, limited liability companies ("LLCs") that are not taxed as corporations pursuant to the provisions of the U.S. Internal Revenue Code of 1986, as amended (the "Code") do not qualify as resident in the U.S. for purposes of the U.S. Treaty. Under the U.S. Treaty, a resident of the U.S. who is a member of such an LLC and is otherwise eligible for benefits under the U.S. Treaty may generally be entitled to claim benefits under the U.S. Treaty in respect of income, profits or gains derived through the LLC. Residents of the U.S. should consult their own tax advisors with respect to their eligibility for benefits under the U.S. Treaty, having regard to these rules.

        This summary is based upon the current provisions of the U.S. Treaty and the Canadian Tax Act and our understanding of the current administrative policies and assessing practices of the Canada Revenue Agency published in writing prior to the date hereof. This summary takes into account all specific proposals to amend the U.S. Treaty and the Canadian Tax Act publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof. This summary does not otherwise take into account or anticipate changes in law or administrative policies and assessing practices, whether by judicial, regulatory, administrative or legislative decision or action, nor does it take into account provincial, territorial or foreign tax legislation or considerations, which may differ from those discussed herein.

        This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice generally or to any particular holder. Holders should consult their own tax advisors with respect to their own particular circumstances.

Gains on Disposition of Common Shares

        In general, a U.S. Holder will not be subject to tax under the Canadian Tax Act on capital gains arising on the disposition of such holder's common shares unless the common shares are "taxable Canadian property" to the U.S. Holder and are not "treaty-protected property".

        As long as the common shares are then listed on a "designated stock exchange", which currently includes the NYSE and TSX, the common shares generally will not constitute taxable Canadian property of a U.S. Holder, unless (a) at any time during the 60-month period preceding the disposition, the U.S. Holder, persons not dealing at arm's length with such U.S. Holder or the U.S. Holder together with all such persons, owned 25% or more of the issued shares of any class or series of the capital stock of the Company and more than 50% of the fair market value of the common shares was derived, directly or indirectly, from a combination of (i) real or immoveable property situated in Canada, (ii) "Canadian resource property" (as such term is defined in the Tax Act), (iii) "timber resource property" (as such terms are defined in the Tax Act), or (iv) options in respect of interests in, or for civil law rights in, any such properties whether or not the property exists, or (b) the common shares are otherwise deemed to be taxable Canadian property.

        Common shares will be treaty-protected property where the U.S. Holder is exempt from income tax under the Canadian Tax Act on the disposition of common shares because of the U.S. Treaty. Common shares owned by a U.S. Holder will generally be treaty-protected property where the value of the common shares is not derived principally from real property situated in Canada, as defined in the U.S. Treaty.

26

Dividends on Common Shares

        Dividends paid or credited on the common shares or deemed to be paid or credited on the common shares to a U.S. Holder that is the beneficial owner of such dividends will generally be subject to non-resident withholding tax under the Canadian Tax Act and the U.S. Treaty at the rate of (a) 5% of the amounts paid or credited if the U.S. Holder is a company that owns (or is deemed to own) at least 10% of our voting stock, or (b) 15% of the amounts paid or credited in all other cases. The rate of withholding under the Canadian Tax Act in respect of dividends paid to non-residents of Canada is 25% where no tax treaty applies.

Securities Authorized for Issuance under Equity Compensation Plans

        Information required under this Item will be included in our definitive proxy statement for the 2011 Annual and Special Meeting of Shareholders expected to be filed with the SEC no later than 120 days after the end of the fiscal year covered by this Form 10-K (the "2011 Proxy Statement"), and such required information is incorporated herein by reference.

Purchases of Equity Securities by the Company and Affiliated Purchases

        On August 6, 2009, we announced that our board of directors had renewed the then share repurchase program. That share repurchase program terminated on August 11, 2010. No shares were repurchased under that program.

        On November 4, 2010, we announced that our board of directors approved a securities repurchase program (the "securities repurchase program"), pursuant to which we may make purchases of our common shares, Convertible Notes and/or Senior Notes up to an aggregate maximum value of $1.5 billion, subject to any restrictions in our financing agreements and applicable law. Our board of directors also approved a sub-limit of up to 16 million common shares, representing approximately 10% of our public float (as estimated at the commencement of the securities repurchase program), to be purchased for cancellation under a normal course issuer bid through the facilities of the NSYE and TSX. We may initially make purchases under the securities repurchase program of up to 15 million common shares through the facilities of the NYSE, in accordance with applicable rules and guidelines. This represents approximately 5% of our issued and outstanding common shares as of November 4, 2010. Following additional filings and related approvals, we may also purchase common shares over the TSX. The program does not require us to repurchase a minimum number of securities, and the program may be modified, suspended or terminated at any time without prior notice. The securities repurchase program will terminate on November 7, 2011 or at such earlier time as we complete our purchases. Under the terms of our Credit Facility, our purchases under the securities repurchase program are subject to certain monetary thresholds, above which we require the consent of the lenders. The amount of securities to be purchased and the timing of purchases under the securities repurchase program may be subject to various factors, which may include the price of the securities, general market conditions, corporate and regulatory requirements, alternate investment opportunities and restrictions under the Company's financing agreements. The securities to be repurchased will be funded using the Company's cash resources.

        During the fourth quarter of 2010, we repurchased $126.3 million aggregate principal amount of our 5.375% Convertible Notes at an aggregate purchase price of $259.2 million (at an average price of $2.05 per $1.00 principal amount) and we repurchased 2,305,000 common shares at an average price of $26.08 per share, for total cash consideration of $60.1 million.

27

        Set forth below is the information regarding shares repurchased under the securities repurchase program during the fourth quarter of the year ended December 31, 2010:

Period
  Total Number of Shares
(or Units) Purchased 		  Average Price
Paid Per Share
(or Unit) 		  Total Number of Shares
(or Units) Purchased as
Part of Publicly Announced
Plan 		  Approximate Dollar Value of
Shares (or Units) that May
Yet Be Purchased under the
Plan(1) 		 
 
   (In thousands)
    
   (In thousands)
   (In thousands)
  

10/1/10 - 10/31/10

   —   $  —   —   $ 1,500,000  

11/1/10 - 11/30/10

   2,005 shares   $ 25.55   2,005 shares   $ 1,448,755  

  $52,000 principal amount of 5.375%   $ 1.90 per $1.00   $52,000 principal amount of 5.375%        

  Convertible Notes     principal amount   Convertible Notes   $ 1,349,899  

12/1/10 - 12/31/10

   300 shares   $ 29.61   300 shares   $ 1,341,013  

  $74,267 principal amount of 5.375% Convertible Notes   $ 2.16 per $1.00 principal amount   $74,267 principal amount of 5.375% Convertible Notes   $ 1,180,620  
(1)
The purchase of our shares under the normal course issuer bid approved by the board of directors is also subject to a sublimit, as described above.

        In January 2011, in connection with the securities repurchase program, we repurchased an additional $11.4 million principal amount of the 5.375% Convertible Notes for consideration of $24.8 million.

        On February 24, 2011, we entered into an agreement to repurchase 7.4 million common shares from ValueAct Capital Master Fund, L.P. ("ValueAct") for an aggregate purchase price of $275 million negotiated at a 5.77% discount over a 20-day trading day average, which was calculated in a similar manner to Valeant's privately negotiated share repurchase from ValueAct completed in May 2010. The transaction, which is subject to closing conditions, is expected to be consummated on March 17, 2011, or such other time or date as the parties to the purchase agreement may agree. G. Mason Morfit is a partner and a member of the Management Committee of ValueAct Capital. Mr. Morfit joined our board of directors on September 28, 2010, effective with the Merger, and prior thereto served as a member of Valeant's board of directors since 2007. ValueAct Capital is the general partner and the manager of ValueAct. The description set forth above is qualified in its entirety by the purchase agreement, filed herewith as Exhibit 2.10.

Item 6.    Selected Financial Data

        The following table of selected consolidated financial data of our Company has been derived from financial statements prepared in accordance with U.S. GAAP. The data is qualified by reference to, and should be read in conjunction with the consolidated financial statements and related notes thereto prepared in accordance with U.S. GAAP (see Item 15 of this Form 10-K) as well as the discussion in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations". All dollar amounts are expressed in thousands of U.S. dollars, except per share data.

 
   Year Ended December 31  
 
   2010(1)   2009   2008   2007   2006  

Consolidated operating data:

                                

Revenue

   $ 1,181,237   $ 820,430   $ 757,178   $ 842,818   $ 1,067,722  

Operating income (loss)

     (110,085 )   181,154     124,109     188,014     238,867  
 

Income (loss) from continuing operations

     (208,193 )   176,455     199,904     195,539     215,474  
 

Net income (loss)

     (208,193 )   176,455     199,904     195,539     211,626  

Basic and diluted earnings (loss) per share:

                                
 

Income (loss) from continuing operations

   $ (1.06 ) $ 1.11   $ 1.25   $ 1.22   $ 1.35  
 

Net income (loss)

   $ (1.06 ) $ 1.11   $ 1.25   $ 1.22   $ 1.32  

Cash dividends declared per share

   $ 1.28   $ 0.65   $ 1.50   $ 1.50   $ 1.00  

28


 
   At December 31  
 
   2010   2009   2008   2007   2006  

Consolidated balance sheet:

                                

Cash and cash equivalents

   $ 394,269   $ 114,463   $ 317,547   $ 433,641   $ 834,540  

Working capital

     327,710     93,734     223,198     339,439     647,337  

Total assets

     10,795,117     2,059,290     1,623,565     1,782,115     2,192,442  

Long-term obligations

     3,595,277     326,085     —     —     410,525  

Common shares

     5,251,730     1,465,004     1,463,873     1,489,807     1,476,930  

Shareholders' equity (net assets)

     4,911,096     1,354,372     1,201,599     1,297,819     1,302,257  

Number of common shares issued and outstanding (000s)

     302,449     158,311     158,216     161,023     160,444  
(1)
Amounts for 2010 include the impact of the Merger with Valeant on September 28, 2010, including increased costs as a result of the amortization of intangible assets and inventory step-up and the impact of a restructuring program initiated as a result of the Merger.

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations

29


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

        The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the audited consolidated financial statements, and notes thereto, prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for the fiscal year ended December 31, 2010 (the "2010 Financial Statements").

        Additional information relating to the Company, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (the "2010 Form 10-K"), is available on SEDAR at www.sedar.com and on the U.S. Securities and Exchange Commission (the "SEC") website at www.sec.gov.

        Unless otherwise indicated herein, the discussion and analysis contained in this MD&A is as of February 28, 2011.

        All dollar amounts are expressed in U.S. dollars.

COMPANY PROFILE

        On September 28, 2010 (the "Merger Date"), Biovail Corporation ("Biovail") completed the acquisition of Valeant Pharmaceuticals International ("Valeant") through a wholly-owned subsidiary pursuant to an Agreement and Plan of Merger, dated as of June 20, 2010, with Valeant surviving as a wholly-owned subsidiary of Biovail (the "Merger"). In connection with the Merger, Biovail was renamed "Valeant Pharmaceuticals International, Inc." ("we", "us", "our" or the "Company").

        Since the Merger, our strategy is to focus the newly combined Biovail and Valeant businesses on core geographies and therapeutic classes, manage pipeline assets through strategic partnerships with other pharmaceutical companies and deploy cash with an appropriate mix of selective acquisitions, share buybacks and debt repurchases. We believe this strategy will allow us to improve both our growth rates and profitability and to enhance shareholder value, while exploiting the benefits of the Merger.

        Our leveraged research and development model is one key element to this business strategy. It will allow us to progress development programs to drive future commercial growth, while minimizing our research and development expense. This will be achieved in four ways:

        We will be diverse not only in our sources of revenues from our broad drug portfolio, but also among the therapeutic classes and geographic segments we serve. We will have a focused geographic footprint and focus on those businesses that we view to have the potential for strong operating margins and solid growth, while providing natural balance across geographies. In addition, we will have an established portfolio of specialty pharmaceutical, branded generic and over-the-counter ("OTC") products with a focus in the dermatology therapeutic area.

        We will measure our success through shareholder returns and, on that basis, as of February 23, 2011, the market price of our common shares on the New York Stock Exchange ("NYSE") has increased approximately 50% since the Merger Date.

30


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

BIOVAIL MERGER WITH VALEANT

Description of the Transaction

        On September 28, 2010, a wholly-owned subsidiary of Biovail acquired all of the outstanding equity of Valeant in a share transaction, in which each share of Valeant common stock was cancelled and converted into the right to receive 1.7809 Biovail common shares. The share consideration was valued at $26.35 per share based on the market price of Biovail's common shares as of the Merger Date. In addition, immediately preceding the effective time of the Merger, Valeant paid its stockholders a special dividend of $16.77 per share (the "pre-Merger special dividend") of Valeant common stock. As a result of the Merger, Valeant became a wholly-owned subsidiary of Biovail.

        On December 22, 2010, the Company paid a post-Merger special dividend of $1.00 per common share (the "post-Merger special dividend"). The post-Merger special dividend comprised aggregate cash paid of $297.6 million and 72,283 shares issued to shareholders that elected to reinvest in additional common shares of the Company through a special dividend reinvestment plan, which plan was terminated following payment of the post-Merger special dividend.

        Valeant is a multinational specialty pharmaceutical company that develops, manufactures and markets a broad range of pharmaceutical products. Valeant's specialty pharmaceutical and OTC products are marketed under brand names and are sold in the U.S., Canada, Australia and New Zealand, where Valeant focuses most of its efforts on the dermatology and neurology therapeutic classes. Valeant also has 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.

        The Merger has resulted in, and is expected to continue to result in, significant strategic benefits to the Company through the creation of a larger, more globally diversified company with a broader and better diversified array of products and an expanded presence in North America and internationally. In addition, the market capitalization, profitability and free cash flow of the Company are, and are expected to continue to be, stronger relative to either Biovail or Valeant on a stand-alone basis. We have achieved, and expect to continue to achieve, significant operational cost savings, coming from, among other things, reductions in research and development, general and administrative expenses, and sales and marketing.

Basis of Presentation

        The transaction has been accounted for as a business combination under the acquisition method of accounting, which requires, among other things, the share consideration transferred be measured at the acquisition date based on the then-current market price and that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. Biovail was both the legal and accounting acquirer in the Merger. Accordingly, the Company's consolidated financial statements reflect the assets, liabilities and results of operations of Valeant from the Merger Date. Acquisition-related transaction costs and certain acquisition-related restructuring charges are not included as a component of the acquisition accounting, but are accounted for as expenses in the periods in which the costs are incurred.

31


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Fair Value of Consideration Transferred

($ in 000s, except per share data;
Number of shares, stock options and restricted share units in thousands)
  Conversion
Calculation 		  Fair
Value 		  Form of
Consideration

Number of common shares of Biovail issued in exchange for Valeant common stock outstanding as of the Merger Date

     139,137          

Multiplied by Biovail's stock price as of the Merger Date(a)

   $ 26.35   $ 3,666,245   Common shares
             

Number of common shares of Biovail expected to be issued pursuant to vested Valeant restricted share units ("RSUs") as a result of the Merger

     1,694          

Multiplied by Biovail's stock price as of the Merger date(a)

   $ 26.35     44,643   Common shares
             

Fair value of vested and partially vested Valeant stock options converted into Biovail stock options

           110,687   Stock options

Fair value of vested and partially vested Valeant RSUs converted into Biovail RSUs

           58,726   RSUs

Cash consideration paid and payable

           51,739   Cash(b)
               

Total fair value of consideration transferred

         $ 3,932,040    
               
(a)
As the Merger was effective at 12:01 a.m. on September 28, 2010, the conversion calculation reflects the closing price of Biovail's common shares on the NYSE at September 27, 2010.

(b)
Cash consideration includes $39.7 million of income tax withholdings paid by the Company on behalf of employees of Valeant, in connection with the net share settlement of certain vested Valeant RSUs as of the Merger Date. In addition, under the terms of the Company's employment agreement with J. Michael Pearson, Chief Executive Officer, cash equal to the pre-Merger special dividend payment will be paid to Mr. Pearson in respect of any of his 2008 performance awards that vest in February 2011 at the time of such vesting. As of the Merger Date, the aggregate amount of this cash payment in respect of the pre-Merger special dividend was estimated to be $13.7 million based on the assumption that Mr. Pearson's 2008 performance awards will vest at the maximum performance target. Of that amount, the portion attributable to Mr. Pearson's pre-Merger service ($12.1 million) was recognized in the fair value of consideration transferred, while the portion attributable to Mr. Pearson's post-Merger service ($1.6 million) is being recognized as share-based compensation expense over the remaining vesting period from the Merger Date to February 2011.

Assets Acquired and Liabilities Assumed

        The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the Merger Date. The following recognized amounts are provisional and subject to change:

        The Company will finalize these amounts as it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the Merger Date may result in retrospective adjustments to the provisional amounts recognized at the Merger Date. These

32


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


changes could be significant. The Company expects to finalize these amounts no later than one year from the Merger Date.

($ in 000s)
  Amounts
Recognized as of
Merger Date
(as previously
reported)(a) 		  Measurement
Period
Adjustments(b) 		  Amounts
Recognized as of
Merger Date
(as adjusted) 		 
 
   $
   $
   $
  

Cash and cash equivalents

     348,637     —     348,637  

Accounts receivable

     194,930     —     194,930  

Inventories(c)

     208,874     —     208,874  

Other current assets

     33,460     (2,591 )   30,869  

Property, plant and equipment

     184,757     —     184,757  

Identifiable intangible assets, excluding in-process research and development(d)

     3,844,310     —     3,844,310  

In-process research and development(e)

     1,399,956     5,000     1,404,956  

Other non-current assets

     5,905     203     6,108  

Current liabilities

     (384,223 )   (1,351 )   (385,574 )

Long-term debt, including current portion(f)

     (2,913,614 )   —     (2,913,614 )

Deferred income taxes, net

     (1,472,321 )   4,530     (1,467,791 )

Other non-current liabilities

     (140,397 )   (8,910 )   (149,307 )
               

Total indentifiable net assets

     1,310,274     (3,119 )   1,307,155  

Equity component of 4.0% Convertible Notes(f)

     (225,971 )   —     (225,971 )

Call option agreements

     (28,000 )   —     (28,000 )

Goodwill(g)

     2,863,653     15,203     2,878,856  
               

Total fair value of consideration transferred

     3,919,956     12,084     3,932,040  
               
(a)
As previously reported in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2010.

(b)
The measurement period adjustments primarily reflect: (i) an increase in the total fair value of consideration transferred to recognize the estimated cash payment in respect of the pre-Merger special dividend on Mr. Pearson's 2008 performance awards (as described above under "Fair Value of Consideration Transferred"); (ii) a change in the fair value of acquired in-process research and development ("IPR&D") assets related to the value ascribed to taribarivin (as described below under "Acquisitions — Ribavirin"); and (iii) the tax impact of pre-tax measurement period adjustments. The measurement period adjustments were made to reflect facts and circumstances existing as of the Merger Date, and did not result from intervening events subsequent to the Merger Date. These adjustments did not have a significant impact on the Company's previously reported consolidated financial statements for the quarter ended September 30, 2010 and, therefore, the Company has not retrospectively adjusted those financial statements.

(c)
Includes $72.1 million to record Valeant's inventory at its estimated fair value, which is being recognized as a charge to cost of goods sold as the inventory acquired is subsequently sold, including $53.3 million in the fourth quarter of 2010. The remaining inventory acquisition accounting adjustment of $18.8 million is expected to be substantially included in cost of goods sold in the first quarter of 2011.

33


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

(d)
The following table summarizes the provisional amounts and useful lives assigned to identifiable intangible assets:


 
($ in 000s)
  Weighted-
Average
Useful Lives 		  Amounts
Recognized as of
Merger Date 		 
   
   (Years)
   $
  
 

Product brands

     16     3,114,689  
 

Corporate brands

     20     168,602  
 

Product rights

     9     360,970  
 

Out-licensed technology and other

     7     200,049  
             
 

Total identifiable intangible assets acquired

     15     3,844,310  
             
(e)
Acquired IPR&D assets are initially recognized at fair value and are classified as indefinite-lived intangible assets until the successful completion or abandonment of the associated research and development efforts. The significant components of the acquired IPR&D assets relate to the development of ezogabine/retigabine in collaboration with Glaxo Group Limited, a subsidiary of GlaxoSmithKline plc (the entities within The Glaxo Group of Companies are referred throughout as "GSK"), and a number of dermatology products, which are described below under "Products in Development". The following table summarizes the provisional amounts assigned to acquired IPR&D assets:
 
($ in 000s)
  Amounts
Recognized as of
Merger Date 		 
   
   $
  
 

Ezogabine/retigabine

     891,461  
 

Dermatology products

     431,323  
 

Other

     82,172  
         
 

Total IPR&D assets acquired

     1,404,956  
         
(f)
In connection with the Merger, Valeant secured financing of $125.0 million under a senior secured revolving credit facility (the "Revolving Credit Facility"), $1.0 billion under a senior secured term loan A facility (the "Term Loan A Facility"), and $1.625 billion under a senior secured term loan B facility (the "Term Loan B Facility" and, together with the Revolving Credit Facility and Term Loan A Facility, the "Credit

34


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 
($ in 000s)
  $  
 

Term Loan A Facility

     1,000,000  
 

Term Loan B Facility

     500,000  
 

2017 Notes

     497,500  
 

2020 Notes

     695,625  
 

4.0% Convertible Notes

     220,489  
         
 

Total long-term debt assumed

     2,913,614  
         
(g)
Goodwill is calculated as the difference between the Merger Date fair value of the consideration transferred and the provisional values assigned to the assets acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents the following:

•
cost savings, operating synergies and other benefits expected to result from combining the operations of Valeant with those of Biovail;

•
the value of the going-concern element of Valeant's existing business (that is, the higher rate of return on the assembled net assets versus if Biovail had acquired all of the net assets separately); and

•
intangible assets that do not qualify for separate recognition (for instance, Valeant's assembled workforce), as well as future, as yet unidentified research and development projects.

Acquisition-Related Costs

        We have incurred to date $38.3 million of transaction costs directly related to the Merger, which includes expenditures for advisory, legal, valuation, accounting and other similar services. These costs have been expensed as acquisition-related costs.

35


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

ACQUISITIONS

Cholestagel®

        On February 9, 2011, we acquired the Canadian rights to Cholestagel®, an oral bile acid sequestrant for hypercholesterolemia, from Genzyme Corporation for a $2.0 million upfront payment, to be followed by potential additional milestone payments totaling up to $7.0 million.

ACZONE®

        On February 7, 2011, we entered into an agreement to license the Canadian rights to ACZONE® Gel 5%, a topical formulation of dapsone used in the treatment of acne vulgaris, from Allergan, Inc. for an upfront payment of approximately $0.5 million and subsequent additional payments based on net sales.

Zovirax®

        On February 2, 2011, we entered into an asset purchase agreement to acquire U.S. rights to non-ophthalmic topical formulations of Zovirax® from GSK. Following receipt of Hart-Scott-Rodino regulatory clearance, we closed the U.S. transaction on February 22, 2011. In addition, concurrent with the execution of the U.S. agreement, we entered into a binding letter of intent with GSK to acquire the Canadian rights to non-ophthalmic topical formulations of Zovirax® and we are in the process of negotiating a definitive agreement for such acquisition. Pursuant to the terms of the asset purchase agreement, we paid to GSK an aggregate amount of $300.0 million in cash for both the U.S. and Canadian rights upon the closing of the U.S. transaction. No additional payments will be made to GSK upon the closing of the Canadian transaction. We have been marketing Zovirax® in the U.S. since January 1, 2002, under a 20-year exclusive distribution agreement with GSK, which distribution agreement terminated following the closing of the U.S. transaction. We have entered into a new supply agreement and a new trademark and domain name license agreement with GSK with respect to the U.S. territory.

PharmaSwiss

        On January 31, 2011, we entered into a stock purchase agreement to purchase all of the issued and outstanding stock of PharmaSwiss S.A. ("PharmaSwiss"), a privately-owned branded generics and OTC pharmaceutical company based in Zug, Switzerland. The aggregate consideration payable is €350.0 million (approximately $479.0 million as of January 31, 2011) plus up to an additional €30.0 million (approximately $41.0 million as of January 31, 2011) in contingent payments if certain net sales milestones of PharmaSwiss are achieved for the calendar year ended 2011. The closing consideration is also subject to a working capital adjustment.

        PharmaSwiss is an existing partner to several large pharmaceutical and biotech companies offering regional expertise in such functions as regulatory, compliance, sales, marketing and distribution, in addition to developing its own product portfolio. Through its business operations, PharmaSwiss offers a broad product portfolio in seven therapeutic areas and operations in 19 countries throughout Central and Eastern Europe, including Poland, Hungary, the Czech Republic and Serbia, as well as in Greece and Israel.

        The transaction, which is subject to customary closing conditions, including certain regulatory approvals, is expected to close in the first quarter of 2011.

Ribavirin

        On November 1, 2010, we paid Kadmon Pharmaceuticals LLC ("Kadmon") $7.5 million for exclusive rights to certain dosage forms of ribavirin in Poland, Hungary, the Czech Republic, Slovakia, Romania and Bulgaria. Ribavirin is indicated for the treatment of viral diseases, including hepatitis C virus. The total purchase price has been capitalized as a product right intangible asset with an estimated useful life of 10 years.

36


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

        Under a separate agreement dated November 1, 2010, the Company granted Kadmon an exclusive, worldwide license to taribavirin, excluding the territory of Japan, in exchange for an upfront payment of $5.0 million, other development milestones, and royalty payments in the range of 8-12% of future net sales. The fair value associated with taribavirin was included in the acquired IPR&D assets identified as of the Merger Date.

Hamilton Brands

        On October 29, 2010, we acquired the intellectual property, trademarks and inventory related to the Hamilton skin care brand in Australia for cash consideration of $14.7 million. The purchase price was allocated to the trademark intangible asset ($11.7 million) and inventory ($3.0 million). The useful life of the trademark intangible asset was estimated to be 10 years.

Istradefylline

        On June 2, 2010, we entered into a license agreement with Kyowa Hakko Kirin Co., Ltd. ("Kyowa Hakko Kirin") to acquire the U.S. and Canadian rights to develop and commercialize products containing istradefylline — a new chemical entity targeted for the treatment of Parkinson's disease.

        Under the terms of the license agreement, we paid an upfront fee of $10.0 million, and we could pay up to $20.0 million in potential development milestones through U.S. Food and Drug Administration ("FDA") approval and up to an additional $35.0 million if certain sales-based milestones are met. We will also make tiered royalty payments of up to 30% on net commercial sales of products containing istradefylline. In connection with this acquisition, we also entered into an agreement with Kyowa Hakko Kirin for the supply of the istradefylline compound.

        This acquisition was accounted for as a purchase of IPR&D assets with no alternative future use. Accordingly, the $10.0 million upfront payment, together with $0.2 million of acquisition costs, was charged to acquired IPR&D expense in the second quarter of 2010.

AMPAKINE®

        On March 25, 2010, we acquired certain AMPAKINE® compounds, including associated intellectual property, from Cortex Pharmaceuticals, Inc. ("Cortex") for use in the field of respiratory depression, a brain-mediated breathing disorder. This acquisition was accounted for as a purchase of IPR&D assets with no alternative future use. Accordingly, upfront payments totaling $10.0 million made by us to Cortex, together with $0.7 million of acquisition costs, were charged to acquired IPR&D expense in the first quarter of 2010.

        As described below under "Restructuring and Integration — Merger-Related Cost-Rationalization and Integration Initiatives — Research and Development Pipeline Rationalization", we have suspended development of the AMPAKINE® compounds and are reviewing our options with Cortex.

Staccato® Loxapine

        On February 9, 2010, we entered into a collaboration and license agreement with Alexza Pharmaceuticals, Inc. ("Alexza") to acquire the U.S. and Canadian development and commercialization rights to Staccato® loxapine (AZ-004) for the treatment of psychiatric and/or neurological indications and the symptoms associated with these indications. This acquisition was accounted for as a purchase of IPR&D assets with no alternative future use. Accordingly, the $40.0 million upfront payment made by us to Alexza, together with $0.3 million of acquisition costs, was charged to acquired IPR&D expense in the first quarter of 2010.

        As described below under "Restructuring and Integration — Merger-Related Cost-Rationalization and Integration Initiatives — Research and Development Pipeline Rationalization", we have terminated the collaboration and license agreement with Alexza.

37


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

PRODUCTS IN DEVELOPMENT

        We currently have the following products, among others, in clinical development:

38


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

COLLABORATION AGREEMENT

        In October 2008, Valeant closed the worldwide License and Collaboration Agreement (the "Collaboration Agreement") with GSK, to develop and commercialize ezogabine/retigabine. Pursuant to the terms of the Collaboration Agreement, Valeant granted co-development rights and worldwide commercialization rights to GSK.

        Valeant agreed to share equally with GSK the development and pre-commercialization expenses of ezogabine/retigabine in the U.S., Australia, New Zealand, Canada and Puerto Rico (the "Collaboration Territory"). Following the launch of an ezogabine/retigabine product, we will share equally in the profits of ezogabine/retigabine in the Collaboration Territory. In addition, Valeant granted GSK an exclusive license to develop and commercialize retigabine in countries outside of the Collaboration Territory and certain backup compounds to ezogabine/retigabine worldwide. GSK is responsible for all expenses outside of the Collaboration Territory and will solely fund the development of any backup compound. We will receive up to a 20% royalty on net sales of retigabine outside of the Collaboration Territory. In addition, if backup compounds are developed and commercialized by GSK, GSK will pay us royalties of up to 20% of net sales of products based upon such backup compounds.

        GSK has the right to terminate the Collaboration Agreement at any time prior to the receipt of the approval by the FDA of an NDA for an ezogabine product, which right may be irrevocably waived at any time by GSK. Unless otherwise terminated, the Collaboration Agreement will continue on a country-by-country basis until GSK has no remaining payment obligations with respect to such country.

        Under the terms of the Collaboration Agreement, GSK will pay us up to $545.0 million based upon the achievement of certain regulatory, commercialization and sales milestones, and the development of additional indications for ezogabine/retigabine. GSK will also pay us up to an additional $150.0 million if certain regulatory and commercialization milestones are achieved for backup compounds to ezogabine/retigabine.

        Our rights to ezogabine/retigabine are subject to an asset purchase agreement between Meda Pharma GmbH & Co. KG ("Meda Pharma") and Xcel Pharmaceuticals, Inc., which was acquired by Valeant in 2005 (the "Meda Pharma Agreement"). Under the Meda Pharma Agreement, we may be required to make certain milestone and royalty payments to Meda Pharma. Within the Collaboration Territory, any royalties to Meda Pharma will be shared by us and GSK. In the rest of the world, we will be responsible for the payment of these royalties to Meda Pharma from the royalty payments we receive from GSK.

        Our interest in ezogabine/retigabine was recorded at a provisional fair value of $891.5 million as of the Merger Date (as described above under "Biovail Merger with Valeant — Assets Acquired and Liabilities Assumed").

39


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

RESTRUCTURING AND INTEGRATION

Merger-Related Cost-Rationalization and Integration Initiatives

        We believe the complementary nature of the Biovail and Valeant businesses presents an opportunity to capture significant operating synergies and cost savings. The Merger has provided, and should continue to provide, opportunities to realize cost savings from, among other things, reductions in research and development, general and administrative expenses, and sales and marketing. In total, we have identified over $310 million of annual cost synergies that we expect to realize by the end of 2012, $270 million of which will be realized in 2011. Over $50 million of cost synergies were realized in the fourth quarter of 2010. This amount does not include potential revenue synergies or the potential benefits of expanding the Biovail corporate structure to Valeant's operations. Further, we currently expect our combined cash tax rate to be less than 10% for 2011.

        We have initiated cost-rationalization and integration initiatives to capture operating synergies and generate cost savings across the Company. These measures include:

        We estimate that we will incur costs in the range of $135 million and $180 million (of which the non-cash component, including share-based compensation, is expected to be approximately $55 million) in connection with these cost-rationalization and integration initiatives. These costs include employee termination costs (including related share-based payments), costs to consolidate or close facilities and relocate employees, asset impairments, and contract termination and lease cancellation costs.

        The following costs were incurred in connection with these initiatives through December 31, 2010:

 
   Employee Termination Costs    
    
    
  
 
    
   Contract
Termination,
Facility Closure
and Other Costs 		   
  
 
   Severance and
Related Benefits 		  Share-Based
Compensation 		  IPR&D
Termination
Costs(1) 		  Total  
($ in 000s)
  $   $   $   $   $  

Costs incurred and charged to expense

     58,727     49,482     13,750     12,862     134,821  

Cash payments

     (33,938 )   —     (13,750 )   (8,755 )   (56,443 )

Non-cash adjustments

     —     (49,482 )   —     (2,437 )   (51,919 )
                       

Balance, December 31, 2010

     24,789     —     —     1,670     26,459  
                       
(1)
As described below under "— Research and Development Pipeline Rationalization".

        We do not record restructuring costs in the Company's business segments.

Employee Termination Costs

        We recognized employee termination costs of $58.7 million for severance and related benefits payable to approximately 500 employees of Biovail and Valeant who have been, or will be, terminated as a result of the Merger. These reductions primarily reflect the elimination of redundancies and consolidation of staff in the research and development, general and administrative and sales and marketing functions. As of December 31, 2010, $33.9 million of the termination costs had been paid, and we expect that a significant portion of the remaining costs will be paid prior to April 1, 2011, with the balance payable through to the first quarter of 2012.

40


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

        In addition, we recognized incremental share-based compensation expense of $49.5 million, related to the following stock options and RSUs held by terminated employees of Biovail and Valeant:

($ in 000s)
  $  

Stock options and time-based RSUs held by Biovail employees with employment agreements

     9,622  

Stock options held by Biovail employees without employment agreements

     (492 )

Performance-based RSUs held by Biovail executive officers and selected employees

     20,287  

Stock options and RSUs held by former executive officers of Valeant

     20,065  
       

    49,482  
       

Research and Development Pipeline Rationalization

        Prior to the Merger, our product development and business development efforts were focused on unmet medical needs in specialty CNS disorders. Since the Merger, we have been employing a leveraged research and development model that allows us to progress development programs, while minimizing research and development expense, through partnerships and other means. In consideration of this model, following the Merger, we conducted a strategic and financial review of our product development pipeline and identified the programs that did not align with the Company's new research and development model. These programs are outlined in the table below. In respect of the Staccato® loxapine, GDNF, tetrabenazine, fipamezole and pimavanserin programs, we provided notices of termination to, or entered into termination agreements with, the counterparties to the agreements. Regarding the AMPAKINE® program, we have suspended development of these compounds and are reviewing our options with Cortex.

($ in 000s)


Programs
  Counterparty   Compound   Contingent
Milestone
Obligations
Terminated(1) 		  IPR&D
Termination
Charges 		 
  AZ-004   Alexza   Staccato® loxapine   $ 90,000     Nil  
  BVF-007   Cortex   AMPAKINE®   $ 15,000     Nil  
  BVF-014   MedGenesis Therapeutix Inc.   GDNF   $ 20,000   $ 5,000 (2)
  BVF-018   LifeHealth Limited   Tetrabenazine     Nil   $ 28,000 (3)
  BVF-025   Santhera Pharmaceuticals (Switzerland) Ltd.  
Fipamezole		  
$
200,000		    
Nil		  
  BVF-036,
-040,-048		  
ACADIA Pharmaceuticals Inc.		  
Pimavanserin		  
$
365,000		  
$
8,750
(2)
(1)
Represents the maximum amount of previously disclosed milestone payments we could have been required to make to the counterparty under each agreement. These milestone payments were contingent on the achievement of specific developmental, regulatory and commercial milestones. In addition, we could have been obligated to make royalty payments based on future net sales of the products if regulatory approval was obtained. As a consequence of the termination of these arrangements, we have no ongoing or future obligation in respect of these milestone or royalty payments.

(2)
Represents the amount of negotiated settlements with each counterparty that we recognized and paid in the fourth quarter of 2010.

(3)
Represents the carrying amount of the related acquired IPR&D asset capitalized in connection with the acquisition of the worldwide development and commercialization rights to tetrabenazine in June 2009.

        In addition to the settlement payments identified in the table above, we have incurred internal and external costs of $5.3 million in the fourth quarter of 2010 that were directly associated with the fulfillment of our remaining contractual obligations under these terminated arrangements, which costs have been recognized as restructuring costs. Following the completion of these activities, we intend to vacate our remaining research and development facility in Chantilly, Virginia, and, as a result, we recognized $3.0 million of accelerated

41


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


depreciation arising from the reduced useful life of the equipment and leasehold improvements located at this facility.

Pre-Merger Cost Rationalization Initiatives

        In May 2008, we initiated restructuring measures that were intended to rationalize our manufacturing operations, pharmaceutical sciences operations, and general and administrative expenses. The following costs were incurred in connection with these initiatives through December 31, 2010:

 
   Asset Impairments   Employee Termination Costs    
    
  
 
   Contract
Termination,
Facility Closure
and Other Costs 		   
  
 
   Manufacturing   Pharmaceutical
Sciences 		  Corporate   Manufacturing   Pharmaceutical
Sciences 		  Total  
($ in 000s)
  $   $   $   $   $   $   $  

Balance, January 1, 2008

     —     —     —     —     —     —     —  

Costs incurred and charged to expense

     42,602     16,702     —     3,309     2,724     4,865     70,202  

Cash payments

     —     —     —     —     (2,724 )   (333 )   (3,057 )

Non-cash adjustments

     (42,602 )   (16,702 )   —     —     —     (1,186 )   (60,490 )
                               

Balance, December 31, 2008

     —     —     —     3,309     —     3,346     6,655  
                               

Costs incurred and charged to expense

     7,591     2,784     10,968     4,942     1,441     2,307     30,033  

Cash payments

     —     —     —     (2,041 )   (1,278 )   (1,321 )   (4,640 )

Non-cash adjustments

     (7,591 )   (2,784 )   (10,968 )   —     71     —     (21,272 )
                               

Balance, December 31, 2009

     —     —     —     6,210     234     4,332     10,776  
                               

Costs incurred and charged to expense

     400     —     —     1,330     1,924     2,365     6,019  

Cash payments

     —     —     —     (7,540 )   (2,057 )   (3,017 )   (12,614 )

Non-cash adjustments

     (400 )   —     —     —     (101 )   —     (501 )
                               

Balance, December 31, 2010

     —     —     —     —     —     3,680     3,680  
                               

Manufacturing Operations

        On January 15, 2010, we completed the sale of our Dorado, Puerto Rico manufacturing facility for net cash proceeds of $8.5 million. The related property, plant and equipment was classified as assets held for sale on the consolidated balance sheet as of December 31, 2009. We occupied the Dorado facility until March 31, 2010, pursuant to a short-term lease agreement with the buyer.

        As of September 30, 2010, we completed the transfer of remaining manufacturing processes from our Carolina, Puerto Rico manufacturing facility to our plant in Steinbach, Manitoba. Following the end of production, we incurred internal and external costs of $1.3 million directly associated with the final shutdown of the Carolina facility, which costs have been recognized as restructuring costs. We also recorded an impairment charge of $0.4 million to write off the remaining carrying value of the Carolina facility after unsuccessful efforts to locate a buyer for the facility.

        We incurred employee termination costs of $9.6 million in total for severance and related benefits payable to the approximately 240 employees terminated as a result of the closure of the Dorado and Carolina facilities. As these employees were required to provide service during the shutdown period in order to be eligible for termination benefits, we were recognizing the cost of those termination benefits ratably over the estimated future service period.

        In 2009 and 2008, we recorded impairment charges of $7.6 million and $42.6 million, respectively, to write down the carrying value of the property, plant and equipment located in Puerto Rico to its estimated fair value.

42


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Pharmaceutical Sciences Operations

        On July 23, 2010, we completed the sale of our contract research division ("CRD") to Lambda Therapeutic Research Inc. ("Lambda") for net cash proceeds of $6.4 million. We no longer considered CRD a strategic fit as a result of our pre-Merger transition from reformulation programs to the in-licensing, acquisition and development of specialty CNS products. CRD has not been treated as a discontinued operation for accounting purposes, on the basis that its operations were immaterial and incidental to our core business.

        The net assets of CRD at the date of disposal comprised net current assets and liabilities of $1.6 million and property, plant and equipment of $4.8 million. We recognized employee termination costs of $1.9 million for the approximately 70 CRD employees not offered employment by Lambda.

        The consolidated statements of income (loss) for 2010, 2009 and 2008 included the following revenue and expenses of CRD, which, as described above, have not been segregated from continuing operations:

 
   2010   2009   2008  
($ in 000s)
  $   $   $  

Service and other revenues

     5,642     12,027     21,191  
               

Cost of services

     7,211     13,849     23,033  

Selling, general and administrative expenses

     2,328     3,718     4,150  
               

Total operating expenses

     9,539     17,567     27,183  
               

Operating loss

     (3,897 )   (5,540 )   (5,992 )

Foreign exchange gain (loss)

     (102 )   93     931  
               

Net loss

     (3,999 )   (5,447 )   (5,061 )
               

        Prior to 2010, we completed the closure of our research and development facilities in Mississauga, Ontario and Dublin, Ireland, and the consolidation of our research and development operations in Chantilly, Virginia.

Corporate Headquarters

        In November 2009, we completed the sale and leaseback of our corporate headquarters in Mississauga, Ontario for net proceeds of $17.8 million. We recognized a loss on disposal of $11.0 million. We have continued to occupy this facility under a 20-year operating lease at market rental rates. Minimum future rental payments under this lease are approximately $43.1 million. Our intention is to vacate this facility in the first half of 2011 and relocate to a smaller leased facility.

Results of Pre-Merger Cost Rationalization Initiatives

        Our pre-Merger cost rationalization initiatives were substantively implemented prior to the Merger. In the aggregate, these initiatives resulted in cumulative charges to earnings of $105.6 million, of which the cash component amounted to $32.3 million. With the sale of CRD, we realized our target of $70 million in total gross proceeds from the divestiture and monetization of non-core assets.

U.S. HEALTHCARE REFORM

        In March 2010, the Patient Protection and Affordable Care Act was enacted in the U.S. This healthcare reform legislation contains several provisions that impact our business. Provisions of the new legislation include: (i) an increase in the minimum Medicaid rebate to states participating in the Medicaid program from 15.1% to 23.1% on covered drugs; (ii) the extension of the Medicaid rebate to Managed Care Organizations that dispense drugs to Medicaid beneficiaries; and (iii) the expansion of the 340(B) Public Health Services drug pricing

43


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


program, which provides outpatient drugs at reduced rates, to include additional hospitals, clinics, and healthcare centres.

        Commencing in 2011, the new legislation requires that drug manufacturers provide a 50% discount to Medicare beneficiaries whose prescription drug costs cause them to be subject to the Medicare Part D coverage gap. In addition, commencing in 2011, a new fee is being assessed on prescription drug manufacturers and importers that sell branded prescription drugs to specified U.S. government programs (e.g., Medicare and Medicaid). This fee is calculated based upon each entity's relative share of total applicable branded prescription drug sales to specified U.S. government programs for the preceding calendar year. The aggregate industry wide fee is expected to total $28.0 billion through 2019, ranging from $2.5 billion to $4.1 billion annually.

        This new legislation did not have a material impact on our financial condition or results of operations in 2010; however, this legislation may have a material impact on our future business, cash flows, financial condition and results of operations with the addition of Valeant's U.S. operations and the commencement in 2011 of the Medicaid Part D coverage gap and annual fee on branded prescription drugs programs.

SELECTED FINANCIAL INFORMATION

        As described above under "Biovail Merger with Valeant", our results of operations, financial condition and cash flows reflect Biovail's stand-alone operations as they existed prior to the completion of the Merger. The results of Valeant's business have been included in our results of operations, financial condition and cash flows only for the period subsequent to the completion of the Merger. Therefore, our financial results for 2010 do not reflect a full year of Valeant's operations.

        The following table provides selected financial information for each of the last three years:

 
   Years Ended December 31   Change  
 
   2010   2009   2008   2009 to 2010   2008 to 2009  
($ in 000s, except per share data)
  $   $   $   $   %   $   %  

Revenues

     1,181,237     820,430     757,178     360,807     44     63,252     8  

Net income (loss)

     (208,193 )   176,455     199,904     (384,648 )   (218 )   (23,449 )   (12 )

Basic and diluted earnings (loss) per share

     (1.06 )   1.11     1.25     (2.17 )   (195 )   (0.14 )   (11 )

Cash dividends declared per share

     1.280     0.645     1.500     0.635     98     (0.855 )   (57 )

 

 
   As of December 31   Change  
 
   2010   2009   2008   2009 to 2010   2008 to 2009  
 
   $   $   $   $   %   $   %  

Total assets

     10,795,117     2,059,290     1,623,565     8,735,827     424     435,725     27  

Long-term debt, including current portion

     3,595,277     326,085     —     3,269,192     1,003     326,085     NM  

NM — Not meaningful

Financial Performance

Changes in Revenues

        Total revenues increased $360.8 million, or 44%, to $1,181.2 million in 2010, compared with $820.4 million in 2009, primarily due to:

44


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

        Those factors were partially offset by:

        Total revenues increased $63.3 million, or 8%, to $820.4 million in 2009, compared with $757.2 million in 2008, primarily due to:

        Those factors were partially offset by:

Changes in Net Income

        Net income declined $384.6 million to a net loss of $208.2 million (basic and diluted loss per share of $1.06) in 2010, compared with net income of $176.5 million (basic and diluted earnings per share ("EPS") of $1.11) in 2009, reflecting the following factors:

45


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

        Those factors were partially offset by:

        Net income declined $23.4 million, or 12%, to $176.5 million (basic and diluted EPS of $1.11) in 2009, compared with $199.9 million (basic and diluted EPS of $1.25) in 2008, reflecting the following factors:

46


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

        Those factors were partially offset by:

Cash Dividends

        Prior to the Merger, we declared cash dividends per share of $0.28 in 2010, compared with $0.645 and $1.50 in 2009 and 2008, respectively. Following the Merger, we declared the post-Merger special dividend of $1.00 per share, which was paid on December 22, 2010 (as described above under "Biovail Merger with Valeant — Description of the Transaction"). While our board of directors will review our dividend policy from time to time, we currently do not intend to pay dividends in the foreseeable future.

Changes in Financial Condition

        As of December 31, 2010, we had cash and cash equivalents of $394.3 million and long-term debt of $3,595.3 million. Operating cash flows of $263.2 million were a significant source of liquidity in 2010, as well as net cash acquired on the acquisition of Valeant of $309.0 million. The cash component of the post-Merger special dividend amounted to $297.6 million and we paid pre-Merger cash dividends of $58.6 million in total. In addition, we paid $84.5 million, in the aggregate, mainly in connection with the ribavirin, Hamilton brands, istradefylline, AMPAKINE® and Staccato® loxapine acquisitions.

        In November 2010, we issued $1.0 billion aggregate principal amount of 2018 Notes. A portion of the net proceeds was used to repay the remaining $500.0 million owed under the Term Loan B Facility. In the fourth quarter of 2010, part of the remaining proceeds were used for securities repurchases, including $126.3 million principal amount of the 5.375% Convertible Notes for consideration of $259.2 million and 2.3 million of our common shares for consideration of $60.1 million.

        On February 8, 2011, we issued $650.0 million aggregate principal amount of 6.75% Senior Notes due 2021 (the "2021 Notes"), which proceeds are expected to be used to finance the acquisitions of PharmaSwiss and the U.S. and Canadian rights to non-ophthalmic topical formulations of Zovirax® (as described below under "Financial Condition, Liquidity and Capital Resources — Financial Assets (Liabilities)").

47


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

RESULTS OF OPERATIONS

Business Segments

        Effective with the Merger, we operate in the following business segments, based on differences in products and services and geographical areas of operations:

Revenues By Segment

        Our primary sources of revenues are the sale of pharmaceutical and OTC products; the out-licensing of products; and contract services. The following table displays revenues by segment for each of the last three years, the percentage of each segment's revenues compared with total revenues in the respective year, and the dollar and percentage change in the dollar amount of each segment's revenues. Percentages may not add due to rounding.

 
   Years Ended December 31   Change  
 
   2010(1)   2009   2008   2009 to 2010   2008 to 2009  
($ in 000s)
  $   %   $   %   $   %   $   %   $   %  

U.S. Neurology and Other(2)

     658,312     56     575,321     70     525,939     69     82,991     14     49,382     9  

U.S. Dermatology(3)

     219,008     19     146,267     18     150,613     20     72,741     50     (4,346 )   (3 )

Canada and Australia(4)

     161,568     14     83,959     10     73,764     10     77,609     92     10,195     14  

Branded Generics — Europe(5)

     73,312     6     14,883     2     6,862     1     58,429     393     8,021     117  

Branded Generics — Latin America

     69,037     6     —     —     —     —     69,037     NM     —     —  
                                               

Total revenues

     1,181,237     100     820,430     100     757,178     100     360,807     44     63,252     8  
                                           
(1)
Reflects incremental revenues from Valeant products and services commencing on the Merger Date as follows: U.S. Neurology and Other — $60.8 million; U.S. Dermatology — $57.2 million; Canada and Australia — $47.6 million; Branded Generics — Europe — $40.0 million; and Branded Generics — Latin America — $69.0 million.

(2)
Includes sales of Wellbutrin XL®, Xenazine®, Ultram® ER, Cardizem® LA, Cardizem® CD and Tiazac® products, and bioequivalent versions of Cardizem® CD, Procardia XL and Adalat CC products.

(3)
Includes sales of Zovirax® products.

(4)
Includes sales of Wellbutrin® XL, Tiazac® and Glumetza® products.

(5)
Includes sales of Xenazine® and Wellbutrin XL® products in countries outside of the U.S. and Canada.

48


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

        Total revenues increased $360.8 million, or 44%, to $1,181.2 million in 2010, compared with $820.4 million in 2009, and increased $63.3 million, or 8%, in 2009, compared with $757.2 million in 2008. A substantial portion of the increase in 2010 was due to incremental revenues from Valeant products and services of $274.6 million, while the remaining year-over-year increase in 2010 and the year-over-year increase in 2009 reflected the following results from other of our products:

49


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Segment Profit

        Segment profit is based on operating income after the elimination of intercompany transactions. Certain costs, such as restructuring and acquisition-related costs and legal settlement and acquired IPR&D charges, are not included in the measure of segment profit, as management excludes these items in assessing financial performance. In addition, share-based compensation is not allocated to segments, since the amount of such expense depends on company-wide performance rather than the operating performance of any single segment.

        The following table displays profit (loss) by segment for each of the last three years, the percentage of each segment's profit (loss) compared with corresponding segment revenues in the respective year, and the dollar and percentage change in the dollar amount of each segment's profit (loss). Percentages may not add due to rounding.

 
   Years Ended December 31   Change  
 
   2010(1)   2009   2008   2009 to 2010   2008 to 2009  
($ in 000s)
  $   %   $   %   $   %   $   %   $   %  

U.S. Neurology and Other

     251,129     38     274,548     48     243,180     46     (23,419 )   (9 )   31,368     13  

U.S. Dermatology

     47,737     22     87,860     60     93,475     62     (40,123 )   (46 )   (5,615 )   (6 )

Canada and Australia

     51,043     32     35,037     42     15,171     21     16,006     46     19,866     131  

Branded Generics — Europe

     20,646     28     9,152     61     3,553     52     11,494     126     5,599     158  

Branded Generics — Latin America

     (3,889 )   (6 )   —     —     —     —     (3,889 )   NM     —     —  
                                           

Total segment profit

     366,666     31     406,597     50     355,379     47     (39,931 )   (10 )   51,218     14  
                                           
(1)
Segment profit (loss) reflects addition of Valeant's operations commencing on the Merger Date, including the impact of acquisition accounting adjustments related to inventory and identifiable intangible assets as follows: U.S. Neurology and Other — $33.1 million; U.S. Dermatology — $27.4 million; Canada and Australia — $17.0 million; Branded Generics — Europe — $12.9 million; and Branded Generics — Latin America — $21.6 million.

        Total segment profit declined $39.9 million, or 10%, to $366.7 million in 2010, compared with $406.6 million in 2009, mainly attributable to the net effect of the following factors:

50


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

        Total segment profit increased $51.2 million, or 14%, to $406.6 million in 2009, compared with $355.4 million in 2008, mainly attributable to the net effect of the following factors:

51


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Operating Expenses

        The following table displays the dollar amount of each operating expense category for each of the last three years, the percentage of each category compared with total revenues in the respective year, and the dollar and percentage changes in the dollar amount of each category. Percentages may not add due to rounding.

 
   Years Ended December 31   Change  
 
   2010   2009   2008   2009 to 2010   2008 to 2009  
($ in 000s)
  $   %   $   %   $   %   $   %   $   %  

Cost of goods sold (exclusive of amortization of intangible assets shown separately below)

     395,595     33     204,309     25     197,167     26     191,286     94     7,142     4  

Cost of services

     10,155     1     13,849     2     23,033     3     (3,694 )   (27 )   (9,184 )   (40 )

Research and development

     68,311     6     47,581     6     69,811     9     20,730     44     (22,230 )   (32 )

Selling, general and administrative

     276,546     23     167,633     20     188,922     25     108,913     65     (21,289 )   (11 )

Amortization of intangible assets

     219,758     19     104,730     13     51,369     7     115,028     110     53,361     104  

Restructuring and other costs

     140,840     12     30,033     4     70,202     9     110,807     369     (40,169 )   (57 )

Acquired IPR&D

     89,245     8     59,354     7     —     —     29,891     50     59,354     NM  

Legal settlements

     52,610     4     6,191     1     32,565     4     46,419     750     (26,374 )   (81 )

Acquisition-related costs

     38,262     3     5,596     1     —     —     32,666     584     5,596     NM  
                                               

Total operating expenses

     1,291,322     109     639,276     78     633,069     84     652,046     102     6,207     1  
                                           

NM — Not meaningful

Cost of Goods Sold

        Cost of goods sold includes: manufacturing and packaging; the cost of products we purchase from third parties; royalty payments we make to third parties; depreciation of manufacturing facilities and equipment; and lower of cost or market adjustments to inventories. Cost of goods sold excludes the amortization of intangible assets described separately below under "— Amortization of Intangible Assets".

        Cost of goods sold increased $191.3 million, or 94%, to $395.6 million in 2010, compared with $204.3 million in 2009. The percentage increase in cost of goods sold was higher than the corresponding 44% increase in total product sales in 2010, primarily due to:

        Those factors were partially offset by:

52


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

        Cost of goods sold increased $7.1 million, or 4%, to $204.3 million in 2009, compared with $197.2 million in 2008. The percentage increase in cost of goods sold was less than the corresponding 10% increase in total product sales in 2009, primarily due to:

        Those factors were partially offset by:

Cost of Services

        Cost of services reflects the costs associated with providing contract services to external customers. Cost of services declined $3.7 million, or 27%, to $10.2 million in 2010, compared with $13.8 million in 2009, and declined $9.2 million, or 40%, in 2009, compared with $23.0 million in 2008, primarily due to:

        That factor was partially offset by:

Research and Development Expenses

        Expenses related to research and development programs include: employee compensation costs; overhead and occupancy costs; depreciation of research and development facilities and equipment; clinical trial costs; clinical manufacturing and scale-up costs; and other third-party development costs.

53


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

        Research and development expenses increased $20.7 million, or 44%, to $68.3 million in 2010, compared with $47.6 million in 2009, reflecting the addition of Valeant's operating costs of $13.0 million and higher direct project spending on our specialty CNS drug-development programs prior to the Merger. As described above under "Restructuring and Integration — Merger-Related Cost-Rationalization and Integration Initiatives — Research and Development Pipeline Rationalization", we have assessed our product development pipeline and have decided not to continue a number of these specialty CNS programs. In addition, prior to the Merger, we cancelled the Phase 3 clinical trials that were underway in Europe for BVF-324 (the use of non-commercially available doses of tramadol for the treatment of premature ejaculation), due to slower-than-anticipated enrolment and a lack of commercial interest in the product, and recognized the contractual obligations related to the termination of these studies.

        Research and development program expenses declined $22.2 million, or 32%, to $47.6 million in 2009, compared with $69.8 million in 2008, reflecting reduced direct project spending as we transitioned from reformulation opportunities to the in-licensing, acquisition and development of specialty CNS products, and cost savings as a result of the closures of our Dublin, Ireland and Mississauga, Ontario research and development facilities. Also contributing to the year-over-year decline in 2009 was the recognition in 2008 of $7.9 million in costs related to the termination of the BVF-146 program to develop a combination of tramadol and a non-steroidal anti-inflammatory drug.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses include: employee compensation costs associated with sales and marketing, finance, legal, information technology, human resources, and other administrative functions; outside legal fees and consultancy costs; product promotion expenses; overhead and occupancy costs; depreciation of corporate facilities and equipment; and other general and administrative costs.

        Selling, general and administrative expenses increased $108.9 million, or 65%, to $276.5 million in 2010, compared with $167.6 million in 2009, primarily due to:

        Those factors were partially offset by:

        Selling, general and administrative expenses declined $21.3 million, or 11%, to $167.6 million in 2009, compared with $188.9 million in 2008, primarily due to:

54


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

        Those factors were partially offset by:

Amortization of Intangible Assets

        Amortization expense increased $115.0 million, or 110%, to $219.8 million in 2010, compared with $104.7 million in 2009, due to the inclusion of amortization of the Valeant identifiable intangible assets ($86.4 million), as well as the Wellbutrin XL® trademark intangible asset acquired in May 2009 and the product rights intangible assets arising from the tetrabenazine acquisition in June 2009.

        Amortization expense increased $53.4 million, or 104%, to $104.7 million in 2009, compared with $51.4 million in 2008, due to the inclusion of amortization of the Wellbutrin XL® trademark and tetrabenazine product rights intangible assets.

Restructuring and Other Costs

        As described above under "Restructuring and Integration — Merger-Related Cost-Rationalization and Integration Initiatives and — Pre-Merger Cost-Rationalization Initiatives", we recorded a restructuring charge of $140.8 million in 2010, compared with $30.0 million and $70.2 million in 2009 and 2008, respectively.

Acquired IPR&D

        Acquired IPR&D represents compounds, new indications, or line extensions under development that have not received regulatory approval for marketing at the time of acquisition. IPR&D acquired through an asset acquisition is written-off at the acquisition date if the assets have no alternative future use. IPR&D acquired in a business combination is capitalized as indefinite-lived intangible assets (irrespective of whether these assets have an alternative future use) until completion or abandonment of the related research and development activities. Costs associated with the development of acquired IPR&D assets are expensed as incurred.

        In 2010, we recorded a charge of $89.2 million related to the istradefylline, AMPAKINE® and Staccato® loxapine acquisitions ($61.2 million) and the write-off the BVF-018 acquired IPR&D asset ($28.0 million). In 2009, we recorded a $59.4 million charge related to the acquisitions of the various rights to pimavanserin, fipamezole and GDNF, as well as the write-off of the $8.0 million acquired IPR&D asset related to RUS-350 upon termination of this project.

Legal Settlements

        In 2010, 2009 and 2008, we recorded legal settlement charges of $52.6 million, $6.2 million and $32.6 million, respectively, in connection with agreements or agreements in principle to settle certain Biovail legacy litigation and regulatory matters.

55


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Acquisition-Related Costs

        As described above under "Biovail Merger with Valeant — Acquisition-Related Costs", we incurred $38.3 million of Merger-related transaction costs in 2010. In 2009, we incurred costs of $5.6 million in connection with the tetrabenazine acquisition.

Non-Operating Income (Expense)

        The following table displays each non-operating income or expense category for each of the last three years, and the dollar and percentage changes in the dollar amount of each category.

 
   Years Ended December 31   Change  
 
   2010   2009   2008   2009 to 2010   2008 to 2009  
($ in 000s; Income (Expense))
  $   $   $   $   %   $   %  

Interest income

     1,294     1,118     9,400     176     16     (8,282 )   (88 )

Interest expense

     (84,307 )   (24,881 )   (1,018 )   (59,426 )   239     (23,863 )   2,344  

Write-down of deferred financing costs

     (5,774 )   (537 )   —     (5,237 )   975     (537 )   NM  

Foreign exchange and other

     574     507     (1,057 )   67     13     1,564     (148 )

Loss on extinguishment of debt

     (32,413 )   —     —     (32,413 )   NM     —     —  

Loss on auction rate securities

     (5,552 )   (5,210 )   (8,613 )   (342 )   7     3,403     (40 )

Gain on auction rate security settlement

     —     22,000     —     (22,000 )   (100 )   22,000     NM  

Gain on disposal of investments

     —     804     6,534     (804 )   (100 )   (5,730 )   (88 )

Impairment loss on equity securities

     —     —     (1,256 )   —     —     1,256     (100 )

Equity loss

     —     —     (1,195 )   —     —     1,195     (100 )
                                   

Total non-operating income (expense)

     (126,178 )   (6,199 )   2,795     (119,979 )   1,935     (8,994 )   (322 )
                               

NM — Not meaningful

Interest Expense

        Interest expense increased $59.4 million, or 239%, to $84.3 million in 2010, compared with $24.9 million in 2009, reflecting $47.8 million related to the assumed Valeant debt and the 2018 Notes issued in November 2010, and $12.1 million related to the issuance of the 5.375% Convertible Notes in June 2009. Interest expense in 2010 includes non-cash amortization of debt discounts and deferred financing costs of $21.5 million, in the aggregate.

        Interest expense increased $23.9 million to $24.9 million in 2009, compared with $1.0 million in 2008, mainly related to the 5.375% Convertible Notes issued in June 2009.

Loss on Extinguishment of Debt

        In November and December 2010, we repurchased $126.3 million aggregate principal amount of the 5.375% Convertible Notes for an aggregate purchase price of $259.2 million (of which $4.9 million related to the payment of accreted interest). The carrying amount of the 5.375% Convertible Notes purchased was $106.9 million (net of $3.9 million of related unamortized deferred financing costs) and the estimated fair value of the 5.375% Convertible Notes exclusive of the conversion feature was $127.5 million. The difference of $20.7 million between the net carrying amount and the estimated fair value was recognized as a loss on extinguishment of debt. The difference of $131.7 million between the estimated fair value of $127.5 million and the purchase price of $259.2 million was charged to shareholders' equity. In addition, the loss on extinguishment of debt includes the loss of $10.1 million related to the cash settlement of the written call options on our common shares.

56


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Loss on Auction Rate Securities

        In August 2010, we disposed of our entire portfolio of auction rate securities for cash proceeds of $1.4 million and recorded a loss related to an other-than-temporary decline in the estimated fair value these securities of $5.6 million in 2010, compared with $5.2 million and $8.6 million in 2009 and 2008, respectively.

Gain on Auction Rate Security Settlement

        In May 2009, we received $22.0 million to settle an arbitration with the investment bank that invested our assets in auction rate securities.

Income Taxes

        The following table displays the dollar amount of the current and deferred provisions for income taxes for each of the last three years, and the dollar and percentage changes in the dollar amount of each provision. Percentages may not add due to rounding.

 
   Years Ended December 31   Change  
 
   2010   2009   2008   2009 to 2010   2008 to 2009  
($ in 000s; Income (Expense))
  $   $   $   $   %   $   %  

Current income tax expense

     (27,333 )   (14,500 )   (17,000 )   (12,834 )   89     2,500     (15 )

Deferred income tax benefit

     55,403     16,000     90,000     39,404     246     (74,000 )   (82 )
                                   

Total recovery of income taxes

     28,070     1,500     73,000     26,570     1,771     (71,500 )   (98 )
                               

        In 2010, our effective tax rate was impacted by (i) the recording of a $45.5 million valuation allowance against a portion of the net deferred tax asset in respect of our U.S. tax loss carryforwards; (ii) the release of a $46.9 million valuation allowance against a portion of the deferred tax assets in respect of our Canadian tax loss carryforwards, scientific research and experimental development pool, and investment tax credits; (iii) the non-deductible portion of the acquisition-related costs related to the Merger; (iv) the non-deductible portion of the acquired IPR&D charges associated with the istradefylline, AMPAKINE®, and Staccato® loxapine acquisitions, and the impairment charge for BVF-018, recognized in a jurisdiction with lower statutory tax rates than those that apply in Canada; and (v) provisions for legal settlements in jurisdictions with lower statutory rates than those that apply in Canada, or where a full valuation allowance is recorded against tax loss carryforwards. The Merger resulted in tax loss carryforwards of Biovail's U.S. group becoming subject to the ownership change limitations of the U.S. Internal Revenue Code and similar state legislation.

        In each of the fourth quarters of 2009 and 2008, we assessed the realizability of a portion of our deferred tax assets related to operating loss carryforwards in the U.S. Biovail's U.S. group had generated positive earnings in each fiscal year commencing with 2006, reflecting a reduction in the overall cost structure, including the elimination of Biovail's U.S. sales force, through restructuring measures implemented in 2006 and 2005. As a result, we reduced the valuation allowance recorded against available U.S. operating loss carryforwards by $26.0 million and $90.0 million in the fourth quarters of 2009 and 2008, respectively, with corresponding increases to net income. In determining the amount of the valuation allowance that was necessary, we considered the amount of operating loss carryforwards that we would more likely than not be able to utilize based on the taxable income expected to be generated in the U.S. in future years. In 2009, we recorded a provision for deferred income taxes of $10.0 million related to the utilization of a portion of these loss carryforwards to reduce taxable income in the U.S.

57


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

        The following table presents a summary of our unaudited quarterly results of operations and operating cash flows in 2010 and 2009:

 
   2010   2009  
 
   Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4  
($ in 000s, except per share data)
  $   $   $   $   $   $   $   $  

Revenue

     219,635     238,771     208,267     514,564     173,319     193,535     212,523     241,053  

Expenses

     203,268     189,959     334,579     563,516     119,704     182,988     154,179     182,405  
                                   

Operating income (loss)

     16,367     48,812     (126,312 )   (48,952 )   53,615     10,547     58,344     58,648  
                                   

Net income (loss)

     (3,150 )   33,969     (207,882 )   (31,130 )   39,003     24,090     40,362     73,000  
                                   

Basic and diluted earnings (loss) per share

     (0.02 )   0.21     (1.27 )   (0.10 )   0.25     0.15     0.25     0.46  
                                   

Net cash provided by (used in) operating activities

     44,753     108,913     110,924     (1,399 )   46,972     97,081     89,197     127,647  
                                   

Fourth Quarter of 2010 Compared to Fourth Quarter of 2009

Results of Operations

        Total revenues increased $273.5 million, or 113%, to $514.6 million in the fourth quarter of 2010, compared with $241.1 million in the fourth quarter of 2009, reflecting the inclusion of revenues from Valeant's products and services of $274.6 million.

        Net income declined $104.1 million, or 143%, to a net loss of $31.1 million in the fourth quarter of 2010, compared with net income of $73.0 million in the fourth quarter of 2009, reflecting the following factors:

        Those factors were partially offset by:

58


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Cash Flows

        Net cash used in operating activities was $1.4 million in the fourth quarter of 2010, compared with net cash provided of $127.6 million in the fourth quarter of 2009, reflecting a decline of $129.0 million, primarily due to:

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Selected Measures of Financial Condition

        The following table presents a summary of our financial condition as of December 31, 2010 and 2009:

 
   As of December 31    
    
  
 
   2010   2009   Change  
($ in 000s; Asset (Liability))
  $   $   $   %  

Cash and cash equivalents

     394,269     114,463     279,806     244  

Long-lived assets(1)

     9,655,908     1,539,364     8,116,544     527  

Long-term debt, including current portion

     (3,595,277 )   (326,085 )   (3,269,192 )   1,003  

Shareholders' equity

     (4,911,096 )   (1,354,372 )   (3,556,724 )   263  
(1)
Long-lived assets comprise property, plant and equipment, intangible assets and goodwill.

Cash and Cash Equivalents

        Cash and cash equivalents increased $279.8 million, or 244%, to $394.3 million as of December 31, 2010, compared with $114.5 million at December 31, 2009, which primarily reflected the following sources of cash:

        Partially offset by the following uses of cash:

59


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Long-Lived Assets

        Long-lived assets increased $8,116.5 million, or 527%, to $9,655.9 million as of December 31, 2010, compared with $1,539.4 million at December 31, 2009, primarily due to:

        That factor was partially offset by:

Long-term Debt

        Long-term debt (including the current portion) increased $3,269.2 million to $3,595.3 million as of December 31, 2010, compared with $326.1 million at December 31, 2009, primarily due to:

        Those factors were partially offset by:

Shareholders' Equity

        Shareholders' equity increased $3,556.7 million, or 263%, to $4,911.1 million as of December 31, 2010, compared with $1,354.4 million at December 31, 2009, primarily due to:

        Those factors were partially offset by:

60


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Cash Flows

        Our primary sources of cash include: the collection of accounts receivable related to product sales; the issuance of long-term debt and borrowings under the Credit Facilities; and proceeds from the sale of non-core assets. Our primary uses of cash include: business development transactions; interest and principal payments; securities repurchases; restructuring activities; salaries and benefits; inventory purchases; research and development spending; sales and marketing activities; capital expenditures; legal costs; litigation and regulatory settlements; and dividend payments. The following table displays cash flow information for each of the last three years:

 
   Years Ended December 31   Change  
 
   2010   2009   2008   2009 to 2010   2008 to 2009  
($ in 000s)
  $   $   $   $   %   $   %  

Net cash provided by operating activities

     263,191     360,897     204,325     (97,706 )   (27 )   156,572     77  

Net cash provided by (used in) investing activities

     228,939     (742,772 )   (107,831 )   971,711     (131 )   (634,941 )   589  

Net cash provided by (used in) financing activities

     (213,283 )   177,047     (210,311 )   (390,330 )   (220 )   387,358     (184 )

Effect of exchange rate changes on cash and cash equivalents

     959     1,744     (2,277 )   (785 )   (45 )   4,021     (177 )
                                   

Net increase (decrease) in cash and cash equivalents

     279,806     (203,084 )   (116,094 )   482,890     (238 )   (86,990 )   75  

Cash and cash equivalents, beginning of year

     114,463     317,547     433,641     (203,084 )   (64 )   (116,094 )   (27 )
                                   

Cash and cash equivalents, end of year

     394,269     114,463     317,547     279,806     244     (203,084 )   (64 )
                               

Operating Activities

        Net cash provided by operating activities declined $97.7 million, or 27%, to $263.2 million in 2010, compared with $360.9 million in 2009, primarily due to:

        Those factors were partially offset by:

        Net cash provided by operating activities increased $156.6 million, or 77%, to $360.9 million in 2009, compared with $204.3 million in 2008, primarily due to:

61


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

        Those factors were partially offset by:

Investing Activities

        Net cash provided by investing activities was $228.9 million in 2010, compared with cash used of $742.8 million in 2009, reflecting an increase of $971.7 million, primarily due to:

        Those factors were partially offset by:

        Net cash used in investing activities increased $634.9 million, or 589%, to $742.8 million in 2009, compared with $107.8 million in 2008, primarily due to:

        That factor was partially offset by:

Financing Activities

        Net cash used in financing activities was $213.3 million in 2010, compared with cash provided of $177.0 million in 2009, reflecting a decline of $390.3 million, primarily due to:

        Those factors were partially offset by:

62


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

        Net cash provided by financing activities was $177.0 million in 2009, compared with cash used of $210.3 million in 2008, reflecting an increase of $387.4 million, primarily due to:

        Those factors were partially offset by:

Financial Assets (Liabilities)

        The following table displays our net financial liability position as of December 31, 2010 and 2009:

 
   As of December 31    
    
  
 
   2010   2009   Change  
($ in 000s; Asset (Liability))
  $   $   $   %  

Financial assets:

                          
 

Cash and cash equivalents

     394,269     114,463     279,806     244  
 

Marketable securities

     8,166     21,082     (12,916 )   (61 )
                     
 

Total financial assets

     402,435     135,545     266,890     197  
                     

Financial liabilities:

                          
 

Term Loan A Facility

     (975,000 )   —     (975,000 )   NM  
 

2017 Notes

     (497,589 )   —     (497,589 )   NM  
 

2020 Notes

     (695,735 )   —     (695,735 )   NM  
 

2018 Notes

     (992,498 )   —     (992,498 )   NM  
 

5.375% Convertible Notes

     (196,763 )   (298,285 )   101,522     (34 )
 

4.0% Convertible Notes

     (220,792 )   —     (220,792 )   NM  
 

Cambridge obligation

     (16,900 )   (27,800 )   10,900     (39 )
                     
 

Total financial liabilities

     (3,595,277 )   (326,085 )   (3,269,192 )   1,003  
                     

Net financial liabilities

     (3,192,842 )   (190,540 )   (3,002,302 )   1,576  
                   

NM — Not meaningful

        Our primary sources of liquidity are our cash flows from operations and issuances of long-term debt securities. We believe that existing cash and cash generated from operations, funds available under the Credit Facilities, supplemented with additional debt issuances as needed, will be sufficient to meet our liquidity needs, based on our current expectations. We have no material commitments for capital expenditures.

        Our short-term debt maturities consist mainly of $100.0 million outstanding principal amount under the Term A Credit Facility, due in quarterly instalments of $25.0 million. We believe our existing cash and cash generated from operations will be sufficient to cover these short-term debt maturities as they become due.

63


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

        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.

        On September 27, 2010, Valeant and certain of its subsidiaries entered into a Credit and Guaranty Agreement (the "Credit Agreement") with a syndicate of lending institutions, which consists of (1) a four-and-one half-year non-amortizing $125.0 million Revolving Credit Facility, which includes a sublimit for the issuance of standby and commercial letters of credit and a sublimit for swing line loans, (2) a five-year amortizing $1.0 billion Term Loan A Facility, and (3) a six-year amortizing $1.625 billion Term Loan B Facility, consisting of a $1.5 billion "initial draw" and a $125.0 million "delayed draw". On September 28, 2010, we and certain of our subsidiaries (other than Valeant and its subsidiaries) entered into Counterpart Agreements or Deeds of Guarantee, as appropriate, to the Credit Agreement, each in substantially the same form. On November 29, 2010, the "delayed draw" under the Term Loan B Facility was terminated. As of December 31, 2010, the "initial draw" under the Term Loan B Facility has been paid in full. We were in compliance with all covenants associated with the Credit Facilities at December 31, 2010.

        Concurrent with the closing of the Merger, Valeant issued $500.0 million aggregate principal amount of 2017 Notes and $700.0 million aggregate principal amount of 2020 Notes. A portion of the proceeds of the 2017 Notes and 2020 Notes offering was used to pay down $1.0 billion of the Term Loan B Facility.

        On November 23, 2010, Valeant issued $1.0 billion aggregate principal amount of 2018 Notes. The 2018 Notes were issued at a discount of 99.24% for an effective annual yield of 7.0%. A portion of the proceeds of the 2018 Notes offering was used to repay the remaining $500.0 million owed under the Term Loan B Facility and the balance of the proceeds are expected to be used for general corporate purposes, including acquisitions, debt repayment and securities repurchases.

        The 2017 Notes, 2020 Notes and 2018 Notes (hereinafter referred to as the "Notes") are senior unsecured obligations of Valeant and are jointly and severally guaranteed on a senior unsecured basis by the Company and each of its subsidiaries (other than Valeant) that is a guarantor under the Credit Facilities (as described above). Certain of the future subsidiaries of Valeant and the Company may be required to guarantee the Notes. The non-guarantor subsidiaries had total assets of $3,411.8 million and total liabilities of $841.2 million as of December 31, 2010, and net revenues of $182.7 million and income from operations of $0.9 million for the year ended December 31, 2010.

        On February 8, 2011, Valeant issued $650.0 million aggregate principal amount of 2021 Notes. The 2021 Notes are jointly and severally guaranteed on the same senior unsecured basis as the Notes. The net proceeds of the 2021 Notes offering were to be used to finance the acquisitions of PharmaSwiss and the U.S. and Canadian rights to non-ophthalmic topical formulations of Zovirax® (as described above under "Acquisitions — PharmaSwiss and — Zovirax®") and to pay fees and expenses in connection with these acquisitions and for general corporate purposes. Pending the completion of each of these acquisitions, Valeant deposited $400.0 million of the proceeds of the 2021 Notes offering ($135.0 million of which was released on February 23, 2011 following the completion of the acquisition of the U.S. rights to Zovirax®), together with cash in an amount sufficient to pay the special mandatory redemption price for the 2021 Notes, when and if due, into an escrow account.

Securities Repurchase Program

        On November 4, 2010, we announced that our board of directors approved a securities repurchase program, (the "securities repurchase program") pursuant to which we may make purchases of our common shares, Convertible Notes and/or Notes up to an aggregate maximum value of $1.5 billion, subject to any restrictions in the Company's financing agreements and applicable law. Our board of directors also approved a sub-limit of up to 16.0 million common shares, representing approximately 10% of the Company's public float (as estimated at

64


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


the commencement of the securities repurchase program), to be purchased for cancellation under a normal course issuer bid through the facilities of the NYSE and Toronto Stock Exchange ("TSX"). We may initially make purchases under the securities repurchase program of up to 15.0 million common shares through the facilities of the NYSE, in accordance with applicable rules and guidelines. This represented approximately 5% of our issued and outstanding common shares as of November 4, 2010. Following additional filings and related approvals, we may also purchase common shares over the TSX. The program does not require us to repurchase a minimum number of securities, and the program may be modified, suspended or terminated at any time without prior notice. The securities repurchase program will terminate on November 7, 2011 or at such earlier time as we complete our purchases. Under the terms of the Credit Facilities, our purchases under the securities repurchase program are subject to certain monetary thresholds, above which we require the consent of the lenders.

        In connection with the securities repurchase program, we have, to date, repurchased $137.6 million principal amount of the 5.375% Convertible Notes for consideration of $284.1 million and 2.3 million of our common shares for consideration of $60.1 million. The amount of securities to be purchased and the timing of purchases under the securities repurchase program may be subject to various factors, which may include the price of the securities, general market conditions, corporate and regulatory requirements, alternate investment opportunities and restrictions under our financing agreements. The securities to be repurchased will be funded using our cash resources.

        On February 24, 2011, we entered into an agreement to repurchase 7.4 million common shares from ValueAct Capital Master Fund, L.P. ("ValueAct") for an aggregate purchase price of $275.0 million negotiated at a 5.77% discount over a 20-day trading day average, which was calculated in a similar manner to Valeant's privately negotiated share repurchase from ValueAct completed in May 2010. The transaction, which is subject to closing conditions, is expected to be consummated on March 17, 2011, or such other time or date as the parties to the purchase agreement may agree. G. Mason Morfit is a partner and a member of the Management Committee of ValueAct Capital. Mr. Morfit joined our board of directors on September 28, 2010, effective with the Merger, and prior thereto served as a member of Valeant's board of directors since 2007. ValueAct Capital is the general partner and the manager of ValueAct.

        In connection with the pending $275.0 million share repurchase from ValueAct, we are evaluating debt financing alternatives.

Share Repurchase Program

        On August 6, 2009, we announced that our board of directors had renewed the previous share repurchase program. This program terminated on August 11, 2010. We did not repurchase any of our common shares under the program.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

        We have no off-balance sheet arrangements that have a material current effect or that are reasonably likely to have a material future effect on our results of operations, financial condition, capital expenditures, liquidity, or capital resources.

65


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

        The following table summarizes our contractual obligations as of December 31, 2010, with the exception that long-term debt includes principal and interest payments on the 2021 Notes issued in February 2011:

 
   Payments Due by Period  
 
   Total   2011   2012 and 2013   2014 and 2015   Thereafter  
($ in 000s)
  $   $   $   $   $  

Long-term debt obligations(1)

     6,237,645     363,541     1,049,262     1,192,651     3,632,191  

Lease obligations

     94,277     24,935     21,153     12,970     35,219  

Purchase obligations(2)

     60,018     38,337     18,793     1,976     912  
                       

Total contractual obligations

     6,391,940     426,813     1,089,208     1,207,597     3,668,322  
                       
(1)
Expected interest payments assume repayment of the principal amount of the debt obligations at maturity.

(2)
Purchase obligations consist of agreements to purchase goods and services that are enforceable and legally binding and include obligations for minimum inventory and capital expenditures, and outsourced information technology, product promotion and clinical research services.

        The above table does not reflect any contingent milestone or royalty payments in connection with research and development arrangements with third parties. As described above under "Synergies and Cost Savings — Merger-Related Cost-Rationalization and Integration Initiatives — Research and Development Pipeline Rationalization", we have determined not to continue a number of our specialty CNS programs, and have provided notices of termination to, or entered into termination agreements with, the counterparty to each of the related agreements. As a result, we will not be required to make the previously identified contingent milestone or royalty payments under those agreements. As described above under "Acquisitions — Istradefylline", we may be required to make milestone payments of up to $55.0 million in the aggregate in connection with the istradefylline acquisition, contingent on the achievement of specific developmental, regulatory and sales-based milestones. In addition, we may have to make royalty payments based on net commercial sales of products containing istradefylline.

        In addition, the above table does not reflect assumed contingent milestone payments of Valeant of $412.2 million in the aggregate, including contingent consideration of up to $390.0 million that we may be required to pay related to Valeant's acquisition of Princeton Pharma Holdings LLC, and its wholly-owned operating subsidiary, Aton Pharma, Inc. ("Aton"), on May 26, 2010. The Aton contingent consideration consists of future milestones predominantly based upon the achievement of approval and commercial targets for certain pipeline products.

        Also excluded from the above table is a liability for uncertain tax positions totaling $110.9 million. This liability has been excluded because we cannot currently make a reliable estimate of the period in which the liability will be payable, if ever.

OUTSTANDING SHARE DATA

        Our common shares are listed on the TSX and the NYSE under the ticker symbol "VRX".

        At February 23, 2011, we had 304,219,307 issued and outstanding common shares and 1,618,095 common shares issuable in connection with the Merger. In addition, we had 11,458,722 stock options and 2,114,246 time-based RSUs that each represent the right of a holder to receive one of the Company's common shares, and 2,496,427 performance-based RSUs that represent the right of a holder to receive up to 300% of the RSUs granted. A maximum of 5,732,365 common shares could be issued upon vesting of the performance-based RSUs outstanding.

66


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

        Assuming full share settlement, 14,800,839 common shares are issuable upon the conversion of the 5.375% Convertible Notes (based on a current conversion rate of 69.6943 common shares per $1,000 principal amount of notes, subject to adjustment), and 17,782,891 common shares are issuable upon the conversion of the 4.0% Convertible Notes (based on a current conversion rate of 79.0667 common shares per $1,000 principal amount of notes, subject to adjustment); however, our intent is to settle the Convertible Notes using a net share settlement approach. Under the call option agreements on the 4.0% Convertible Notes assumed in connection with the Merger, we have the right but not the obligation to buy up to 15,813,340 of our common shares from the counterparties to these agreements, and the counterparties have the right but not the obligation to buy from us an identical number of common shares.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Our business and financial results are affected by fluctuations in world financial markets, including the impacts of foreign currency exchange rate and interest rate movements. We evaluate our exposure to such risks on an ongoing basis, and seek ways to manage these risks to an acceptable level, based on management's judgment of the appropriate trade-off between risk, opportunity and cost. We use derivative financial instruments from time to time as a risk management tool and not for trading or speculative purposes. Currently, we do not hold any significant amount of market risk sensitive instruments whose value is subject to market price risk.

Inflation; Seasonality

        Historically, our results of operations have not been materially impacted by inflation or seasonality. However, following the Merger, we are subject to price control restriction on our pharmaceutical products in the majority of countries in which we now operate. As a result, our ability to raise prices in a timely fashion in anticipation of inflation may be limited in some markets.

Foreign Currency Risk

        Historically, a majority of our revenue and expense activities and capital expenditures were denominated in U.S. dollars. We also faced foreign currency exposure on the translation of our operations in Canada from Canadian dollars to U.S. dollars. Effective with the Merger, we have additional foreign currency exposure related to the Polish zloty (and other Eastern European currencies), the Mexican peso, the Brazilian real and the Australian dollar from Valeant operations. These operations are subject to risks inherent in conducting business abroad, including price and currency exchange controls and fluctuations in the relative values of currencies. In addition, to the extent that we require, as a source of debt repayment, earnings and cash flows from some of our operations located in foreign countries, we are subject to risk of changes in the value of the U.S. dollar, relative to all other currencies in which we operate, which may materially affect our results of operations. Where possible, we manage foreign currency risk by managing same currency assets in relation to same currency liabilities, and same currency revenues in relation to same currency expenses.

        In 2010, the repurchase of $126.3 million principal amount of the U.S. dollar-denominated 5.375% Convertible Notes resulted in a foreign exchange gain for Canadian income tax purposes of approximately $10.0 million. The payment of the remaining balance of the 5.375% Convertible Notes will likely result in a foreign exchange gain or loss for Canadian income tax purposes. The amount of this gain or loss will depend on the exchange rate between the U.S. and Canadian dollar at the time the 5.375% Convertible Notes are paid. As of December 31, 2010, the unrealized foreign exchange gain on the translation of the remaining principal amount of the 5.375% Convertible Notes to Canadian dollars for Canadian income tax purposes was approximately $24.0 million. One-half of any realized foreign exchange gain or loss is included in our Canadian taxable income, which results in a corresponding reduction in our available Canadian operating losses and tax credit carryforward balances. However, the payment of the 5.375% Convertible Notes does not result in a

67


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


foreign exchange gain or loss being recognized in our consolidated financial statements, as these statements are prepared in U.S. dollars.

Interest Rate Risk

        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. The primary objective of our policy for the investment of temporary cash surpluses is the protection of principal, and accordingly, we generally invest in high quality, liquid money market investments with varying maturities, but typically less than three months. As it is our intent and policy to hold these investments until maturity, we do not have a material exposure to interest rate risk.

        As of December 31, 2010, we had $2,648.6 million and $975.0 million principal amount of issued fixed rate debt and variable rate debt, respectively, that require U.S. dollar repayment. The estimated fair value of our issued fixed rate debt as of December 31, 2010 was $3,182.7 million. If interest rates were to increase or decrease by 100 basis-points the fair value of our long-term debt would increase or decrease by approximately $166.0 million. We are subject to interest rate risk on our variable rate debt as changes in interest rates could adversely affect earnings and cash flows. A 100 basis-points change in interest rates would have an annualized pre-tax effect of approximately $10.0 million in our consolidated statements of operations and cash flows, based on current outstanding borrowings and effective interest rates on our variable rate debt. While our variable-rate debt may impact earnings and cash flows as interest rates change, it is not subject to changes in fair value.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

        Critical accounting policies and estimates are those policies and estimates that are most important and material to the preparation of our consolidated financial statements, and which require management's most subjective and complex judgments due to the need to select policies from among alternatives available, and to make estimates about matters that are inherently uncertain. We base our estimates on historical experience and other factors that we believe to be reasonable under the circumstances. On an ongoing basis, we review our estimates to ensure that these estimates appropriately reflect changes in our business and new information as it becomes available. If historical experience and other factors we use to make these estimates do not reasonably reflect future activity, our results of operations and financial condition could be materially impacted.

Revenue Recognition

        We recognize product sales revenue when title has transferred to the customer and the customer has assumed the risks and rewards of ownership. Revenue from product sales is recognized net of provisions for estimated cash discounts, allowances, returns, rebates, and chargebacks, as well as distribution fees paid to certain of our wholesale customers. We establish these provisions concurrently with the recognition of product sales revenue.

        Under certain product manufacturing and supply agreements, we rely on estimates for future returns, rebates and chargebacks made by our commercialization counterparties. We make adjustments as needed to state these estimates on a basis consistent with our revenue recognition policy and our methodology for estimating returns, rebates, and chargebacks related to our own direct product sales.

        We continually monitor our product sales provisions and evaluate the estimates used as additional information becomes available. We make adjustments to these provisions periodically to reflect new facts and circumstances that may indicate that historical experience may not be indicative of current and/or future results. We are required to make subjective judgments based primarily on our evaluation of current market conditions and trade inventory levels related to our products. This evaluation may result in an increase or decrease in the experience rate that is applied to current and future sales, or an adjustment related to past sales, or both.

68


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Continuity of Product Sales Provisions

        The following table presents the activity and ending balances for our product sales provisions for each of the last three years.

 
   Discounts
and
Allowances 		  Returns   Rebates   Chargebacks   Distribution
Fees 		  Total  
($ in 000s)
  $   $   $   $   $   $  

Balance, January 1, 2008

     1,041     19,362     7,180     783     4,326     32,692  

Current year provision

     8,398     19,919     15,226     9,222     10,670     63,435  

Prior year provision

     —     (4,599 )   (1,297 )   —     —     (5,896 )

Payments or credits

     (8,600 )   (9,590 )   (15,238 )   (9,603 )   (11,278 )   (54,309 )
                           

Balance, December 31, 2008

     839     25,092     5,871     402     3,718     35,922  
                           

Current year provision

     13,390     16,498     31,555     16,795     16,894     95,132  

Prior year provision

     —     3,767     6,852     —     —     10,619  

Payments or credits

     (12,547 )   (20,773 )   (23,344 )   (14,901 )   (15,154 )   (86,719 )
                           

Balance, December 31, 2009

     1,682     24,584     20,934     2,296     5,458     54,954  
                           

Acquisition of Valeant

     3,974     81,441     59,914     8,932     7,149     161,410  

Current year provision

     24,286     26,377     86,527     35,428     24,345     196,963  

Prior year provision

     —     (3,430 )   1,236     —     —     (2,194 )

Payments or credits

     (22,293 )   (18,330 )   (88,907 )   (36,415 )   (22,851 )   (188,796 )
                           

Balance, December 31, 2010

     7,649     110,642     79,704     10,241     14,101     222,337  
                           

Use of Information from External Sources

        In the U.S., we use information from external sources to estimate our product sales provisions. We have data sharing agreements with the three largest wholesalers in the U.S. Where we do not have data sharing agreements, we use third-party data to estimate the level of product inventories and product demand at wholesalers and retail pharmacies. Third-party data with respect to prescription demand and inventory levels are subject to the inherent limitations of estimates that rely on information from external sources, as this information may itself rely on certain estimates and reflect other limitations.

        Our inventory levels in the wholesale distribution channel do not vary substantially, as our distribution agreements with the three largest wholesalers in the U.S. limit the aggregate amount of inventory they can own to between 1/2 and 11/2 months of supply of our products. The inventory data from these wholesalers is provided to us in the aggregate rather than by specific lot number, which is the level of detail that would be required to determine the original sale date and remaining shelf life of the inventory.

        Some European countries base their rebates on the government's unbudgeted pharmaceutical spending and we use an estimated allocation factor against our actual invoiced sales to project the expected level of reimbursement. We obtain third-party information that helps us to monitor the adequacy of these accruals. If our estimates are not indicative of actual unbudgeted spending, our results could be materially affected.

Cash Discounts and Allowances

        We offer cash discounts for prompt payment and allowances for volume purchases to customers. Provisions for cash discounts are estimated at the time of sale and recorded as direct reductions to accounts receivable and revenue. Provisions for allowances are recorded in accrued liabilities. We estimate provisions for cash discounts and allowances based on contractual sales terms with customers, an analysis of unpaid invoices, and historical payment experience. Estimated cash discounts and allowances have historically been predictable and less

69


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


subjective, due to the limited number of assumptions involved, the consistency of historical experience, and the fact that we generally settle these amounts within one month of incurring the liability.

Returns

        Consistent with industry practice, we generally allow customers to return product within a specified period before and after its expiration date. Our product returns provision is estimated based on historical sales and return rates over the period during which customers have a right of return. We utilize the following information to estimate our provision for returns:

        In determining our estimates for returns, we are required to make certain assumptions regarding the timing of the introduction of new products and the potential of these products to capture market share. In addition, we make certain assumptions with respect to the extent and pattern of decline associated with generic competition. To make these assessments, we utilize market data for similar products as analogs for our estimates. We use our best judgment to formulate these assumptions based on past experience and information available to us at the time. We continually reassess and make the appropriate changes to our estimates and assumptions as new information becomes available to us.

        Our estimate for returns may be impacted by a number of factors, but the principal factor relates to the level of inventory in the distribution channel. When we are aware of an increase in the level of inventory of our products in the distribution channel, we consider the reasons for the increase to determine if the increase may be temporary or other-than-temporary. Increases in inventory levels assessed as temporary will not result in an adjustment to our provision for returns. Other-than-temporary increases in inventory levels, however, may be an indication that future product returns could be higher than originally anticipated, and, as a result, we may need to adjust our estimate for returns. Some of the factors that may suggest that an increase in inventory levels will be temporary include:

        Conversely, factors that may suggest that an increase in inventory levels will be other-than-temporary include:

        Our adjustments to actual in 2010, 2009 and 2008 were not material to our revenues or earnings.

70


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Rebates and Chargebacks

        We are subject to rebates on sales made under governmental and managed-care pricing programs in the U.S. The largest of these rebates is associated with sales covered by Medicaid. We participate in state government-managed Medicaid programs, as well as certain other qualifying federal and state government programs whereby discounts and rebates are provided to participating government entities. Medicaid rebates are typically billed up to 180 days after the product is shipped, but can be as much as 270 days after the quarter in which the product is dispensed to the Medicaid participant. As a result, our Medicaid rebate provision includes an estimate of outstanding claims for end-customer sales that occurred but for which the related claim has not been billed, and an estimate for future claims that will be made when inventory in the distribution channel is sold through to plan participants. Our calculation also requires other estimates, such as estimates of sales mix, to determine which sales are subject to rebates and the amount of such rebates. Periodically, we adjust the Medicaid rebate provision based on actual claims paid. Due to the delay in billing, adjustments to actual claims paid may incorporate revisions of that provision for several periods.

        Chargebacks relate to our contractual agreements to sell products to group purchasing organizations and other indirect customers at contractual prices that are lower than the list prices we charge wholesalers. When these group purchasing organizations or other indirect customers purchase our products through wholesalers at these reduced prices, the wholesaler charges us for the difference between the prices they paid us and the prices at which they sold the products to the indirect customers.

        In estimating our provisions for rebates and chargebacks, we consider relevant statutes with respect to governmental pricing programs and contractual sales terms with managed-care providers and group purchasing organizations. We estimate the amount of our product sales subject to these programs based on historical utilization levels. Changes in the level of utilization of our products through private or public benefit plans and group purchasing organizations will affect the amount of rebates and chargebacks that we are obligated to pay. We continually update these factors based on new contractual or statutory requirements, and any significant changes in sales trends that may impact the percentage of our products subject to rebates or chargebacks.

        The amount of rebates and chargebacks has become more significant as a result of a combination of deeper discounts due to the price increases we implemented in each of the last three years and increased Medicaid utilization due to existing economic conditions in the U.S. Our estimate for rebates and chargebacks may be impacted by a number of factors, but the principal factor relates to the level of inventory in the distribution channel.

        We do not process or track actual rebate payments or credits by period in which the original sale was made, as the necessary lot information is not required to be provided to us by the private or public benefit providers. Accordingly, we generally assume that adjustments made to rebate provisions relate to sales made in the prior years due to the delay in billing. However, we assume that adjustments made to chargebacks are generally related to sales made in the current year, as we settle these amounts within a few months of original sale. Our adjustments to actual in 2010 and 2008 were not material to our revenues or earnings. We recorded an adjustment of $6.9 million in 2009 to increase the provision for rebates as a result of higher than anticipated Medicaid utilization, due to the economic condition in the U.S. and the related increase in the number of patients in these governmental programs.

Acquisitions

        We account for acquired businesses using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at fair value, with limited exceptions. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. Amounts allocated to acquired IPR&D are recognized at fair value and initially characterized as indefinite-lived intangible assets, irrespective of whether the acquired IPR&D has an alternative future use. If the acquired net assets do not constitute a business, the transaction is accounted for as an asset acquisition and no goodwill is recognized. In an asset acquisition, acquired IPR&D with no alternative future use is charged to expense at the acquisition date.

71


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

        The judgments made in determining the estimated fair value assigned to each class of asset acquired and liability assumed can materially impact our results of operations. As a result, we typically engage independent valuation specialists to perform valuations of the net assets acquired. There are several methods that can be used to determine fair value. For intangible assets, including IPR&D, we typically use an income approach. This approach starts with a forecast of the net cash flows expected to be generated by the asset over its estimated useful life. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Some of the more significant estimates and assumptions inherent in the income approach include:

        We believe the fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions, however, these assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.

        Determining the useful life of an intangible asset also requires judgment, as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives. Useful life is the period over which the intangible asset is expected to contribute directly or indirectly to our future cash flows. We determine the useful lives of intangible assets based on a number of factors, such as legal, regulatory, or contractual provisions that may limit the useful life, and the effects of obsolescence, anticipated demand, existence or absence of competition, and other economic factors on useful life.

Intangible Assets

        We evaluate amortizable intangible assets acquired through asset acquisitions or business combinations for impairment annually, and more frequently if events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable. Our evaluation is based on an assessment of potential indicators of impairment, such as:

        Impairment exists when the carrying amount of an amortizable intangible asset is not recoverable and its carrying value exceeds its estimated fair value. A discounted cash flow analysis is typically used to determine fair value using estimates and assumptions that market participants would apply. Some of the estimates and assumptions inherent in a discounted cash flow model include the amount and timing of the projected future cash flows, and the discount rate used to reflect the risks inherent in the future cash flows. A change in any of these estimates and assumptions could produce a different fair value, which could have a material impact on our results of operations. In addition, an intangible asset's expected useful life can increase estimation risk, as longer-lived assets necessarily require longer-term cash flow forecasts, which for some of our intangible assets

72


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

can be up to 25 years. In connection with an impairment evaluation, we also reassess the remaining useful life of the intangible asset and modify it, as appropriate.

        Indefinite-lived intangible assets, including IPR&D, are tested for impairment annually, or more frequently if events or changes in circumstances between annual tests indicate that the asset may be impaired. Impairment losses on indefinite-lived intangible assets are recognized based solely on a comparison of their fair value to carrying value, without consideration of any recoverability test.

Goodwill

        Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually at the reporting unit level. A reporting unit is the same as, or one level below, an operating segment. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants. Prior to the Merger, we had one operating segment and one reporting unit. Accordingly, in fiscal years 2010 and 2009, goodwill existing prior to the Merger was tested for impairment by comparing our pre-Merger market capitalization, based on the quoted market price of our underlying common shares, to the carrying value of our consolidated net assets. On that basis, there was no indication of goodwill impairment.

        Effective with the Merger, we operate in the following business segments: U.S. Neurology and Other; U.S. Dermatology; Canada and Australia; Branded Generics — Europe; and Branded Generics — Latin America. Each of the U.S. Neurology and Other, U.S. Dermatology and Branded Generics — Europe segments consist of one reporting unit. The Canada and Australia segment consists of two geographical reporting units. Similarly, the Branded Generics — Latin America segment consists of two reporting units based on geography, namely Mexico and Brazil. The Company has provisionally allocated goodwill to the seven reporting units. Goodwill recognized as a result of the Merger will be tested for impairment commencing in 2011.

        An interim goodwill impairment test in advance of the annual impairment assessment may be required if events occur that indicate an impairment might be present. For example, a substantial decline in our market capitalization may signal that an interim impairment test is needed. Accordingly, we monitor changes in our share price between annual impairment tests to ensure that our market capitalization continues to exceed the carrying value of our consolidated net assets. We consider a decline in our share price that corresponds to an overall deterioration in stock market conditions to be less of an indicator of goodwill impairment than a unilateral decline in our share price reflecting adverse changes in our underlying operating performance, cash flows, financial condition, and/or liquidity. In the event that our market capitalization does decline below its book value, we would consider the length and severity of the decline and the reason for the decline when assessing whether potential goodwill impairment exists. We believe that short-term fluctuations in share prices may not necessarily reflect underlying values. For example, a decline in share price due to the following reasons may not be indicative of an actual decline in the aggregate fair value at the reporting unit level:

        However, if a decline in our market capitalization below book value persists for an extended period of time, we would likely consider the decline to be indicative of a decline in the aggregate fair value at the reporting unit level.

Contingencies

        In the normal course of business, we are subject to loss contingencies, such as claims and assessments arising from litigation and other legal proceedings; contractual indemnities; product and environmental

73


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


liabilities; and tax matters. We are required to accrue for such loss contingencies if it is probable that the outcome will be unfavourable and if the amount of the loss can be reasonably estimated. We are often unable to develop a best estimate of loss, in which case the minimum amount of loss, which could be zero, is recorded. We evaluate our exposure to loss based on the progress of each contingency, experience in similar contingencies, and consultation with internal and external legal counsel. We re-evaluate all contingencies as additional information becomes available. Given the uncertainties inherent in complex litigation and other contingencies, these evaluations can involve significant judgment about future events. The ultimate outcome of any litigation or other contingency may be material to our results of operations, financial condition, and cash flows. For a discussion of our current legal proceedings, see note 24 to the 2010 Financial Statements.

Income Taxes

        We have operations in various countries that have differing tax laws and rates. Our tax structure is supported by current domestic tax laws in the countries in which we operate and the application of tax treaties between the various countries in which we operate. Our income tax reporting is subject to audit by domestic and foreign tax authorities. Our effective tax rate may change from year to year based on changes in the mix of activities and income allocated or earned among the different jurisdictions in which we operate, changes in tax laws in these jurisdictions, changes in tax treaties between various countries in which we operate, changes in our eligibility for benefits under those tax treaties, and changes in the estimated values of deferred tax assets and liabilities. Such changes could result in an increase in the effective tax rate on all or a portion of our income and/or any of our subsidiaries.

        Our provision for income taxes is based on a number of estimates and assumptions made by management. Our consolidated income tax rate is affected by the amount of income earned in our various operating jurisdictions, the availability of benefits under tax treaties, and the rates of taxes payable in respect of that income. We enter into many transactions and arrangements in the ordinary course of business in which the tax treatment is not entirely certain. We must therefore make estimates and judgments based on our knowledge and understanding of applicable tax laws and tax treaties, and the application of those tax laws and tax treaties to our business, in determining our consolidated tax provision. For example, certain countries could seek to tax a greater share of income than has been provided for by us. The final outcome of any audits by taxation authorities may differ from the estimates and assumptions we have used in determining our consolidated income tax provisions and accruals. This could result in a material effect on our consolidated income tax provision, results of operations, and financial condition for the period in which such determinations are made.

        Our income tax returns are subject to audit in various jurisdictions. Existing and future audits by, or other disputes with, tax authorities may not be resolved favourably for us and could have a material adverse effect on our reported effective tax rate and after-tax cash flows. We record liabilities for uncertain tax positions, which involves significant management judgment. New laws and new interpretations of laws and rulings by tax authorities may affect the liability for uncertain tax positions. Due to the subjectivity and complex nature of the underlying issues, actual payments or assessments may differ from our estimates. To the extent that our estimates differ from amounts eventually assessed and paid our income and cash flows may be materially and adversely affected.

        We assess whether it is more likely than not that we will realize the tax benefits associated with our deferred tax assets and establish a valuation allowance for assets that are not expected to result in a realized tax benefit. A significant amount of judgment is used in this process, including preparation of forecasts of future taxable income and evaluation of tax planning initiatives. If we revise these forecasts or determine that certain planning events will not occur, an adjustment to the valuation allowance will be made to tax expense in the period such determination is made.

Share-Based Compensation

        We recognize employee share-based compensation, including grants of stock options and RSUs, at estimated fair value. As there is no market for trading our employee stock options, we use the Black-Scholes

74


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


option-pricing model to calculate stock option fair values, which requires certain assumptions related to the expected life of the stock option, future stock price volatility, risk-free interest rate, and dividend yield. The expected life of the stock option is based on historical exercise and forfeiture patterns. Future stock price volatility is based on historical volatility of our common shares over the expected life of the stock option. The risk-free interest rate is based on the rate at the time of grant for U.S. or Canadian government bonds with a remaining term equal to the expected life of the stock option. Dividend yield is based on the stock option's exercise price and expected annual dividend rate at the time of grant. Changes to any of these assumptions, or the use of a different option-pricing model, such as the lattice model, could produce a different fair value for share-based compensation expense, which could have a material impact on our results of operations.

        We determine the fair value of each RSU granted based on the trading price of our common shares on the date of grant, unless the vesting of the RSU is conditional on the attainment of any applicable performance goals, in which case we use a Monte Carlo simulation model. The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that the performance condition will be achieved. Changes to any of these inputs could materially affect the measurement of the fair value of the performance-based RSUs.

NEW ACCOUNTING STANDARDS

Adoption of New Accounting Standards

        Information regarding the adoption of new accounting guidance is contained in note 2 to the 2010 Financial Statements.

Recently Issued Accounting Standards, Not Adopted as of December 31, 2010

        Effective January 1, 2011, we have adopted the provisions of the following new accounting standards:

        We are currently evaluating the effect that the adoption of these standards will have on our financial condition and results of operations.

International Financial Reporting Standards

        International Financial Reporting Standards ("IFRS") will replace Canadian standards and interpretations as Canadian GAAP effective January 1, 2011. Effective January 1, 2011, National Instrument 52-107, "Acceptable Accounting Principles and Auditing Standards", continues to allow Canadian public companies who are also SEC issuers the option to use U.S. GAAP. Accordingly, we currently intend to continue our practice of following U.S. GAAP in financial statements filed with the Canadian Securities Administrators ("CSA") and the SEC. We believe that U.S. GAAP financial statements afford better comparability with our U.S.-based industry peers.

FORWARD-LOOKING STATEMENTS

        Caution regarding forward-looking information and statements and "Safe-Harbor" statements under the U.S. Private Securities Litigation Reform Act of 1995:

        To the extent any statements made in this MD&A contain information that is not historical, these statements are 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, and may be forward-looking information within the meaning defined under applicable Canadian securities legislation (collectively, "forward-looking statements"). These forward looking statements relate to, among other things: the expected benefits of

75


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


the Merger, such as cost savings, operating synergies and growth potential of the Company; business plans and prospects, prospective products or product approvals, future performance or results of current and anticipated products; the impact of healthcare reform; exposure to foreign currency exchange rate changes and interest rate changes; the outcome of contingencies, such as certain litigation and regulatory proceedings; general market conditions; and our expectations regarding our financial performance, including revenues, expenses, gross margins, liquidity and income taxes.

        Forward-looking statements can generally be identified by the use of words such as "believe", "anticipate", "expect", "intend", "estimate", "plan", "continue", "will", "may", "could", "would", "target", "potential" and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements may not be appropriate for other purposes. Although we have indicated above certain of these statements set out herein, all of the statements in this MD&A that contain forward-looking statements are qualified by these cautionary statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, including, but not limited to, factors and assumptions regarding the items outlined above. Actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from these expectations include, among other things, the following:

76


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

        Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found elsewhere in this MD&A, as well as under Item 1A. "Risk Factors" of the 2010 Form 10-K, and in our other filings with the SEC and CSA. We caution that the foregoing list of important factors that may affect future results is not exhaustive. When relying on our forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. These forward-looking statements speak only as of the date made.

MANAGEMENT'S REPORT ON DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

Disclosure Controls and Procedures

        We performed an evaluation of the effectiveness of our disclosure controls and procedures that are designed to ensure that the material financial and non-financial information required to be disclosed on reports and filed or submitted with the SEC is recorded, processed, summarized, and reported in a timely manner. Based on our evaluation, our management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), has concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of December 31, 2010 are effective. Notwithstanding the foregoing, there can be no assurance that our disclosure controls and procedures will detect or uncover all failures of persons within the Company to disclose material information otherwise required to be set forth in our reports.

Internal Controls Over Financial Reporting

        Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal accounting controls systems are designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with management's authorization and are properly recorded, and that accounting records are adequate for preparation of financial statements in accordance with U.S. GAAP and other financial information.

        Under the supervision and with the participation of management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the

77


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under this framework, management concluded that our internal controls over financial reporting were effective as of December 31, 2010.

        The scope of management's assessment of the effectiveness of internal control over financial reporting includes all of the Company's consolidated operations except for the operations of Valeant, which represented 23% of the Company's consolidated revenues for the year ended December 31, 2010, and assets associated with Valeant's operations (excluding intangible assets, goodwill and other fair value adjustments arising from the acquisition accounting for Valeant) represented 11% of the Company's consolidated total assets as of December 31, 2010.

        The effectiveness of the Company's internal controls over financial reporting as of December 31, 2010 has been audited by Ernst & Young LLP, as stated in their report on page F-4 of the 2010 Form 10-K.

Changes in Internal Control Over Financial Reporting

        There were no changes in our internal controls over financial reporting identified in connection with the evaluation thereof by our management, including the CEO and CFO, during the quarter ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

78

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

        Information relating to quantitative and qualitative disclosures about market risk is detailed in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.

Item 8.    Financial Statements and Supplementary Data

        The information required by this Item is contained in the financial statements set forth in Item 15. "Exhibits, Financial Statement Schedules" under the caption "Consolidated Financial Statements and Supplementary Data" as part of this Form 10-K and is incorporated herein by reference.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        Prior to the Merger, Ernst & Young LLP ("E&Y") audited Biovail's historical financial statements and PricewaterhouseCoopers LLP ("PwC") audited Valeant's historical financial statements. On November 19, 2010, we notified E&Y and PwC that our Finance and Audit Committee (the "Audit Committee") determined to recommend to our board of directors that, at the Company's annual general meeting of shareholders in 2011, our board of directors recommend that shareholders appoint PwC as the Company's independent registered public accountant for the year ending December 31, 2011. E&Y has continued to serve as our independent registered public accountant engaged to audit our consolidated financial statements as of and for the year ending December 31, 2010.

        The audit report of E&Y on the consolidated financial statements of Biovail as of and for each of the two fiscal years ended December 31, 2009 and 2008 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles. The audit report of E&Y on our consolidated financial statements as of and for the year ending December 31, 2010 does not contain any adverse opinion or disclaimer of opinion, nor is it qualified or modified as to uncertainty, audit scope or accounting principle. During Biovail's fiscal years ended December 31, 2009 and 2008, and in the subsequent interim period from January 1, 2010 through November 19, 2010, the date E&Y was notified of the Audit Committee's decision to recommend that PwC be appointed as the Company's independent registered public accountant at the next annual general meeting of shareholders, and in the subsequent period following such date, (i) there were no disagreements with E&Y on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to E&Y's satisfaction, would have caused E&Y to make reference to the subject matter of the disagreement in connection with its report, and (ii) there were no reportable events of the type described in Item 304(a)(1)(v) of Regulation S-K.

Item 9A.    Controls and Procedures

        The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this annual report (the "Evaluation Date"). Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective.

Internal Control Over Financial Reporting

79

Item 9B.    Other Information

        None.

80


 PART III

Item 10.    Directors, Executive Officers and Corporate Governance

        Information required under this Item is incorporated herein by reference from information included in the 2011 Proxy Statement.

        The Board of Directors has adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, the principal accounting officer, controller, and all vice presidents and above in the finance department of the Company worldwide. A copy of the Code of Ethics can be found on our website at: www.valeant.com. We intend to satisfy the SEC disclosure requirements regarding amendments to, or waivers from, any provisions of our Code of Ethics on our website.

Item 11.    Executive Compensation

        Information required under this Item relating to executive compensation is incorporated herein by reference from information included in the 2011 Proxy Statement.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

        Information required under this Item relating to securities authorized for issuance under equity compensation plans and to security ownership of certain beneficial owners and management is incorporated herein by reference from information included in the 2011 Proxy Statement.

Item 13.    Certain Relationships and Related Transactions, and Director Independence

        Information required under this Item relating to certain relationships and transactions with related parties and about director independence is incorporated herein by reference from information included in the 2011 Proxy Statement.

Item 14.    Principal Accounting Fees and Services

        Information required under this Item relating to the fees for professional services rendered by our independent auditors in 2010 and 2009 is incorporated herein by reference from information included in the 2011 Proxy Statement.

81


 PART IV

Item 15.    Exhibits, Financial Statement Schedules

        Documents filed as a part of the report:

        (1) The consolidated financial statements required to be filed in the Annual Report on Form 10-K are listed on page F-1 hereof.

        (2) Schedule II — Valuation and Qualifying Accounts.


SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(All dollar amounts expressed in thousands of U.S. dollars)

 
   Balance at
Beginning
of Year 		  Charged to
Costs and
Expenses 		  Charged to
Other
Accounts 		  Deductions   Balance at
End of
Year 		 

Year ended December 31, 2010

                                

Allowance for doubtful accounts

   $ 2,437   $ 531   $ 7,138   $ (3,414 ) $ 6,692  

Allowance for inventory obsolescence

   $ 8,560   $ 6,356   $ 18,821   $ (5,672 ) $ 28,065  

Year ended December 31, 2009

                                

Allowance for doubtful accounts

   $ 1,179   $ 1,304   $ —   $ (46 ) $ 2,437  

Allowance for inventory obsolescence

   $ 10,343   $ 7,370   $ —   $ (9,153 ) $ 8,560  

Year ended December 31, 2008

                                

Allowance for doubtful accounts

   $ 1,217   $ (23 ) $ —   $ (15 ) $ 1,179  

Allowance for inventory obsolescence

   $ 13,792   $ 4,284   $ —   $ (7,733 ) $ 10,343  

        (3) Exhibits

82


 EXHIBIT INDEX

Exhibit
Number 		 
Exhibit Description
  2.1   Agreement and Plan of Merger, dated as of September 16, 2008, by and among Biovail Americas Corp., Prestwick Holdings, Inc., Prestwick Pharmaceuticals, Inc. and Sofinnova Management V 2005, LLC and Edgar G. Engleman, M.D., as the Stockholder Representatives, originally filed as Exhibit 2.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.**††

 
2.2
 
Asset Purchase Agreement, dated as of May 5, 2009, by and between Biovail Laboratories International SRL and SmithKline Beecham Corporation, originally filed as Exhibit 2.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.**††

 
2.3
 
Asset Purchase Agreement, dated as of May 16, 2009, between Cambridge Laboratories (Ireland) Limited and Biovail Laboratories International (Barbados) SRL (the "Cambridge Asset Purchase Agreement"), originally filed as Exhibit 2.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.**††

 
2.4
 
Amendment No. 1 to Cambridge Asset Purchase Agreement, dated as of June 19, 2009, between Cambridge Laboratories (Ireland) Limited and Biovail Laboratories International (Barbados) SRL, originally filed as Exhibit 2.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
2.5
 
Membership Interest Purchase Agreement, dated May 3, 2010, by and among Valeant, Princeton Pharma Holdings LLC and the other parties named therein, originally filed as Exhibit 2.1 to Valeant's Current Report on Form 8-K filed on June 2, 2010, which is incorporated by reference herein.**††

 
2.6
 
Agreement and Plan of Merger, dated as of June 20, 2010, among Valeant, the Company, Biovail Americas Corp. and Beach Merger Corp., originally filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on June 23, 2010, which is incorporated by reference herein.††

 
2.7
*
Stock Purchase Agreement, dated January 31, 2011, between Biovail International S.à.r.l. and the stockholders of PharmaSwiss SA.**††

 
2.8
*
Asset Purchase Agreement, dated February 2, 2011, between Biovail Laboratories International SRL and GlaxoSmithKline LLC.**††

 
2.9
 
Purchase Agreement, dated as of April 30, 2010, between Valeant and ValueAct Capital Master Fund, L.P., originally filed as Exhibit 99.1 to Valeant's Current Report on Form 8-K, filed May 3, 2010, which is incorporated by reference herein.††

 
2.10
*
Purchase Agreement, dated as of February 24, 2011, between the Company and ValueAct Capital Master Fund, L.P.††

 
3.1
 
Articles of Amendment to the Articles of Continuance of Biovail Corporation (now Valeant Pharmaceuticals International, Inc.), dated September 28, 2010, originally filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed on October 1, 2010, which is incorporated by reference herein.

 
3.2
 
Articles of Continuance of Biovail Corporation (now Valeant Pharmaceuticals International, Inc.), originally filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
3.3
 
Amended and Restated By-Law No. 1 of Biovail Corporation (now Valeant Pharmaceuticals International, Inc.), originally filed as Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

83

Exhibit
Number 		 
Exhibit Description
  3.4   By-Law No. 2 of Biovail Corporation (now Valeant Pharmaceuticals International, Inc.), originally filed as Exhibit 3.3 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
4.1
 
Indenture, dated November 19, 2003, between Valeant, Ribapharm Inc. and The Bank of New York Mellon Trust Company, N.A, as successor to The Bank of New York Mellon (formerly The Bank of New York), originally filed as Exhibit 4.3 to the Company's Current Report on Form 8-K filed on October 1, 2010, which is incorporated by reference herein.

 
4.2
 
First Supplemental Indenture dated as of September 27, 2010, and effective as of September 28, 2010, to the Indenture dated as of November 19, 2003, between Valeant, Ribapharm Inc. and The Bank of New York Mellon Trust Company, N.A, as successor to The Bank of New York Mellon (formerly the Bank of New York) (the "Convertible Notes Trustee"), between Valeant, the Company and the Convertible Notes Trustee, originally filed as Exhibit 4.2 to the Company's Current Report on Form 8-K filed on October 1, 2010, which is incorporated by reference herein.

 
4.3
 
Form of 4.0% Convertible Subordinated Notes due 2013, originally filed as Exhibit A-2 to Exhibit 4.1 to Valeant's Current Report on Form 8-K, originally filed November 25, 2003 (031023410), which is incorporated by reference herein.

 
4.4
 
Indenture, dated as of June 10, 2009, among the Company, The Bank of New York Mellon and BNY Trust Company of Canada, relating to the 5.375% Senior Convertible Notes due 2014, originally filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
4.5
 
Form of 5.375% Senior Convertible Notes due 2014, originally filed as Exhibit 4.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
4.6
 
Indenture, dated as of September 28, 2010, among Valeant, the Company, The Bank of New York Mellon Trust Company, N.A., as trustee, and the Guarantors listed therein, originally filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed on October 1, 2010, which is incorporated by reference herein.

 
4.7
 
Indenture, dated as of November 23, 2010, by and among Valeant, the Company, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee, originally filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed on November 26, 2010, which is incorporated by reference herein.

 
4.8
 
Indenture, dated as of February 8, 2011, by and among Valeant, the Company, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee, originally filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed on February 9, 2010, which is incorporated by reference herein.

 
10.1
†
Biovail Corporation 2007 Equity Compensation Plan (the "2007 Equity Compensation Plan") dated as of May 16, 2007, originally filed as Exhibit 10.49 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
10.2
†
Amendment No. 1 to the 2007 Equity Compensation Plan dated as of December 18, 2008, originally filed as Exhibit 10.50 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
10.3
†
Biovail Corporation Amended and Restated 2004 Stock Option Plan dated as of June 25, 2004 (the "2004 Stock Option Plan"), originally filed as Exhibit 10.51 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

84

Exhibit
Number 		 
Exhibit Description
  10.4 † Amendment to the 2004 Stock Option Plan dated March 14, 2007, originally filed as Exhibit 10.52 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
10.5
†
Amendment to the 2004 Stock Option Plan dated May 16, 2007, originally filed as Exhibit 10.53 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
10.6
†
Biovail Corporation Deferred Share Unit Plan for Canadian Directors, approved on May 3, 2005, as amended, originally filed as Exhibit 10.57 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
10.7
†
Biovail Corporation Deferred Share Unit Plan for U.S. Directors, approved on May 3, 2005, as amended and restated, originally filed as Exhibit 10.58 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
10.8
†
Biovail Americas Corp. Executive Deferred Compensation Plan, as amended and restated effective January 1, 2009, originally filed as Exhibit 10.60 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
10.9
†
Biovail Corporation Short-Term Incentive Plan, as amended and restated effective January 1, 2009, originally filed as Exhibit 10.61 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
10.10
†
Special Dividend Reinvestment Plan of the Company, originally filed as Exhibit 4.6 to the Company's Registration Statement on Form S-3 filed November 9, 2010, which is incorporated by reference herein.

 
10.11
†
Description of Valeant's annual incentive plan for fiscal year 2010, previously described in Item 5.02 of Valeant's Current Report on Form 8-K, filed January 11, 2010, which is incorporated by reference herein.

 
10.12
†
Employment Agreement, dated as of June 20, 2010, by and between the Company, Biovail Laboratories International SRL and J. Michael Pearson, originally filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed on June 23, 2010, which is incorporated by reference herein.

 
10.13
†
Employment Letter, dated November 11, 2010, between the Company and Rajiv De Silva, originally filed as Exhibit 10.1 of the Company's Current Report on Form 8-K filed on November 17, 2010, which is incorporated by reference herein.

 
10.14
†
Employment Letter, dated November 11, 2010, between the Company and Robert Chai-Onn, originally filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed on November 17, 2010, which is incorporated by reference herein.

 
10.15
†
Employment Letter, dated November 11, 2010, between the Company and Mark Durham, originally filed as Exhibit 10.4 to the Company's Current Report on Form 8-K filed on November 17, 2010, which is incorporated by reference herein.

 
10.16
†
Biovail Corporation Non-Executive Chairman and Biovail Laboratories International SRL President Agreement, dated as of June 20, 2010, among the Company, Biovail Laboratories International SRL and William M. Wells, originally filed as Exhibit 10.4 to the Company's Current Report on Form 8-K filed on June 23, 2010, which is incorporated by reference herein.

 
10.17
†
Separation Agreement between Valeant Pharmaceuticals International, Inc., and William M. Wells, originally filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 14, 2010, which is incorporated by reference herein.

85

Exhibit
Number 		 
Exhibit Description
  10.18 † Separation Agreement between Valeant Pharmaceuticals International, Inc., Biovail Laboratories International SRL, and William M. Wells, originally filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on December 14, 2010, which is incorporated by reference herein.

 
10.19
†
Employment Letter, dated November 11, 2010, between the Company and Margaret Mulligan, originally filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on November 17, 2010, which is incorporated by reference herein.

 
10.20
†
Separation Agreement, dated December 20, 2010, between the Company and Margaret Mulligan, originally filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 27, 2010, which is incorporated by reference herein.

 
10.21
†
Consulting Agreement, dated December 23, 2010, between the Company and Margaret Mulligan, originally filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on December 27, 2010, which is incorporated by reference herein.

 
10.22
†
Amended and Restated Employment Agreement of Gilbert Godin effective July 3, 2009, originally filed as Exhibit 10.41 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
10.23
†
Employment Agreement of Gregory Gubitz effective July 3, 2009, originally filed as Exhibit 10.42 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
10.24
 
Credit and Guaranty Agreement, dated as of September 27, 2010, among Valeant, the Company, and certain subsidiaries of the Company, as Guarantors, each of the lenders named therein, Goldman Sachs Lending Partners LLC ("GSLP"), Morgan Stanley Senior Funding, Inc. and Jefferies Finance LLC, as Joint Lead Arrangers, Joint Bookrunners and Syndication Agents, GSLP, as Administrative Agent and Collateral Agent, and each of Bank of America, N.A., DnB NOR Bank ASA, SunTrust Bank and The Bank of Nova Scotia, as Documentation Agent (the "Credit Agreement"), originally filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 1, 2010, which is incorporated by reference herein.

 
10.25
*
Amendment No. 1 to the Credit Agreement, dated December 31, 2010.

 
10.26
 
Counterpart Agreement, dated as of September 28, 2010, between the Company and Goldman Sachs Lending Partners LLC, as Administrative Agent and Collateral Agent, originally filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on October 1, 2010, which is incorporated by reference herein.

 
10.27
 
Credit and Guaranty Agreement, dated as of May 26, 2010, among Valeant, the guarantors named therein, Goldman Sachs Bank USA and the other parties named therein, originally filed as Exhibit 10.1 to Valeant's Current Report on Form 8-K filed on June 2, 2010, which is incorporated by reference herein.††

 
10.28
 
Pledge and Security Agreement, dated May 26, 2010, by and among Valeant, Goldman Sachs Bank USA and the other grantors named therein, originally filed as Exhibit 10.2 to Valeant's Current Report on Form 8-K filed on June 2, 2010, which is incorporated by reference herein.††

 
10.29
 
Credit Agreement, dated as of June 9, 2009, among the Company, JPMorgan Chase Bank, N.A., Toronto Branch, J.P. Morgan Securities Inc. and Scotia Capital Inc., The Bank of Nova Scotia and National Bank of Canada and HSBC Bank Canada and The Toronto-Dominion Bank, originally filed as Exhibit 10.36 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.**

86

Exhibit
Number 		 
Exhibit Description
  10.30   Trademark License Agreement, dated as of May 14, 2009, by and between SmithKline Beecham Corporation and Biovail Laboratories International SRL, originally filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.**

 
10.31
*
Trademark and Domain Name License Agreement, dated as of February 22, 2011, by and between GlaxoSmithKline LLC and Biovail Laboratories International SRL.

 
10.32
 
License Agreement, dated as of February 9, 2007, among GlaxoSmithKline, PLC, SmithKline Beecham Corporation and Andrx Pharmaceuticals LLC, originally filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.**

 
10.33
 
Plea Agreement and Side Letter, dated as of May 16, 2008, between United States Attorney for the District of Massachusetts and Biovail Pharmaceuticals, Inc., originally filed as Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
10.34
 
Corporate Integrity Agreement, dated as of September 11, 2009, between the Company and the Office of Inspector General of the Department of Health and Human Services, originally filed as Exhibit 10.31 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
10.35
 
Settlement Agreement, dated as of September 11, 2009, among the United States of America, United States Department of Justice, Office of Inspector General of the Department of Health and Human Services and the Company, originally filed as Exhibit 10.32 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
10.36
 
Securities Litigation, Stipulation and Agreement of Settlement, dated as of April 4, 2008, between the United States District Court, Southern District of New York and the Company, originally filed as Exhibit 10.33 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
10.37
 
Settlement Agreement, dated January 7, 2009, between Staff of the Ontario Securities Commission and the Company, originally filed as Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
10.38
 
Settlement Agreement, dated March 2008, between the U.S. Securities and Exchange Commission and the Company, originally filed as Exhibit 10.35 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which is incorporated by reference herein.

 
10.39
 
Commitment Letter, dated as of June 20, 2010, among Valeant, the Company, Goldman Sachs Lenders Partners LLC, Goldman Sachs Bank USA, Morgan Stanley Senior Funding, Inc. and Jefferies Finance LLC, originally filed as Exhibit 10.1 of the Company's Current Report on Form 8-K filed on June 23, 2010, which is incorporated by reference herein.

 
10.40
 
Voting Agreement, dated as of June 20, 2010, among Valeant, the Company and ValueAct, Inc., originally filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on June 23, 2010, which is incorporated by reference herein.

 
10.41
 
Asset Purchase Agreement, dated as of January 22, 2004, by and between Xcel Pharmaceuticals, Inc. and VIATRIS GmbH and Co. KG., originally filed as Exhibit 10.7 to Valeant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (05816114), which is incorporated by reference herein.**††

87

Exhibit
Number 		 
Exhibit Description
  10.42   License and Collaboration Agreement, dated as of August 27, 2008, between Valeant Pharmaceuticals North America and Glaxo Group Limited (the "GSK Retigabine Agreement"), originally filed as Exhibit 10.1 to Valeant's Current Report on Form 8-K/A, filed August 29, 2008, which is incorporated by reference herein.**

 
10.43
 
First Amendment to the GSK Retigabine Agreement, dated as of February 10, 2009, between Valeant Pharmaceuticals North America and Glaxo Group Limited, originally filed as Exhibit 10.35 to Valeant's Annual Report on Form 10-K for the year ended December 31, 2008, which is incorporated by reference herein.**

 
10.44
*†
Form of Stock Option Grant Notice and Form of Stock Option Grant Agreement under the 2007 Equity Compensation Plan.

 
10.45
*†
Form of Unit Grant Notice and Form of Unit Grant Agreement under the 2007 Equity Compensation Plan.

 
10.46
*†
Form of Unit Grant Notice (Performance Vesting) and Form of Unit Grant Agreement (Performance Vesting) under the 2007 Equity Compensation Plan.

 
14.1
*
Valeant Pharmaceuticals International, Inc. — Code of Ethics for the Chief Executive Officer and Senior Finance Executives.

 
16.1
 
Letter, dated November 26, 2010, from Ernst & Young LLP, originally filed as Exhibit 16.1 of the Company's Current Report on Form 8-K filed on November 26, 2010, which is incorporated by reference herein.

 
21.1
*
Subsidiaries of Valeant Pharmaceuticals International, Inc.

 
23.1
*
Consent of Ernst & Young LLP.

 
31.1
*
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 
31.2
*
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 
32.1
*
Certificate of the Chief Executive Officer of Valeant Pharmaceuticals International, Inc. pursuant to 18 U.S.C. § 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
32.2
*
Certificate of the Chief Financial Officer of Valeant Pharmaceuticals International, Inc. pursuant to 18 U.S.C. § 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*
Filed herewith.

**
Portions of this exhibit have been omitted pursuant to an application for confidential treatment. Such information has been omtted and filed separately with the SEC.

†
Management contract or compensatory plan or arrangement.

††
One or more exhibits or schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. We undertake to furnish supplementally a copy of any omitted exhibit or schedule to the SEC upon request.

88


 SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
(Registrant)

Date: February 28, 2011
 
By:
 
/s/ J. MICHAEL PEARSON
 J. Michael Pearson
 Chief Executive Officer
(Principal Executive Officer)

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 
Signature
 
Title
 
Date

 
 
 
 
 
 
  /s/ ROBERT A. INGRAM
 Robert A. Ingram		   Chairman of the Board   February 28, 2011

 
/s/ J. MICHAEL PEARSON
 J. Michael Pearson
 
Chief Executive Officer and Director
 
February 28, 2011

 
/s/ PHILIP W. LOBERG
 Philip W. Loberg
 
Executive Vice-President, Interim Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
 
February 28, 2011

 
/s/ THEO MELAS-KYRIAZI
 Theo Melas-Kyriazi
 
Director
 
February 28, 2011

 
/s/ G. MASON MORFIT
 G. Mason Morfit
 
Director
 
February 28, 2011

 
/s/ DR. LAURENCE E. PAUL
 Dr. Laurence E. Paul
 
Director
 
February 28, 2011

 
/s/ ROBERT N. POWER
 Robert N. Power
 
Director
 
February 28, 2011

 
/s/ NORMA A. PROVENCIO
 Norma A. Provencio
 
Director
 
February 28, 2011

89

 
Signature
 
Title
 
Date

 
 
 
 
 
 
  /s/ LLOYD M. SEGAL
 Lloyd M. Segal		   Director   February 28, 2011

 
/s/ KATHARINE B. STEVENSON
 Katharine B. Stevenson
 
Director
 
February 28, 2011

 
/s/ MICHAEL R. VAN EVERY
 Michael R. Van Every
 
Director
 
February 28, 2011

90

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
   Page

Report of Management on Financial Statements and Internal Control Over Financial Reporting

   F-2

Report of Independent Registered Public Accounting Firm

   F-3

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

   F-4

Consolidated Balance Sheets as of December 31, 2010 and 2009

   F-5

Consolidated Statements of Income (Loss) for the years ended December 31, 2010, 2009 and 2008

   F-6

Consolidated Statements of Shareholders' Equity for the years ended December 31, 2010, 2009 and 2008

   F-7

Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008

   F-8

Notes to Consolidated Financial Statements

   F-9

F-1

Table of Contents


REPORT OF MANAGEMENT ON FINANCIAL STATEMENTS
AND INTERNAL CONTROL OVER FINANCIAL REPORTING

Financial Statements

        The Company's management is responsible for preparing the accompanying consolidated financial statements in conformity with United States generally accepted accounting principles ("U.S. GAAP"). In preparing these consolidated financial statements, management selects appropriate accounting policies and uses its judgment and best estimates to report events and transactions as they occur. Management has determined such amounts on a reasonable basis in order to ensure that the consolidated financial statements are presented fairly, in all material respects. Financial information included throughout this Annual Report is prepared on a basis consistent with that of the accompanying consolidated financial statements.

        Ernst & Young LLP has been engaged by the Company's shareholders to audit the consolidated financial statements.

        The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and is ultimately responsible for reviewing and approving the consolidated financial statements. The Board of Directors carries out this responsibility principally through its Finance and Audit Committee. The members of the Finance and Audit Committee are outside Directors. The Finance and Audit Committee considers, for review by the Board of Directors and approval by the shareholders, the engagement or reappointment of the external auditors. Ernst & Young LLP has full and free access to the Finance and Audit Committee.

        Management acknowledges its responsibility to provide financial information that is representative of the Company's operations, is consistent and reliable, and is relevant for the informed evaluation of the Company's activities.

Internal Control Over Financial Reporting

        The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal accounting controls systems are designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with management's authorization and are properly recorded, and that accounting records are adequate for preparation of financial statements in accordance with U.S. GAAP and other financial information.

        Under the supervision and with the participation of management, including the Company's Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under this framework, management concluded that the Company's internal controls over financial reporting were effective as of December 31, 2010.

        The scope of management's assessment of the effectiveness of internal control over financial reporting includes all of the Company's consolidated operations except for the operations of Valeant Pharmaceuticals International ("Valeant"), which the Company acquired on September 28, 2010. Valeant's operations represented 23% of the Company's consolidated revenues for the year ended December 31, 2010, and assets associated with Valeant's operations (excluding intangible assets, goodwill and other fair value adjustments arising from the acquisition accounting for Valeant) represented 11% of the Company's consolidated total assets as of December 31, 2010.

        The effectiveness of the Company's internal control over financial reporting as of December 31, 2010 has been audited by Ernst & Young LLP, as stated in their report on page F-4 herein.

/s/ J. MICHAEL PEARSON   /s/ PHILIP W. LOBERG
J. Michael Pearson
Chief Executive Officer		   Philip W. Loberg
Executive Vice President and
Interim Chief Financial Officer

February 28, 2011

F-2

Table of Contents


 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Valeant Pharmaceuticals International, Inc.

        We have audited the accompanying consolidated balance sheets of Valeant Pharmaceuticals International, Inc., formerly Biovail Corporation, as of December 31, 2010 and 2009, and the related consolidated statements of income (loss), shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule II included in Item 15. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Valeant Pharmaceuticals International, Inc. at December 31, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with United States generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Valeant Pharmaceuticals International, Inc.'s internal control over financial reporting as of December 31, 2010, based on criteria established in the Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2011 expressed an unqualified opinion thereon.


 
 
/s/ ERNST & YOUNG LLP
Toronto, Canada,
February 28, 2011		   Chartered Accountants
Licensed Public Accountants

F-3

Table of Contents


 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Board of Directors and Shareholders of

Valeant Pharmaceuticals International, Inc.

        We have audited internal control over financial reporting of Valeant Pharmaceuticals International, Inc., formerly Biovail Corporation, as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the "COSO" criteria). Valeant Pharmaceuticals International, Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

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

        In our opinion, Valeant Pharmaceuticals International, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the COSO criteria.

        As indicated in the accompanying Management's Report on Internal Control Over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Valeant Pharmaceuticals International ("Valeant"), which is included in the 2010 consolidated financial statements of Valeant Pharmaceuticals International, Inc. Valeant's operations represented 23% of the Company's consolidated revenues for the year ended December 31, 2010, and assets associated with Valeant's operations (excluding intangible assets, goodwill and other fair value adjustments arising from the acquisition accounting for Valeant) represented 11% of the Company's consolidated total assets as of December 31, 2010. Our audit of internal control over financial reporting of Valeant Pharmaceuticals International, Inc. also did not include an evaluation of the internal control over financial reporting of Valeant Pharmaceuticals International.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of Valeant Pharmaceuticals International, Inc. as of December 31, 2010 and 2009, and the related consolidated statements of income (loss), shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2010, and our report dated February 28, 2011, expressed an unqualified opinion thereon.


 
 
/s/ ERNST & YOUNG LLP
Toronto, Canada,
February 28, 2011		   Chartered Accountants
Licensed Public Accountants

F-4

Table of Contents

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(All dollar amounts expressed in thousands of U.S. dollars)

 
   As of December 31  
 
   2010   2009  

Assets

              

Current assets:

              
 

Cash and cash equivalents

   $ 394,269   $ 114,463  
 

Marketable securities

     6,083     9,566  
 

Accounts receivable, net

     274,819     112,165  
 

Inventories, net

     229,582     82,773  
 

Prepaid expenses and other current assets

     26,088     15,377  
 

Assets held for sale

     4,014     8,542  
 

Income taxes receivable

     8,243     —  
 

Deferred tax assets, net

     77,068     —  
           
 

Total current assets

     1,020,166     342,886  

Marketable securities

     2,083     11,516  

Property, plant and equipment, net

     281,752     103,848  

Intangible assets, net

     6,372,780     1,335,222  

Goodwill

     3,001,376     100,294  

Deferred tax assets, net

     80,085     132,800  

Other long-term assets, net

     36,875     32,724  
           
 

Total assets

   $ 10,795,117   $ 2,059,290  
           

Liabilities

              

Current liabilities:

              
 

Accounts payable

   $ 101,324   $ 72,022  
 

Dividends payable

     —     14,246  
 

Accrued liabilities

     442,114     122,094  
 

Income taxes payable

     9,153     6,846  
 

Deferred revenue

     21,520     21,834  
 

Current portion of long-term debt

     116,900     12,110  
 

Liabilities for uncertain tax positions

     646     —  
 

Deferred tax liabilities, net

     799     —  
           
 

Total current liabilities

     692,456     249,152  

Deferred revenue

     50,021     69,247  

Long-term debt

     3,478,377     313,975  

Liabilities for uncertain tax positions

     96,102     66,200  

Deferred tax liabilities, net

     1,436,743     —  

Other long-term liabilities

     130,322     6,344  
           
 

Total liabilities

     5,884,021     704,918  
           

Shareholders' Equity

              

Common shares, no par value, unlimited shares authorized, 302,448,934 and 158,310,884 issued and outstanding at December 31, 2010 and 2009, respectively

     5,251,730     1,465,004  

Additional paid-in capital

     495,041     91,768  

Accumulated deficit

     (934,511 )   (245,974 )

Accumulated other comprehensive income

     98,836     43,574  
           
 

Total shareholders' equity

     4,911,096     1,354,372  
           
 

Total liabilities and shareholders' equity

   $ 10,795,117   $ 2,059,290  
           

Commitments and contingencies (notes 24, 25 and 27)

              

On behalf of the Board:


/s/ J. MICHAEL PEARSON
 J. Michael Pearson
 
/s/ MICHAEL R. VAN EVERY
 Michael R. Van Every
Chief Executive Officer   Chairperson, Finance and Audit Committee

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

F-5

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(All dollar amounts expressed in thousands of U.S. dollars, except per share data)

 
   Years Ended December 31  
 
   2010   2009   2008  

Revenues

                    

Product sales

   $ 1,133,371   $ 789,026   $ 714,548  

Alliance and royalty

     35,109     15,418     16,119  

Service and other

     12,757     15,986     26,511  
               

    1,181,237     820,430     757,178  
               

Expenses

                    

Cost of goods sold (exclusive of amortization of intangible assets shown separately below)

     395,595     204,309     197,167  

Cost of services

     10,155     13,849     23,033  

Research and development

     68,311     47,581     69,811  

Selling, general and administrative

     276,546     167,633     188,922  

Amortization of intangible assets

     219,758     104,730     51,369  

Restructuring and other costs

     140,840     30,033     70,202  

Acquired in-process research and development

     89,245     59,354     —  

Legal settlements

     52,610     6,191     32,565  

Acquisition-related costs

     38,262     5,596     —  
               

    1,291,322     639,276     633,069  
               

Operating income (loss)

     (110,085 )   181,154     124,109  

Interest income

     1,294     1,118     9,400  

Interest expense

     (84,307 )   (24,881 )   (1,018 )

Write-down of deferred financing costs

     (5,774 )   (537 )   —  

Foreign exchange and other

     574     507     (1,057 )

Loss on extinguishment of debt

     (32,413 )   —     —  

Gain (loss) on investments, net

     (5,552 )   17,594     (4,530 )
               

Income (loss) before recovery of income taxes

     (236,263 )   174,955     126,904  

Recovery of income taxes

     (28,070 )   (1,500 )   (73,000 )
               

Net income (loss)

   $ (208,193 ) $ 176,455   $ 199,904  
               

Basic and diluted earnings (loss) per share

   $ (1.06 ) $ 1.11   $ 1.25  
               

Weighted-average common shares (000's)

                    

Basic

     195,808     158,236     159,730  

Diluted

     195,808     158,510     159,730  
               

Cash dividends declared per share

   $ 1.280   $ 0.645   $ 1.500  
               

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

F-6

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(All dollar amounts expressed in thousands of U.S. dollars)

 
   Common Shares    
    
    
    
  
 
    
    
   Accumulated
Other
Comprehensive
Income 		   
  
 
   Shares
(000s) 		  Amount   Additional
Paid-In
Capital 		  Accumulated
Deficit 		  Total  

Balance, January 1, 2008

     161,024   $ 1,489,807   $ 23,925   $ (278,495 ) $ 62,582   $ 1,297,819  

Repurchase of common shares

     (2,818 )   (26,077 )   —     (3,765 )   —     (29,842 )

Common shares issued under share-based compensation plans

     10     143     (143 )   —     —     —  

Share-based compensation

     —     —     7,906     —     —     7,906  

Cash dividends declared and dividend equivalents ($1.50 per share)

     —     —     278     (239,896 )   —     (239,618 )

Cumulative effect adjustment

     —     —     —     2,343     —     2,343  
                           

    158,216     1,463,873     31,966     (519,813 )   62,582     1,038,608  
                           

Comprehensive income:

                                      
 

Net income

     —     —     —     199,904     —     199,904  
 

Other comprehensive loss

     —     —     —     —     (36,913 )   (36,913 )
                           

Total comprehensive income

                                   162,991  
                           

Balance, December 31, 2008

     158,216     1,463,873     31,966     (319,909 )   25,669     1,201,599  
                           

Equity component of 5.375% Convertible Notes, net of issuance costs

     —     —     53,995     —     —     53,995  

Common shares issued under share-based compensation plans

     95     1,131     (265 )   —     —     866  

Share-based compensation

     —     —     5,613     —     —     5,613  

Cash dividends declared and dividend equivalents ($0.645 per share)

     —     —     459     (102,520 )   —     (102,061 )
                           

    158,311     1,465,004     91,768     (422,429 )   25,669     1,160,012  
                           

Comprehensive income:

                                      
 

Net income

     —     —     —     176,455     —     176,455  
 

Other comprehensive income

     —     —     —     —     17,905     17,905  
                           

Total comprehensive income

                                   194,360  
                           

Balance, December 31, 2009

     158,311     1,465,004     91,768     (245,974 )   43,574     1,354,372  
                           

Acquisition of Valeant, equity issued

     139,267     3,710,888     169,413     —     —     3,880,301  

Fair value of equity component of Valeant 4.0% Convertible Notes and call options

     —     —     253,971     —     —     253,971  

Equity settlement and reclassification of call options

     145     3,602     (38,224 )   1,928     —     (32,694 )

Repurchase of equity component of 5.375% Convertible Notes

     —     —     (20,444 )   (111,279 )   —     (131,723 )

Common shares issued under share-based compensation plans

     6,959     110,513     (52,088 )   —     —     58,425  

Employee withholding taxes related to share-based awards

     —     —     (14,485 )   —     —     (14,485 )

Repurchase of common shares

     (2,305 )   (40,442 )   —     (19,688 )   —     (60,130 )

Share-based compensation

     —     —     98,033     —     —     98,033  

Cash dividends declared and dividend equivalents ($1.28 per share)

     —     —     7,097     (349,140 )   —     (342,043 )

Cash dividends reinvested through dividend reinvestment plan

     72     2,165     —     (2,165 )   —     —  
                           

    302,449     5,251,730     495,041     (726,318 )   43,574     5,064,027  
                           

Comprehensive loss:

                                      
 

Net loss

     —     —     —     (208,193 )   —     (208,193 )
 

Other comprehensive income

     —     —     —     —     55,262     55,262  
                           

Total comprehensive loss

                                   (152,931 )
                           

Balance, December 31, 2010

     302,449   $ 5,251,730   $ 495,041   $ (934,511 ) $ 98,836   $ 4,911,096  
                           

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

F-7

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(All dollar amounts expressed in thousands of U.S. dollars)

 
   Years Ended December 31  
 
   2010   2009   2008  

Cash Flows From Operating Activities

                    

Net income (loss)

   $ (208,193 ) $ 176,455   $ 199,904  

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

                    
 

Depreciation and amortization

     254,504     149,260     102,905  
 

Amortization of deferred revenue

     (19,101 )   (21,201 )   (18,246 )
 

Amortization and write-down of discounts on long-term debt

     11,169     5,986     —  
 

Amortization and write-down of deferred financing costs

     10,303     3,620     520  
 

Acquired in-process research and development

     89,245     59,354     —  
 

Acquisition accounting adjustment on inventory sold

     53,266     —     —  
 

Allowances for losses on accounts receivable and inventories

     6,887     8,674     4,261  
 

Deferred income taxes

     (55,403 )   (16,000 )   (90,000 )
 

Additions to accrued legal settlements

     52,610     6,191     32,565  
 

Payment of accrued legal settlements

     (44,450 )   (30,806 )   (93,048 )
 

Share-based compensation

     98,033     5,613     7,906  
 

Impairment and other charges

     11,603     24,937     69,056  
 

Payment of accreted interest on repurchase of 5.375% Convertible Notes

     (4,934 )   —     —  
 

Loss on extinguishment of debt

     30,716     —     —  
 

Gain on disposal of investments

     —     (804 )   (6,534 )
 

Accrued contract costs

     —     —     (45,065 )
 

Other

     (1,200 )   (177 )   806  
 

Changes in operating assets and liabilities:

                    
   

Accounts receivable

     25,187     (26,998 )   26,654  
   

Inventories

     7,463     (33,582 )   16,293  
   

Prepaid expenses and other current assets

     7,394     (796 )   318  
   

Accounts payable

     (76,100 )   30,771     (6,135 )
   

Accrued liabilities

     26,732     32,780     4,572  
   

Income taxes payable

     (9,723 )   726     8,700  
   

Deferred revenue

     (2,817 )   (13,106 )   (11,107 )
               

Net cash provided by operating activities

     263,191     360,897     204,325  
               

Cash Flows From Investing Activities

                    

Acquisition of Valeant, net cash acquired

     308,982     —     —  

Acquisitions, net of cash acquired

     (84,532 )   (761,829 )   (101,920 )

Additions to property, plant and equipment

     (16,823 )   (7,423 )   (21,999 )

Proceeds from sale of assets

     15,046     28,302     —  

Proceeds from sales and maturities of marketable securities

     7,965     1,078     4,450  

Additions to marketable securities

     —     (3,823 )   (6,290 )

Proceeds on disposal of investments, net of costs

     —     —     25,216  

Other

     (1,699 )   923     (7,288 )
               

Net cash provided by (used in) investing activities

     228,939     (742,772 )   (107,831 )
               

Cash Flows From Financing Activities

                    

Issuance of long-term debt

     992,400     350,000     —  

Repayment of long-term debt

     (537,500 )   —     —  

Cash dividends paid

     (356,291 )   (147,146 )   (180,287 )

Repurchase of 5.375% Convertible Notes

     (254,316 )   —     —  

Repurchase of common shares

     (60,130 )   —     (29,842 )

Proceeds from exercise of stock options

     58,425     866     —  

Cash settlement of call options

     (37,682 )   —     —  

Payment of employee withholding tax upon vesting of share-based awards

     (14,485 )   —     —  

Financing costs paid

     (4,565 )   (26,274 )   —  

Advances under credit facilities

     —     130,000     —  

Repayments under credit facilities

     —     (130,000 )   —  

Other

     861     (399 )   (182 )
               

Net cash provided by (used in) financing activities

     (213,283 )   177,047     (210,311 )
               

Effect of exchange rate changes on cash and cash equivalents

     959     1,744     (2,277 )
               

Net increase (decrease) in cash and cash equivalents

     279,806     (203,084 )   (116,094 )

Cash and cash equivalents, beginning of year

     114,463     317,547     433,641  
               

Cash and cash equivalents, end of year

   $ 394,269   $ 114,463   $ 317,547  
               

Non-Cash Investing and Financing Activities

                    

Acquisition of Valeant, equity issued

   $ (3,880,301 ) $ —   $ —  

Acquisition of Valeant, debt assumed

     (2,913,614 )   —     —  

Cash dividends declared but unpaid

     —     (14,246 )   (59,331 )

Long-term debt related to acquisition of business

     —     (26,768 )   —
 		 

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

F-8

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

1.     DESCRIPTION OF BUSINESS

2.     SIGNIFICANT ACCOUNTING POLICIES

F-9

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

2.     SIGNIFICANT ACCOUNTING POLICIES (Continued)

  Buildings   20 - 40 years
  Machinery and equipment   3 - 20 years
  Other equipment   3 - 10 years
  Leasehold improvements and capital leases   Lesser of term of lease or 10 years

F-10

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

2.     SIGNIFICANT ACCOUNTING POLICIES (Continued)

  Product brands   5 - 25 years
  Corporate brands   20 years
  Product rights   5 - 20 years
  Outlicensed technology and other   5 - 10 years

F-11

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

2.     SIGNIFICANT ACCOUNTING POLICIES (Continued)

F-12

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

2.     SIGNIFICANT ACCOUNTING POLICIES (Continued)

F-13

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

2.     SIGNIFICANT ACCOUNTING POLICIES (Continued)

F-14

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

2.     SIGNIFICANT ACCOUNTING POLICIES (Continued)

F-15

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

3.     BIOVAIL MERGER WITH VALEANT

 
(Number of shares, stock options and restricted
share units in thousands)
  Conversion
Calculation 		  Fair
Value 		  Form of
Consideration
 

Number of common shares of Biovail issued in exchange for Valeant common stock outstanding as of the Merger Date

     139,137          
 

Multiplied by Biovail's stock price as of the Merger Date(a)

   $ 26.35   $ 3,666,245   Common shares
                 
 

Number of common shares of Biovail expected to be issued pursuant to vested Valeant RSUs as a result of the Merger

     1,694          
 

Multiplied by Biovail's stock price as of the Merger date(a)

   $ 26.35     44,643   Common shares
                 
 

Fair value of vested and partially vested Valeant stock options converted into Biovail stock options

           110,687   Stock options(b)
 

Fair value of vested and partially vested Valeant RSUs converted into Biovail RSUs

           58,726   RSUs(c)
 

Cash consideration paid and payable

           51,739   Cash(d)
                 
 

Total fair value of consideration transferred

         $ 3,932,040    
                 

F-16

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

3.     BIOVAIL MERGER WITH VALEANT (Continued)

Expected volatility

     32.9%  

Expected life

     3.4 years  

Risk-free interest rate

     1.1%  

Expected dividend yield

     1.5%  

F-17

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

3.     BIOVAIL MERGER WITH VALEANT (Continued)

   
   Amounts
Recognized as of
Merger Date
(as previously
reported)(a) 		  Measurement
Period
Adjustments(b) 		  Amounts
Recognized as of
Merger Date
(as adjusted) 		 
 

Cash and cash equivalents

   $ 348,637     —   $ 348,637  
 

Accounts receivable(c)

     194,930     —     194,930  
 

Inventories(d)

     208,874     —     208,874  
 

Other current assets(e)

     33,460     (2,591 )   30,869  
 

Property, plant and equipment(f)

     184,757     —     184,757  
 

Identifiable intangible assets, excluding in-process research and development(g)

     3,844,310     —     3,844,310  
 

In-process research and development(h)

     1,399,956     5,000     1,404,956  
 

Other non-current assets

     5,905     203     6,108  
 

Current liabilities(i)

     (384,223 )   (1,351 )   (385,574 )
 

Long-term debt, including current portion(j)

     (2,913,614 )   —     (2,913,614 )
 

Deferred income taxes, net(k)

     (1,472,321 )   4,530     (1,467,791 )
 

Other non-current liabilities(l)

     (140,397 )   (8,910 )   (149,307 )
                 
 

Total indentifiable net assets

     1,310,274     (3,119 )   1,307,155  
                 
 

Equity component of 4.0% Convertible Notes(j)

     (225,971 )   —     (225,971 )
 

Call option agreements(m)

     (28,000 )   —     (28,000 )
 

Goodwill(n)

     2,863,653     15,203     2,878,856  
                 
 

Total fair value of consideration transferred

   $ 3,919,956   $ 12,084   $ 3,932,040  
                 

F-18

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

3.     BIOVAIL MERGER WITH VALEANT (Continued)

   
   Useful Lives
(Years) 		  Amounts
Recognized as of
Merger Date 		 
 

Land

   NA   $ 23,248  
 

Buildings

   Up to 40     75,008  
 

Machinery and equipment

   3-20     64,516  
 

Other equipment

   3-10     11,003  
 

Leasehold improvements

   Term of lease     3,728  
 

Construction in progress

   NA     7,254  
             
 

Total property, plant and equipment acquired

       $ 184,757  
             
   
   Weighted-
Average
Useful Lives
(Years) 		  Amounts
Recognized as of
Merger Date 		 
 

Product brands

     16   $ 3,114,689  
 

Corporate brands

     20     168,602  
 

Product rights

     9     360,970  
 

Out-licensed technology and other

     7     200,049  
               
 

Total identifiable intangible assets acquired

     15   $ 3,844,310  
               
   
   Amounts
Recognized as of
Merger Date 		 
 

Ezogabine/retigabine

   $ 891,461  
 

Dermatology products

     431,323  
 

Other

     82,172  
         
 

Total IPR&D assets acquired

   $ 1,404,956  
         

F-19

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

3.     BIOVAIL MERGER WITH VALEANT (Continued)

   
   Amounts
Recognized as of
Merger Date 		 
 

Term Loan A Facility

   $ 1,000,000  
 

Term Loan B Facility

     500,000  
 

2017 Notes

     497,500  
 

2020 Notes

     695,625  
 

4.0% Convertible Notes

     220,489  
         
 

Total long-term debt assumed

   $ 2,913,614  
         

F-20

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

3.     BIOVAIL MERGER WITH VALEANT (Continued)

   
   2010   2009  
 

Revenues

   $ 1,928,034   $ 1,650,891  
 

Net income (loss)

     (55,316 )   57,730  

F-21

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

3.     BIOVAIL MERGER WITH VALEANT (Continued)

4.     ACQUISITIONS

F-22

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

4.     ACQUISITIONS (Continued)

F-23

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

4.     ACQUISITIONS (Continued)

 

Inventory

   $ 1,068  
 

Intangible assets:

        
   

Product rights

     189,700  
   

Acquired IPR&D

     36,000  
         
 

Assets acquired

   $ 226,768  
         

F-24

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

4.     ACQUISITIONS (Continued)

 

Current assets (excluding cash acquired)

   $ 2,166  
 

Intangible assets

     157,862  
 

Current liabilities (excluding deferred revenue)

     (8,108 )
 

Deferred revenue:

        
   

Current

     (3,000 )
   

Long-term

     (47,000 )
         
 

Net assets acquired

   $ 101,920  
         

5.     COLLABORATION AGREEMENT

F-25

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

5.     COLLABORATION AGREEMENT (Continued)

6.     RESTRUCTURING AND INTEGRATION

   
   Employee Termination Costs    
    
    
  
   
    
   Contract
Termination, Facility
Closure and Other
Costs 		   
  
   
   Severance and
Related Benefits 		  Share-Based
Compensation 		  IPR&D
Termination
Costs(1) 		  Total  
 

Costs incurred and charged to expense

   $ 58,727   $ 49,482   $ 13,750   $ 12,862   $ 134,821  
 

Cash payments

     (33,938 )   —     (13,750 )   (8,755 )   (56,443 )
 

Non-cash adjustments

     —     (49,482 )   —     (2,437 )   (51,919 )
                         
 

Balance, December 31, 2010

   $ 24,789   $ —   $ —   $ 1,670   $ 26,459  
                         

F-26

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

6.     RESTRUCTURING AND INTEGRATION (Continued)

 

Stock options and time-based RSUs held by Biovail employees with employment agreements

   $ 9,622  
 

Stock options held by Biovail employees without employment agreements

     (492 )
 

Performance-based RSUs held by Biovail executive officers and selected employees

     20,287  
 

Stock options and RSUs held by former executive officers of Valeant

     20,065  
         
 

  $ 49,482  
         
 
Program
  Counterparty   Compound   Contingent
Milestone
Obligations
Terminated(1) 		  IPR&D
Termination
Charges 		 
 

AZ-004

   Alexza   Staccato® loxapine   $ 90,000     Nil  
 

BVF-007

   Cortex   AMPAKINE®   $ 15,000     Nil  
 

BVF-014

   MedGenesis   GDNF   $ 20,000   $ 5,000 (2)
 

BVF-018

   LifeHealth Limited   Tetrabenazine     Nil   $ 28,000 (3)
 

BVF-025

   Santhera   Fipamezole   $ 200,000     Nil  
 

BVF-036,-040, -048

   ACADIA   Pimavanserin   $ 365,000   $ 8,750 (2)

F-27

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

6.     RESTRUCTURING AND INTEGRATION (Continued)

   
   Asset Impairments   Employee Termination Costs   Contract
Termination,
Facility
Closure and
Other Costs 		   
  
   
   Manufacturing   Pharmaceutical
Sciences 		  Corporate   Manufacturing   Pharmaceutical
Sciences 		  Total  
 

Balance, January 1, 2008

   $ —   $ —   $ —   $ —   $ —   $ —   $ —  
 

Costs incurred and charged to expense

     42,602     16,702     —     3,309     2,724     4,865     70,202  
 

Cash payments

     —     —     —     —     (2,724 )   (333 )   (3,057 )
 

Non-cash adjustments

     (42,602 )   (16,702 )   —     —     —     (1,186 )   (60,490 )
                                 
 

Balance, December 31, 2008

     —     —     —     3,309     —     3,346     6,655  
                                 
 

Costs incurred and charged to expense

     7,591     2,784     10,968     4,942     1,441     2,307     30,033  
 

Cash payments

     —     —     —     (2,041 )   (1,278 )   (1,321 )   (4,640 )
 

Non-cash adjustments

     (7,591 )   (2,784 )   (10,968 )   —     71     —     (21,272 )
                                 
 

Balance, December 31, 2009

     —     —     —     6,210     234     4,332     10,776  
                                 
 

Costs incurred and charged to expense

     400     —     —     1,330     1,924     2,365     6,019  
 

Cash payments

     —     —     —     (7,540 )   (2,057 )   (3,017 )   (12,614 )
 

Non-cash adjustments

     (400 )   —     —     —     (101 )   —     (501 )
                                 
 

Balance, December 31, 2010

   $ —   $ —   $ —   $ —   $ —   $ 3,680   $ 3,680  
                                 

F-28

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

6.     RESTRUCTURING AND INTEGRATION (Continued)

   
   2010   2009   2008  
 

Service and other revenues

   $ 5,642   $ 12,027   $ 21,191  
                 
 

Cost of services

     7,211     13,849     23,033  
 

Selling, general and administrative expenses

     2,328     3,718     4,150  
                 
 

Total operating expenses

     9,539     17,567     27,183  
                 
 

Operating loss

     (3,897 )   (5,540 )   (5,992 )
 

Foreign exchange gain (loss)

     (102 )   93     931  
                 
 

Net loss

   $ (3,999 ) $ (5,447 ) $ (5,061 )
                 

F-29

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

7.     FAIR VALUE MEASUREMENTS

   
   2010   2009  
   
   Carrying
Value 		  Quoted
Prices
in Active
Markets
for
Identical
Assets
(Level 1) 		  Significant
Other
Observable
Inputs
(Level 2) 		  Significant
Unobservable
Inputs
(Level 3) 		  Carrying
Value 		  Quoted
Prices
in Active
Markets
for
Identical
Assets
(Level 1) 		  Significant
Other
Observable
Inputs
(Level 2) 		  Significant
Unobservable
Inputs
(Level 3) 		 
 

Money market funds

   $ 91,448   $ 91,448   $ —   $ —   $ 7,994   $ 7,994   $ —   $ —  
 

Available-for-sale debt securities:

                                                  
   

Corporate bonds

     6,340     —     6,340     —     10,880     —     10,880     —  
   

Government-sponsored enterprise securities

     1,826     —     1,826     —     4,193     —     4,193     —  
   

Auction rate securities

     —     —     —     —     6,009     —     —     6,009  
                                     
 

Total financial assets

   $ 99,614   $ 91,448   $ 8,166   $ —   $ 29,076   $ 7,994   $ 15,073   $ 6,009  
                                     
 

Cash and cash equivalents

   $ 91,448   $ 91,448   $ —   $ —   $ 7,994   $ 7,994   $ —   $ —  
 

Marketable securities

     8,166     —     8,166     —     21,082     —     15,073     6,009  
                                     
 

Total financial assets

   $ 99,614   $ 91,448   $ 8,166   $ —   $ 29,076   $ 7,994   $ 15,073   $ 6,009  
                                     

F-30

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

7.     FAIR VALUE MEASUREMENTS (Continued)

   
   2010   2009  
 

Balance, beginning of year

   $ 6,009   $ 10,333  
 

Total unrealized gains (losses):

              
 

Included in net income (loss)(1):

              
   

Arising during year

     (5,163 )   (4,479 )
   

Reclassification from other comprehensive income

     (389 )   (731 )
 

Included in other comprehensive income:

              
   

Arising during year

     554     155  
   

Reclassification to net income (loss)

     389     731  
 

Proceeds on disposal

     (1,400 )   —  
             
 

Balance, end of year

   $ —   $ 6,009  
             
 

Total amount of unrealized losses for the year included in net income (loss) relating to securities still held at end of year

   $ —   $ (5,210 )
             

8.     FAIR VALUE OF FINANCIAL INSTRUMENTS

   
   2010   2009  
   
   Carrying
Value 		  Fair
Value 		  Carrying
Value 		  Fair
Value 		 
 

Cash equivalents

   $ 91,448   $ 91,448   $ 7,994   $ 7,994  
 

Marketable securities

     8,166     8,166     21,082     21,082  
 

Long-term debt (as described in note 14)

     (3,595,277 )   (4,174,561 )   (326,085 )   (434,518 )
   
   2010   2009  
   
    
    
   Gross Unrealized    
    
   Gross Unrealized  
   
   Cost
Basis 		  Fair
Value 		  Cost
Basis 		  Fair
Value 		 
   
   Gains   Losses   Gains   Losses  
 

Corporate bonds

   $ 6,234     6,340   $ 106   $ —   $ 10,626   $ 10,880   $ 254   $ —  
 

Government-sponsored enterprise securities

     1,825     1,826     1     —     4,100     4,193     93     —  
 

Auction rate securities

     —     —     —     —     26,775     6,009     —     (20,766 )
                                     
 

  $ 8,059   $ 8,166   $ 107   $ —   $ 41,501   $ 21,082   $ 347   $ (20,766 )
                                     

F-31

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

8.     FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

   
   Carrying
Value 		  Fair
Value 		 
 

Within one year

   $ 6,083   $ 6,083  
 

One to two years

     2,083     2,083  
             
 

  $ 8,166   $ 8,166  
             

9.     ACCOUNTS RECEIVABLE

   
   2010   2009  
 

Trade

   $ 240,712   $ 101,853  
 

Less allowance for doubtful accounts

     (6,692 )   (2,437 )
             
 

    234,020     99,416  
 

Royalties

     16,424     6,313  
 

Other

     24,375     6,436  
             
 

  $ 274,819   $ 112,165  
             

10.   INVENTORIES

   
   2010   2009  
 

Raw materials

   $ 55,486   $ 15,322  
 

Work in process

     43,587     29,155  
 

Finished goods

     158,574     46,856  
             
 

    257,647     91,333  
 

Less allowance for obsolescence

     (28,065 )   (8,560 )
             
 

  $ 229,582   $ 82,773  
             

F-32

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

11.   PROPERTY, PLANT AND EQUIPMENT

   
   2010   2009  
 

Land

   $ 25,528   $ 3,398  
 

Buildings

     159,712     80,560  
 

Machinery and equipment

     145,292     74,560  
 

Other equipment and leasehold improvements

     65,597     56,248  
 

Construction in progress

     8,334     7,180  
             
 

    404,463     221,946  
 

Less accumulated depreciation

     (122,711 )   (118,098 )
             
 

  $ 281,752   $ 103,848  
             

12.   INTANGIBLE ASSETS AND GOODWILL

   
   Weighted-
Average
Useful
Lives
(Years) 		  2010   2009  
   
   Gross
Carrying
Amount 		  Accumulated
Amortization 		  Net
Carrying
Amount 		  Gross
Carrying
Amount 		  Accumulated
Amortization 		  Net
Carrying
Amount 		 
 

Finite-lived intangible assets:

                                            
   

Product brands

     15   $ 4,227,465   $ (404,951 ) $ 3,822,514   $ 1,084,226   $ (267,249 ) $ 816,977  
   

Corporate brands

     20     169,675     (2,191 )   167,484     —     —     —  
   

Product rights

     11     1,074,611     (279,275 )   795,336     693,126     (202,881 )   490,245  
   

Out-licensed technology and other

     7     205,332     (17,842 )   187,490     —     —     —  
                                   
     

Total finite-lived intangible assets

     14     5,677,083     (704,259 )   4,972,824     1,777,352     (470,130 )   1,307,222  
 

Indefinite-lived intangible assets:

                                            
   

Acquired IPR&D

     NA     1,399,956     —     1,399,956     28,000     —     28,000  
                                   
 

        $ 7,077,039   $ (704,259 ) $ 6,372,780   $ 1,805,352   $ (470,130 ) $ 1,335,222  
                                   
   
   2010   2009   2008  
 

Royalty and other revenue

   $ 1,072   $ 1,072   $ 1,072  
 

Cost of goods sold

     8,103     8,103     8,103  
 

Amortization expense

     219,758     104,730     51,369  
                 
 

  $ 228,933   $ 113,905   $ 60,544  
                 

F-33

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

12.   INTANGIBLE ASSETS AND GOODWILL (Continued)

   
   2011   2012   2013   2014   2015  
 

Amortization expense

   $ 458,407   $ 450,384   $ 447,991   $ 439,914   $ 420,836  
   
   U.S.
Neurology
and Other 		  U.S.
Dermatology 		  Canada
and
Australia 		  Branded
Generics —
Europe 		  Branded
Generics —
Latin
America 		  Total  
 

Balance, September 28, 2010

   $ 68,029   $ 18,495   $ 9,655   $ 4,115   $ —   $ 100,294  
 

Acquisition of Valeant

     1,311,487     480,043     369,493     350,876     366,957     2,878,856  
 

Foreign exchange and other

     —     (30 )   15,639     (2,255 )   8,872     22,226  
                             
 

Balance, December 31, 2010

   $ 1,379,516   $ 498,508   $ 394,787   $ 352,736   $ 375,829   $ 3,001,376  
                             

13.   ACCRUED LIABILITIES

   
   2010   2009  
 

Product returns

   $ 110,642   $ 24,584  
 

Product rebates

     79,704     20,934  
 

Employee costs

     49,756     17,536  
 

Interest

     41,800     11,627  
 

Restructuring costs (as described in note 6)

     30,139     10,776  
 

Legal settlements (as described in note 24)

     16,000     7,950  
 

Professional fees

     15,488     5,601  
 

Royalties

     14,594     9,934  
 

Unpaid cash consideration related to the Merger (as described in note 3)

     13,281     —  
 

DSUs (as described in note 17)

     11,495     4,796  
 

Other

     59,215     8,356  
             
 

  $ 442,114   $ 122,094  
             

F-34

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

14.   LONG-TERM DEBT

   
   2010   2009  
 

Term Loan A Facility

   $ 975,000   $ —  
 

2017 Notes, net of unamortized debt discount of $2,411

     497,589     —  
 

2020 Notes, net of unamortized debt discount of $4,265

     695,735     —  
 

2018 Notes, net of unamortized debt discount of $7,502

     992,498     —  
 

5.375% Convertible Notes, net of unamortized debt discount (2010 — $26,970; 2009 — $51,715)

     196,763     298,285  
 

4.0% Convertible Notes, net of unamortized debt discount of $4,118

     220,792     —  
 

Cambridge obligation, net of unamortized debt discount (2010 — $600; 2009 — $2,200)

     16,900     27,800  
             
 

    3,595,277     326,085  
 

Less current portion

     (116,900 )   (12,110 )
             
 

  $ 3,478,377   $ 313,975  
             
 

2011

   $ 117,500  
 

2012

     125,000  
 

2013

     424,910  
 

2014

     473,733  
 

2015

     300,000  
 

Thereafter

     2,200,000  
         
 

Total gross maturities

     3,641,143  
 

Unamortized discounts

     (45,866 )
         
 

Total long-term debt

   $ 3,595,277  
         

F-35

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

14.   LONG-TERM DEBT (Continued)

F-36

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

14.   LONG-TERM DEBT (Continued)

F-37

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

14.   LONG-TERM DEBT (Continued)

F-38

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

14.   LONG-TERM DEBT (Continued)

   
   2010   2009  
 

Cash interest per contractual coupon rate

   $ 18,335   $ 10,504  
 

Non-cash amortization of debt discount

     9,265     4,954  
             
 

  $ 27,600   $ 15,458  
             

F-39

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

14.   LONG-TERM DEBT (Continued)

   
   2010  
 

Cash interest per contractual coupon rate

   $ 2,324  
 

Non-cash amortization of debt discount

     304  
         
 

  $ 2,628  
         

15.   PENSION AND POSTRETIREMENT EMPLOYEE BENEFIT PLANS

16.   SECURITIES REPURCHASE PROGRAM

F-40

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

16.   SECURITIES REPURCHASE PROGRAM (Continued)

17.   SHARE-BASED COMPENSATION

   
   2010   2009   2008  
 

Stock options

   $ 56,851   $ 2,613   $ 5,243  
 

RSUs

     41,182     3,000     2,663  
                 
 

Stock-based compensation expense

   $ 98,033   $ 5,613   $ 7,906  
                 
 

Cost of goods sold(1)

   $ 1,258   $ 525   $ 581  
 

Research and development expenses(1)

     2,487     726     871  
 

Selling, general and administrative expenses(1)

     44,806     4,362     6,454  
 

Restructuring and other costs (as described in note 6)

     49,482     —     —  
                 
 

Stock-based compensation expense

   $ 98,033   $ 5,613   $ 7,906  
                 

F-41

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

17.   SHARE-BASED COMPENSATION (Continued)

   
   Stock
Options 		  Time-
Based
RSUs 		  Performance-
Based
RSUs 		 
 

Number of awards issued (000s)

     12,464     2,217     1,212  
 

Total compensation cost related to unvested awards to be recognized

   $ 66,520   $ 30,558   $ 24,998  
 

Weighted-average service period over which compensation cost is expected to be recognized (months)

     18     25     34  
   
   2010   2009   2008  
 

Expected stock option life (years)(1)

     4.0     4.0     4.0  
 

Expected volatility(2)

     37.1 %   45.2 %   43.2 %
 

Risk-free interest rate(3)

     1.5 %   1.6 %   3.0 %
 

Expected dividend yield(4)

     1.5 %   14.6 %   14.1 %

F-42

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

17.   SHARE-BASED COMPENSATION (Continued)

   
   Options
(000s) 		  Weighted-
Average
Exercise
Price 		  Weighted-
Average
Remaining
Contractual
Term
(Years) 		  Aggregate
Intrinsic
Value 		 
 

Outstanding, January 1, 2010

     3,988   $ 17.02              
 

Granted

     2,383     22.20              
 

Conversion of Valeant awards

     12,464     8.59              
 

Exercised

     (5,587 )   10.56              
 

Expired or forfeited

     (1,045 )   21.57              
                           
 

Outstanding, December 31, 2010

     12,203   $ 11.99     6.4   $ 198,945  
                     
 

Vested and exercisable, December 31, 2010

     5,100   $ 9.61     5.2   $ 95,259  
                     
   
   Stock
Options
(000s) 		  Weighted-
Average
Grant-Date
Fair Value 		 
 

Non-vested, January 1, 2010

     1,648   $ 1.81  
 

Granted

     2,383     5.46  
 

Conversion of Valeant awards

     7,204     16.21  
 

Vested

     (3,873 )   10.10  
 

Forfeited

     (259 )   5.24  
               
 

Non-vested, December 31, 2010

     7,103   $ 12.96  
             

F-43

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

17.   SHARE-BASED COMPENSATION (Continued)

 
Range of Exercise Prices
  Outstanding
(000s) 		  Weighted-
Average
Remaining
Contractual
Life
(Years) 		  Weighted-
Average
Exercise
Price 		  Exercisable
(000s) 		  Weighted-
Average
Exercise
Price 		 
 

$2.90–$4.35

     10     1.6   $ 3.59     10   $ 3.59  
 

$4.36–$6.54

     3,989     6.6     4.66     2,371     4.78  
 

$6.63–$9.95

     1,437     5.3     7.85     1,089     7.77  
 

$10.83–$16.25

     4,555     7.9     13.46     867     13.00  
 

$17.00–$25.50

     819     2.5     22.39     663     23.16  
 

$25.51–$25.78

     1,393     4.5     26.36     100     25.78  
                               
 

    12,203     6.4   $ 11.99     5,100   $ 9.61  
                         
   
   Time-Based
RSUs
(000s) 		  Weighted-
Average
Grant-Date
Fair Value 		 
 

Non-vested, January 1, 2010

     379   $ 11.71  
 

Granted

     214     15.19  
 

Conversion of Valeant awards

     2,217     26.35  
 

Reinvested dividend equivalents

     82     27.78  
 

Vested

     (542 )   21.36  
 

Forfeited

     (137 )   17.24  
               
 

Non-vested, December 31, 2010

     2,213   $ 24.61  
             

F-44

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

17.   SHARE-BASED COMPENSATION (Continued)

   
   2010   2009   2008  
 

Contractual term (years)

     5.0     5.0     4.6  
 

Expected Company share volatility(1)

     43.2 %   44.0 %   42.9 %
 

Average comparator group share price volatility(1)

     34.7 %   35.9 %   34.0 %
 

Risk-free interest rate(2)

     2.4 %   3.1 %   3.0 %
   
   2010
 

Contractual term (years)

   4.1 - 4.6
 

Expected Company share volatility(1)

   32.4% - 33.2%
 

Risk-free interest rate(2)

   1.2% - 2.3%
   
   Performance-
Based RSUs
(000s) 		  Weighted-
Average
Grant-Date
Fair Value 		 
 

Non-vested, January 1, 2010

     676   $ 18.94  
 

Granted

     1,386     14.52  
 

Conversion of Valeant awards

     1,212     52.72  
 

Reinvested dividend equivalents

     102     30.42  
 

Vested

     (800 )   19.57  
 

Forfeited

     (80 )   17.82  
               
 

Non-vested, December 31, 2010

     2,496   $ 33.25  
             

F-45

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

17.   SHARE-BASED COMPENSATION (Continued)

   
   DSUs
(000s) 		  Weighted-
Average
Grant-Date
Fair Value 		 
 

Outstanding, January 1, 2010

     343   $ 12.82  
 

Granted

     105     16.15  
 

Reinvested dividend equivalents

     19     24.72  
 

Settled for cash

     (85 )   12.37  
               
 

Outstanding, December 31, 2010

     382   $ 14.43  
             

F-46

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

18.   ACCUMULATED OTHER COMPREHENSIVE INCOME

   
   Foreign
Currency
Translation
Adjustment 		  Unrealized
Holding
Loss on
Auction Rate
Securities 		  Net
Unrealized
Holding
Gain (Loss)
on Available-
For-Sale
Securities 		  Total  
 

Balance, January 1, 2008

   $ 58,616   $ (2,825 ) $ 6,791   $ 62,582  
 

Foreign currency translation adjustment

     (32,378 )   —     —     (32,378 )
 

Reclassification to net income(1)

     828     —     —     828  
 

Unrealized holding loss on auction rate securities

     —     (3,356 )   —     (3,356 )
 

Net unrealized holding loss on available-for-sale securities

     —     —     (304 )   (304 )
 

Reclassification to net income(2)

     —     4,352     (3,712 )   640  
 

Cumulative effect adjustment

     —     —     (2,343 )   (2,343 )
                     
 

Balance, December 31, 2008

     27,066     (1,829 )   432     25,669  
                     
 

Foreign currency translation adjustment

     17,220     —     —     17,220  
 

Unrealized holding gain on auction rate securities

     —     155     —     155  
 

Net unrealized holding gain on available-for-sale securities

     —     —     802     802  
 

Reclassification to net income(2)

     —     731     (1,003 )   (272 )
                     
 

Balance, December 31, 2009

     44,286     (943 )   231     43,574  
                     
 

Foreign currency translation adjustment

     54,640     —     —     54,640  
 

Unrealized holding gain on auction rate securities

     —     554     —     554  
 

Net unrealized holding loss on available-for-sale securities

     —     —     (321 )   (321 )
 

Reclassification to net loss(2)

     —     389     —     389  
                     
 

Balance, December 31, 2010

   $ 98,926   $ —   $ (90 ) $ 98,836  
                     

19.   LOSS ON EXTINGUISHMENT OF DEBT

   
   2010  
 

Extinguishment of liability component of 5.375% Convertible Notes (as described in note 14)

   $ 20,652  
 

Cash settlement of written call options (as described in note 3)

     10,064  
 

Repayment of Term Loan B Facility

     1,697  
         
 

  $ 32,413  
         

F-47

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

20.   GAIN (LOSS) ON INVESTMENTS, NET

   
   2010   2009   2008  
 

Loss on auction rate securities

   $ (5,552 ) $ (5,210 ) $ (8,613 )
 

Gain on auction rate securities settlement

     —     22,000     —  
 

Gain on disposal of investments

     —     804     6,534  
 

Impairment loss on equity securities

     —     —     (1,256 )
 

Equity loss

     —     —     (1,195 )
                 
 

  $ (5,552 ) $ 17,594   $ (4,530 )
                 

21.   INCOME TAXES

   
   2010   2009   2008  
 

Domestic

   $ (127,269 ) $ (81,978 ) $ (86,734 )
 

Foreign

     (108,994 )   256,933     213,638  
                 
 

  $ (236,263 ) $ 174,955   $ 126,904  
                 
   
   2010   2009   2008  
 

Current:

                    
   

Domestic

   $ 5,860   $ —   $ —  
   

Foreign

     21,473     14,500     17,000  
                 
 

    27,333     14,500     17,000  
                 
 

Deferred:

                    
   

Domestic

     (49,820 )   —     —  
   

Foreign

     (5,583 )   (16,000 )   (90,000 )
                 
 

    (55,403 )   (16,000 )   (90,000 )
                 
 

  $ (28,070 ) $ (1,500 ) $ (73,000 )
                 

F-48

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

21.   INCOME TAXES (Continued)

   
   2010   2009   2008  
 

Income before recovery of income taxes

   $ (236,263 ) $ 174,955   $ 126,904  
 

Expected Canadian statutory rate

     30.6 %   32.4 %   33.3 %
                 
 

Expected provision for (recovery of) income taxes

     (72,296 )   56,685     42,259  
 

Non-deductible amounts:

                    
   

Amortization

     18,304     11,962     11,800  
   

Share-based compensation

     8,024     —     —  
   

Merger costs

     7,124     —     —  
   

Acquired IPR&D

     5,661     21,063     —  
   

Non-taxable gain on disposal of investments

     (1,679 )   (3,838 )   (2,174 )
   

Legal settlement costs

     —     2,944     10,233  
   

Write-down of investments

     —     1,690     3,089  
   

Intangible asset impairments

     —     —     2,482  
   

Equity loss

     —     —     398  
 

Changes in enacted income tax rates

     880     9,800     —  
 

Canadian dollar foreign exchange gain for Canadian tax purposes

     3,358     2,500     —  
 

Change in valuation allowance related to U.S. operating losses

     45,483     (26,000 )   (90,000 )
 

Change in valuation allowance on Canadian deferred tax assets and tax rate changes

     (46,898 )   (11,000 )   (13,993 )
 

Foreign tax rate differences

     (36,649 )   (99,045 )   (92,581 )
 

Loss of U.S. state net operating losses

     9,783     —     —  
 

Unrecognized income tax benefit of losses

     22,768     25,496     44,380  
 

Withholding taxes on foreign income

     3,177     3,450     2,886  
 

Alternative minimum and other taxes

     —     1,877     —  
 

Other

     4,890     916     8,221  
                 
 

  $ (28,070 ) $ (1,500 ) $ (73,000 )
                 

F-49

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

21.   INCOME TAXES (Continued)

   
   2010   2009  
 

Deferred tax assets:

              
   

Tax loss carryforwards

   $ 272,172   $ 159,669  
   

Tax credit carryforwards

     36,160     —  
   

Scientific Research and Experimental Development pool

     66,577     58,914  
   

Research and development tax credits

     66,201     42,659  
   

Provisions

     100,320     24,990  
   

Plant, equipment and technology

     33,736     34,019  
   

Deferred revenue

     27,888     33,433  
   

Deferred financing and share issue costs

     65,620     —  
   

Share-based compensation

     9,783     —  
   

Other

     15,694     5,014  
             
   

Total deferred tax assets

     694,151     358,698  
   

Less valuation allowance

     (186,399 )   (153,955 )
             
   

Net deferred tax assets

     507,752     204,743  
             
 

Deferred tax liabilities:

              
   

Intangible assets

     1,779,460     53,906  
   

5.375% Convertible Notes(1)

     8,171     15,622  
   

Prepaid expenses

     510     1,434  
   

Other

     —     981  
             
   

Total deferred tax liabilities

     1,788,141     71,943  
             
 

Net deferred income taxes

   $ (1,280,389 ) $ 132,800  
             

F-50

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

21.   INCOME TAXES (Continued)

F-51

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

21.   INCOME TAXES (Continued)

   
   2010   2009  
 

Balance, beginning of year

   $ 66,200   $ 63,700  
 

Acquisition of Valeant

     18,916     —  
 

Additions based on tax positions related to the current year

     10,133     1,000  
 

Additions for tax positions of prior years

     15,608     3,400  
 

Reductions for tax positions of prior years

     —     (1,900 )
             
 

Balance, end of year

   $ 110,857   $ 66,200  
             

22.   EARNINGS PER SHARE

   
   2010   2009   2008  
 

Net income (loss)

   $ (208,193 ) $ 176,455   $ 199,904  
                 
 

Basic weighted-average number of common shares outstanding (000s)

     195,808     158,236     159,730  
 

Dilutive effect of stock options and RSUs (000s)

     —     274     —  
                 
 

Diluted weighted-average number of common shares outstanding (000s)

     195,808     158,510     159,730  
                 
 

Basic and diluted earnings (loss) per share

   $ (1.06 ) $ 1.11   $ 1.25  
                 
   
   2010  
 

Basic weighted-average number of common shares outstanding (000s)

     195,808  
 

Dilutive effect of stock options and RSUs (000s)

     2,774  
 

Dilutive effect of Convertible Notes (000s)

     6,947  
         
 

Diluted weighted-average number of common shares outstanding (000s)

     205,529  
         

F-52

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

23.   SUPPLEMENTAL CASH FLOW DISCLOSURES

   
   2010   2009   2008  
 

Interest paid

   $ 37,719   $ 4,182   $ 459  
 

Income taxes paid

     26,300     12,139     6,738  

24.   LEGAL PROCEEDINGS

F-53

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

24.   LEGAL PROCEEDINGS (Continued)

F-54

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

24.   LEGAL PROCEEDINGS (Continued)

F-55

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

24.   LEGAL PROCEEDINGS (Continued)

F-56

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

24.   LEGAL PROCEEDINGS (Continued)

F-57

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

24.   LEGAL PROCEEDINGS (Continued)

F-58

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

24.   LEGAL PROCEEDINGS (Continued)

F-59

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

24.   LEGAL PROCEEDINGS (Continued)

25.   COMMITMENTS AND CONTINGENCIES

F-60

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

25.   COMMITMENTS AND CONTINGENCIES (Continued)

   
   Total   2011   2012   2013   2014   2015   Thereafter  
 

Lease obligations

   $ 94,277   $ 24,935   $ 12,148   $ 9,005   $ 6,869   $ 6,101   $ 35,219  

26.   SEGMENT INFORMATION

F-61

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

26.   SEGMENT INFORMATION (Continued)

   
   2010   2009   2008  
 

Revenues(1):

                    
   

U.S. Neurology and Other

   $ 658,312   $ 575,321   $ 525,939  
   

U.S. Dermatology

     219,008     146,267     150,613  
   

Canada and Australia

     161,568     83,959     73,764  
   

Branded Generics — Europe

     73,312     14,883     6,862  
   

Branded Generics — Latin America

     69,037     —     —  
                 
     

Total revenues

     1,181,237     820,430     757,178  
                 
 

Segment profit (loss)(2):

                    
   

U.S. Neurology and Other

     251,129     274,548     243,180  
   

U.S. Dermatology

     47,737     87,860     93,475  
   

Canada and Australia

     51,043     35,037     15,171  
   

Branded Generics — Europe

     20,646     9,152     3,553  
   

Branded Generics — Latin America

     (3,889 )   —     —  
                 
     

Total segment profit

     366,666     406,597     355,379  
                 
 

Corporate(3)

     (155,794 )   (124,269 )   (128,503 )
 

Restructuring and other costs

     (140,840 )   (30,033 )   (70,202 )
 

Acquired IPR&D

     (89,245 )   (59,354 )   —  
 

Legal settlements

     (52,610 )   (6,191 )   (32,565 )
 

Acquisition-related costs

     (38,262 )   (5,596 )   —  
                 
 

Operating income (loss)

     (110,085 )   181,154     124,109  
 

Interest income

     1,294     1,118     9,400  
 

Interest expense

     (84,307 )   (24,881 )   (1,018 )
 

Write-down of deferred financing costs

     (5,774 )   (537 )   —  
 

Foreign exchange and other

     574     507     (1,057 )
 

Loss on early extinguishment of debt

     (32,413 )   —     —  
 

Gain (loss) on investments, net

     (5,552 )   17,594     (4,530 )
                 
 

Income (loss) before recovery of income taxes

   $ (236,263 ) $ 174,955   $ 126,904  
                 

F-62

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

26.   SEGMENT INFORMATION (Continued)

   
   2010   2009  
 

Assets(1):

              
   

U.S. Neurology and Other

   $ 5,186,081   $ 1,553,652  
   

U.S. Dermatology

     1,922,328     169,164  
   

Canada and Australia

     1,007,694     76,739  
   

Branded Generics — Europe

     921,388     11,560  
   

Branded Generics — Latin America

     1,383,799     —  
             
 

    10,421,290     1,811,115  
   

Corporate

     373,827     248,175  
             
 

Total assets

   $ 10,795,117   $ 2,059,290  
             
   
   2010   2009   2008  
 

Capital expenditures:

                    
   

U.S. Neurology and Other

   $ 8,080   $ 6,098   $ 8,112  
   

U.S. Dermatology

     652     —     —  
   

Canada and Australia

     804     —     —  
   

Branded Generics — Europe

     3,083     —     37  
   

Branded Generics — Latin America

     3,011     —     —  
                 
 

    15,630     6,098     8,149  
   

Corporate

     1,193     1,325     13,850  
                 
 

Total capital expenditures

   $ 16,823   $ 7,423   $ 21,999  
                 
 

Depreciation and amortization(1):

                    
   

U.S. Neurology and Other

   $ 171,817   $ 110,876   $ 64,160  
   

U.S. Dermatology

     35,580     23,981     23,928  
   

Canada and Australia

     14,791     5,707     5,219  
   

Branded Generics — Europe

     10,406     —     —  
   

Branded Generics — Latin America

     14,792     —     —  
                 
 

    247,386     140,564     93,307  
   

Corporate

     7,118     8,696     9,598  
                 
 

Total depreciation and amortization

   $ 254,504   $ 149,260   $ 102,905  
                 

F-63

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

26.   SEGMENT INFORMATION (Continued)

   
   Revenues(1)   Long-Lived Assets(2)  
   
   2010   2009   2008   2010   2009   2008  
 

U.S. and Puerto Rico

   $ 872,112   $ 710,214   $ 656,490   $ 14,231   $ 11,067   $ 31,377  
 

Canada

     154,200     94,142     88,952     94,435     83,471     107,918  
 

Poland

     30,430     —     —     60,390     —     —  
 

Mexico

     42,833     —     —     51,367     —     —  
 

Brazil

     22,595     —     —     46,074     —     —  
 

Other

     59,067     16,074     11,736     15,255     9,310     8,974  
                             
 

  $ 1,181,237   $ 820,430   $ 757,178   $ 281,752   $ 103,848   $ 148,269  
                             
   
   2010   2009   2008  
 

McKesson Corporation

     28 %   25 %   22 %
 

Cardinal Health, Inc.

     24 %   21 %   16 %
 

AmerisourceBergen Corporation

     12 %   10 %   7 %
 

Affiliates of Teva Pharmaceuticals Industries Ltd.

     6 %   7 %   11 %
 

Affiliates of GSK

     2 %   4 %   16 %
 

Affiliates of Ortho-McNeil, Inc.

     2 %   5 %   11 %

27.   SUBSEQUENT EVENTS

F-64

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

27.   SUBSEQUENT EVENTS (Continued)

F-65

Table of Contents


VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share data)

27.   SUBSEQUENT EVENTS (Continued)

F-66