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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, 2011

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   Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No 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 $11,216,292,000 based on the last reported sale price on the New York Stock Exchange on June 30, 2011.

The number of outstanding shares of the registrant's common stock, as of February 23, 2012 was 306,583,018.

DOCUMENTS INCORPORATED BY REFERENCE

          Part III incorporates certain information by reference from the registrant's proxy statement for the 2012 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, 2011.

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TABLE OF CONTENTS
GENERAL INFORMATION

 
    
   Page
PART I
Item 1.   Business   1
Item 1A.   Risk Factors   11
Item 1B.   Unresolved Staff Comments   19
Item 2.   Properties   20
Item 3.   Legal Proceedings   20
Item 4.   Mine Safety Disclosures   20

PART II
Item 5.   Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   21
Item 6.   Selected Financial Data   27
Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations   27
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk   82
Item 8.   Financial Statements and Supplementary Data   82
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   82
Item 9A.   Controls and Procedures   82
Item 9B.   Other Information   82

PART III
Item 10.   Directors, Executive Officers and Corporate Governance   83
Item 11.   Executive Compensation   83
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   83
Item 13.   Certain Relationships and Related Transactions, and Director Independence   83
Item 14.   Principal Accounting Fees and Services   83

PART IV
Item 15.   Exhibits and Financial Statement Schedules   84
SIGNATURES   94

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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 are 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, references to "C$" are to Canadian dollars, references to "€" are to Euros and references to "AUD$" are to Australian dollars. Unless otherwise indicated, the statistical and financial data contained in this Form 10-K are presented as of December 31, 2011.

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®, AFEXA® APLENZIN®, ATRALIN®, BEDOYECTA®, BENZACLIN®, BIAFINE®, BIOVAIL®, BIOVAIL CORPORATION INTERNATIONAL®, CARDIZEM®, CERAVE®, CESAMET®, COLD-FX®, COLDSORE-FX®, DELATESTRYL®, DERMAVEEN®, DERMIK®, DIASTAT®, DIASTAT® ACUDIAL, DICLO DUO®, DIFFLAM®, DR. LEWINN'S®, DUROMINE®, DURO-TUSS®, EFUDEX®, ERTACZO®, GLUMETZA®, INVISIBLE ZINC®, KINERASE®, LABORATOIRE DR RENAUD®, LACRISERT®, LODALIS™, MACUGEN®, MELLERIL®, MEPHYTON®, MESTINON®, METERMINE®, MIGRANAL®, M.V.I.®, NEPHROCAPS®, NIFLAMOL®, NITOMAN®, NYAL®, OCEAN®, ORTHO DERMATOLOGICS®, PERMAX®, POTIGA™, PROCEF®, RENOVA®, RETIN-A MICRO®, RIKODEINE®, SCULPTRA®, SUPERACE®, SYNCUMAR™, SYPRINE®, TANDENE®, TIAZAC®, TITRADOSE®, TROBALT™, VALEANT®, VALEANT V & DESIGN®, VALEANT PHARMACEUTICALS & DESIGN®, VASERETIC®, VASOTEC®, VIROPTIC®, VITALSCIENCE®, XENAZINE®, and XENAZINA®.

        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. ELIDEL® and XERESE® are registered trademarks of Meda Pharma SARL and are used by us under license. OPANA® ER and OPANA® are registered trademarks of Endo Pharmaceuticals Inc. and are used by us under license.

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

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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").

        These forward-looking statements relate to, among other things: the expected benefits of our acquisitions (including the Merger) and other transactions, 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:

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        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 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. We undertake no obligation to update any of these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect actual outcomes.

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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, branded, and OTC operations in Europe, Latin America, South East Asia and South Africa.

Business Strategy

        Since the Merger, our strategy has been to focus the business on core geographies and therapeutic classes, manage pipeline assets either internally or 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

        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 focus on those businesses that we view to have the potential for strong operating margins and solid growth, while providing natural balance across geographies.

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        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 and Divestitures

        We have completed several transactions to expand our product portfolio including, among others, the following acquisitions of businesses and product rights in 2011: iNova, Dermik, Ortho Dermatologics, Afexa Life Sciences Inc. ("Afexa"), AB Sanitas ("Sanitas"), Elidel®/Xerese®, PharmaSwiss S.A. ("PharmaSwiss"), and Zovirax®. In addition, we acquired Eyetech Inc. and Probiotica Laboratorios Ltda. ("Probiotica") in February 2012.

        In connection with the acquisition of Dermik, we were required by the Federal Trade Commission ("FTC") to divest 1% clindamycin and 5% benzoyl peroxide gel, a generic version of BenzaClin®, and 5% fluorouracil cream, an authorized generic of Efudex®. We completed the divestiture of these products in February 2012.

        For more information regarding our acquisitions and divestitures, see note 3, note 4 and note 27 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 and Branded Generic — Europe segment we generate service revenue from contract services in the areas of dermatology and topical medication. We have realigned segment financial data for the year ended December 31, 2009 to reflect changes in our organizational structure that occurred in 2010. Comparative segment information for 2011, 2010 and 2009 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 900 products, with approximately 4,100 stock keeping units ("SKUs"). In 2011, 2010 and 2009, global Wellbutrin XL® represented 9%, 21% and 22%, respectively, and Zovirax® represented 8%, 14% and 19%, respectively, of our consolidated revenues. We anticipate a continuing decline in Wellbutrin XL® product sales due to generic erosion, although we have implemented initiatives to support the brand. We anticipate that Wellbutrin XL® product sales will continue to represent a declining percentage of our consolidated revenues primarily due to anticipated growth in other parts of our business and recent acquisitions. We anticipate that Zovirax® may also continue to decline as a percentage of consolidated revenues in the future as a result of revenue growth from acquisitions.

U.S. Neurology and Other

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

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

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

Dermatology Products — Our principal dermatology products are:

        As part of the acquisition of the assets of Ortho Dermatologics, we now market the prescription brand Retin-A Micro®. Retin-A Micro® (tretinoin gel) microsphere, 0.04%/0.1% Pump, is an oil-free prescription-

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strength acne treatment proven to start clearing skin in as little as two weeks after the start of treatment, with full results seen after seven weeks of treatment.

        As part of the acquisition of Dermik, we now market Sculptra® and Sculptra® Aesthetic, an injectable implant containing microparticles of poly-L-lactic acid (PLLA), a biocompatible, biodegradable, synthetic polymer from the alpha-hydroxy-acid family, carboxymethylcellulose (USP), non-pyrogenic mannitol (USP) and sterile water for injection (USP). Sculptra® is intended for restoration and/or correction of the signs of facial fat loss (lipoatrophy) in people with human immunodeficiency virus. Sculptra® Aesthetic is indicated for use in immune-competent people as a single regimen for correction of shallow to deep nasolabial fold contour deficiencies and other facial wrinkles in which deep dermal grid pattern (cross-hatch) injection technique is appropriate.

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 included profit sharing payments from the sale of a 1% clindamycin and 5% benzoyl peroxide gel product ("IDP-111") by Mylan Pharmaceuticals, Inc. ("Mylan"), and royalties from patent-protected formulations developed by our Dow Pharmaceutical Sciences, Inc. subsidiary and licensed to third parties. As described above, in connection with the Dermik acquisition in December 2011, we were required by the FTC to divest IDP-111. On February 3, 2012, we divested IDP-111 to Mylan and, as a result, we no longer receive royalties on sales by Mylan of IDP-111 made after February 3, 2012. 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:

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OTC Products — our principal OTC products in Canada are:

Australia — our principal products sold in the Australian market are:

OTC Skin Products — our principal OTC skin products in Australia are:

Branded Generics — Europe

        The Branded Generics — Europe segment generates revenues in more than 20 countries in Central and Eastern Europe from branded generic pharmaceutical products, OTC products and from agency/in-licensing arrangements with other research-based pharmaceutical companies (where we distribute and market branded, patented products under long-term, renewable contracts). Products are sold primarily in Poland, Serbia, Hungary, Croatia and Russia.

        In March, we acquired 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. In August, we acquired Sanitas, a publicly-traded specialty pharmaceutical company based in Lithuania. Sanitas has a broad branded generics product portfolio consisting of 390 products in nine countries, although its largest sales are in Poland and Russia. Sanitas has in-house development capabilities in dermatology, hospital injectables and ophthalmology.

        Our strategy is to develop and commercialize modern, high added-value generics and OTC products which represent a quality, affordable alternative to brand name counterparts. Our European products are sold largely

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under the Valeant umbrella brand, although in those countries where the brand names of legacy companies still resonate with healthcare professionals and consumers, we have chosen for certain products to retain on our packaging the logos of some of the historical companies that make up Valeant Europe — ICN Polfa (specifically Poland), PharmaSwiss (specifically Serbia) and Sanitas (specifically Poland and Lithuania).

        Our combined European branded generics business now covers a broad range of treatments including antibiotics, treatments for cardiovascular and neurological diseases, antifungal medications and diabetic therapies among many others. We have significantly strengthened our presence in niche markets, specifically dermatology and ophthalmology. Our largest product is Bisocard®, a Beta-blocker that is indicated to treat hypertension and angina pectoris. From PharmaSwiss, we have acquired products including Monopril® (fosinopril), Diclo Duo® (an NSAID) and Cardiopirin® (an enteric coated low dose OTC aspirin). From Sanitas, we have acquired products including Flucinar®, a corticosteroid ointment, and Sachol®, a gel product for mouth ulcers.

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 59% of revenues in this segment for the year ended December 31, 2011. 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 in Mexico are primarily marketed in this region 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. Our second largest product, M.V.I.®, multi-vitamin infusion, is a hospital dietary supplement used in treating trauma and burns.

        In Brazil, our primary products include Tandene®, which contains acetaminophen used in treating fever, headaches, and other minor aches and pains and also Melleril®, an anti-psychotic product used in treating anxiety, depression, and other related disorders. Our branded generic products in Brazil are primarily marketed to pharmacies and wholesalers through approximately 200 sales professionals. On February 1, 2012, we acquired Probiotica, a company that markets a line of OTC sports nutrition products and other food supplements in Brazil.

Planned Change in Segment Structure

        Following the acquisition of iNova in December 2011, we now operate in five new territories: Malaysia, Philippines, Thailand, Hong Kong and South Africa, with a distribution business in Vietnam, Indonesia and Singapore. This business is a blend of branded products, branded generics and OTC. Effective in the first quarter of 2012, we plan to create a new business segment called Emerging Markets, which will include Branded Generics — Europe, Branded Generics — Latin America and other markets. As a result, beginning in 2012, we will have four business segments: U.S. Neurology and Other, U.S. Dermatology, Canada and Australia, and Emerging Markets.

        For detailed information regarding the revenues, operating profits and identifiable assets attributable to our 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

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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.

        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 (or had during 2011) a number of compounds in clinical development including: ezogabine/retigabine, Cold-FX pediatric development, Opana® ER, Lodalis™, IDP-107, IDP-108, IDP-118, MC-5 and lifecycle management projects. Our research and development expenses for the years ended December 31, 2011, 2010 and 2009 were $65.7 million, $68.3 million and $47.6 million, respectively.

        As of December 31, 2011, approximately 600 employees were involved in our research and development efforts.

        For more information regarding our products in clinical development, see Item 7 titled "Management's Discussion and Analysis of Financial Condition and Results of Operation — Products in Development" of this Form 10-K.

Licenses and Patents (Proprietary Rights)

Data and Patent Exclusivity

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

        A patent is the grant of a property right which allows its holder to exclude others from, among other things, selling the subject invention in, or importing such invention into, the jurisdiction that granted the patent. In 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 a New Drug Application ("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 European Medicines Agency ("EMA") 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.

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,

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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, EMA 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 U.S. federal and state health care marketing and fraud and abuse regulations, 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

        Our four major geographic markets are: the U.S., Canada, Poland and Mexico.

        The following table identifies external customers that accounted for 10% or more of our total revenue during the year ended December 31, 2011:

 
   Percentage of
Total Revenue
2011 		 

McKesson Corporation

     23%  

Cardinal Health, Inc.

     21%  

AmerisourceBergen Corporation

     10%  

        No other single country or 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

Competitive Landscape for Products and Products in Development

        Our competitors include specialty and large pharmaceutical companies, biotechnology companies, OTC companies, academic and other research and development institutions and generic manufacturers, both in the U.S., Canada and abroad. The dermatology competitive landscape is highly fragmented, with a large number of

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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.

Generic Competition

        We 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.

        In the U.S., Zovirax® does not currently have generic competition and is not protected by patent or regulatory exclusivity.

        Cardizem® CD has many generic competitors in the U.S. on the majority of the available SKUs; however to date, only one generic competitor to the Cardizem® CD 360mg SKU has been approved. Sun Pharmaceuticals' ANDA received approval for its 360mg dosage formulation of diltiazem hydrochloride extended release capsules corresponding to Cardizem® CD on November 1, 2011 and launched its generic product in the U.S. in 2011 following such approval. We also received a Paragraph IV Notice from Actavis, Inc. ("Actavis") dated February 9, 2011 in regard to 360mg 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 December 12, 2011, we acquired the assets of the Ortho Dermatologics division of Janssen Pharmaceuticals, Inc. ("Janssen"). Janssen received two Notices of Paragraph IV Certification from Spear Pharmaceuticals, Inc. ("Spear") with one dated February 8, 2011 with respect to its ANDA for tretinoin topical gel 0.1% gel and the other dated April 1, 2011 with respect to its ANDA for tretinoin topical gel 0.04%, corresponding to Retin-A Micro® 0.1% and 0.04%, respectively. Janssen did not file a complaint against Spear with respect to either notice. Therefore, assuming approval of its ANDAs, Spear would be authorized to launch its generic version in the U.S.

        See note 24 of notes to consolidated financial statements in Item 15 of this Form 10-K for additional details regarding potential infringement proceedings we have commenced against other potential generic competitors of our products in the U.S. and Canada.

Manufacturing

        We currently operate 16 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.

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        We estimate that products representing approximately 45% 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, 2011, we had approximately 6,900 employees. These employees included approximately 3,400 in production, 2,200 in sales and marketing, 600 in research and development and 700 in general and administrative positions. Collective bargaining exists for some employees in a number of markets. We 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 and economic instability and restrictive governmental actions including possible nationalization or expropriation. Changes in the relative values of currencies may materially affect our results of operations. For a discussion of these risks, see Item 1A., Risk Factors in this 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 material portion of our revenue and income is earned in Barbados and in Switzerland, which both have low tax rates. See Item 1A., Risk Factors in this Form 10-K relating to tax rates.

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.

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Item 1A.    Risk Factors

        Our 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 we file with the SEC and the CSA, before making any investment decision with respect to our securities. If any of the risks or uncertainties actually occur or develop, our business, financial condition, results of operations and future growth prospects could change. Under these circumstances, the market value of our securities could decline, and you could lose all or part of your investment in the our securities.

We operate in an extremely competitive industry. If competitors develop or acquire more effective or less costly drugs for our target indications, it could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our common stock to decline.

        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.

We have grown at a very rapid pace. Our inability to properly manage or support this growth could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our common stock to decline.

        We have grown very rapidly over the past few years as a result of our acquisitions. This growth has put significant demands on our processes, systems and people. We have made and expect to make further investments in additional personnel, systems and internal control processes to help manage our growth. If we are unable to successfully manage and support our rapid growth and the challenges and difficulties associated with managing a larger, more complex business, this could cause a material adverse effect on our business, financial position and results of operations, and the market value of our common stock could decline.

We may be unable to identify, acquire, close or integrate acquisition targets successfully.

        Part of our business strategy includes acquiring and integrating complementary businesses, products, technologies or other assets, and forming strategic alliances, joint ventures and other business combinations, to help drive future growth. 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. In addition, there are a number of risks and uncertainties relating to our closing transactions. If such transactions are not completed for any reason, we will be subject to several risks, including the following: (i) the market price of our common shares may reflect a market assumption that such transactions will occur, and a failure to complete such transactions could result in a negative perception by the market of us generally and a decline in the market price of our common shares; and (ii) many costs relating to the such transactions may be payable by us whether or not such transactions are completed.

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

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

Our effective tax rates may increase.

        We have operations in various countries that have differing tax laws and rates. Our tax reporting 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 will be, and the historic tax reporting of each of Valeant and Biovail is, subject to audit by domestic and foreign 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 the 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 a substantial increase in the effective tax rate on all or a portion of our income.

        Our provision for income taxes is based on certain estimates and assumptions made by management. Our consolidated income tax rate is affected by the amount of net 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 respect of which the tax treatment is not entirely certain. We 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 will be provided for by us. The final outcome of any audits by taxation authorities may differ from the estimates and assumptions that we may use in determining our consolidated tax provisions and accruals. This could result in a material adverse effect on our consolidated income tax provision, financial condition and the net income for the period in which such determinations are made.

        Our 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 our provision for income taxes in a given period.

We have incurred significant indebtedness, which indebtedness may restrict the manner in which we conduct business and limit our ability to implement elements of our growth strategy.

        We have incurred significant indebtedness primarily in connection with our recent acquisitions. 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 would increase our total debt. This indebtedness may restrict the manner in which we conduct business and limit our ability to implement elements of our growth strategy, including with respect to:

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        In January 2012, Moody's Investor Services ("Moody's") downgraded our senior secured debt rating from Baa3 to Ba1. At the same time, Moody's reaffirmed our Corporate Family rating (Ba3) and our senior unsecured debt rating (B1). Increased debt levels could result in further ratings pressure. A further downgrade may increase our cost of borrowing and may negatively affect our ability to raise additional debt capital.

Obtaining necessary government approvals is time consuming and not assured.

        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, including limitations on the indications for which we can market a product, or require onerous risk management programs.

Our marketed drugs will be subject to ongoing regulatory review.

        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, 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.

        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

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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 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.

        We and our 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 and could cause the market value of our common stock to decline.

        Our manufacturing facilities and those of our contract manufacturers must be inspected and found to be in full compliance with current good manufacturing practices ("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, but not limited to, warning letters, fines, injunctions, civil or criminal penalties, recall or seizure of products, total or partial suspension of production or importation, 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

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business, financial condition and results of operations and could cause the market value of our common stock 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 and could cause the market value of our common stock to decline.

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

Disruptions of delivery of our 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 stock to decline.

        The supply of our products to our customers is subject to and dependent upon the use of transportation services. Disruption of transportation services could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our common stock to decline.

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 or limited control, of such products, and therefore the amounts paid to us, could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our common stock to decline.

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

        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 us, have been the subject of claims related to these practices asserted by federal authorities. These claims have resulted in fines and other consequences to us. We are now operating under a Corporate Integrity Agreement ("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 against us, including monetary penalties and exclusion from federal health care programs.

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        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 have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our common stock to decline.

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 and, in light of our growth strategy, we anticipate continuing to expand our operations into new countries, including emerging markets. 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 and economic instability, credit market uncertainty, compliance with multiple regulatory regimes and restrictive governmental actions.

The general business and economic conditions in the U.S., Canada, Europe, Australia, Latin America and other countries in which we conduct business could have a material adverse impact on our liquidity and capital resources, revenues and operating results, which could cause the market value of our common stock to decline.

        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 or uncertainty about global economic conditions 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, financial condition and results of operations and could cause the market value of our common stock to decline.

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

        We face foreign currency exposure on the translation of our operations in Poland and other Eastern European countries, Canada, Australia and Latin America. Where possible, we manage foreign currency risk by managing 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. The international scope of our operations may also lead to volatile financial results and difficulties in managing our operations.

We must continue to retain, motivate and recruit executives and other key employees, and failure to do so could have a material adverse impact on our business, financial condition and results of operations and could cause the market value of our common stock to decline.

        We must continue to retain, motivate and recruit executives and other key employees. A failure by us to retain and motivate executives and other key employees could have a material adverse impact on our business, financial condition and results of operations and could cause the market value of our common stock to decline.

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We are exposed to risks related to interest rates.

        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 business, financial condition and results of operations and could cause the market value of our common stock to decline. As of December 31, 2011, we do not have any outstanding interest rate swap contracts.

We are involved in various legal proceedings that could have a material adverse impact on our business, financial condition and results of operations and could cause the market value of our common stock to decline.

        We are involved in several legal proceedings. Defending against claims and any unfavorable legal decisions, settlements or orders could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our common stock to decline.

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 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 stock 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, financial condition and results of operations and could cause the market value of our common stock to decline.

        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 have a material adverse impact on our business, financial condition and results of operations and could cause the market value of our common stock to decline.

        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

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result in fines and other sanctions. The United States Department of Health and Human Services Office of Inspector General recommends and, 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 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 criminal or civil penalties or remedial measures, any of which could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our common stock to decline.

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 and could cause the market value of our common stock to decline.

        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 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 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

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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, financial condition and results of operations and could cause the market value of our common stock to decline.

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, 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. The Supreme Court has agreed to hear argument on these challenges in March 2012 and we cannot predict at this time what impact these challenges will have on our business.

Item 1B.    Unresolved Staff Comments

        None.

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Item 2.    Properties

        We believe that we have sufficient facilities to conduct our operations during 2012. 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)

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  

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  

Laval, Quebec, Canada

   Offices, manufacturing and distribution facility   Owned     337,000  

Branded Generics — Latin America

                

Mexico City, Mexico

   Offices and manufacturing facility   Leased     98,000  

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     178,000  

Sao Paulo, Brazil

   Manufacturing facility   Owned     45,000  

Campinas, Brazil

   Manufacturing facility   Leased     26,000  

Branded Generics — Europe

                

Jelenia Gora, Poland

   Offices, laboratories and manufacturing and warehouse facility   Owned     452,000  

Rzeszow, Poland

   Offices, laboratories and manufacturing facility   Owned     407,000  

Ksawerow, Poland

   Offices and manufacturing facility   Owned     46,000  

Kaunas, Lithuania

   Offices and manufacturing facility   Owned     86,000  

Belgrade, Serbia

   Offices and manufacturing facility   Owned     163,000  

Belgrade, Serbia

   Offices, manufacturing and warehouse facility   Leased     154,000  
(1)
In the first half of 2011, we vacated our corporate headquarters in Mississauga and relocated to other smaller leased facilities.

        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.    Mine Safety Disclosures

        Not applicable.

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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$ 		 

2011

                          

First quarter

     51.13     28.06     49.62     28.82  

Second quarter

     55.00     47.28     53.38     45.05  

Third quarter

     57.24     34.12     54.28     35.27  

Fourth quarter

     47.58     32.05     48.29     33.91  

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 Acces

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, 2012 is 2,486.

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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 9-stock Custom Composite Index for the five years ended December 31, 2011, in all cases, assuming reinvestment of dividends. The Custom Composite Index consists of Allergan, Inc.; Endo Pharmaceuticals Holdings Inc.; Forest Laboratories, Inc.; Gilead Sciences, Inc.; Medicis Pharmaceutical Corporation; Mylan Inc.; Perrigo Company; Shire Pharmaceuticals Group plc and Watson Pharmaceuticals, Inc.

GRAPHIC

   
 
   Dec-06
   Dec-07
   Dec-08
   Dec-09
   Dec-10
   Dec-11
  
   

S&P 500 Index

     100     106     64     85     97     99  
   

S&P/TSX Composite Index

     100     110     68     99     117     107  
   

Valeant Pharmaceuticals International, Inc.

     100     70     53     89     190     314  
   

Custom Composite Index

     100     106     85     111     139     174  
   

Dividends

        No dividends were declared or paid in 2011. During 2010, we declared dividends per common share as follows:

Date Declared
  Dividend per share   Payment Date

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

   $ 1.370    
         

        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,

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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 any cash dividends in the foreseeable future. In addition, the covenants contained in the Second Amended and Restated Credit and Guaranty Agreement include restrictions on the payment of dividends.

        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.

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.

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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, 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 generally 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 any 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, or 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.

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        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.

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 2012 Annual 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 "2012 Proxy Statement"), and such required information is incorporated herein by reference.

Purchases of Equity Securities by the Company and Affiliated Purchases

        On November 4, 2010, we announced that our board of directors had approved a securities repurchase program, pursuant to which we could make purchases of our common shares, convertible notes and/or senior notes, from time to time, up to an aggregate maximum value of $1.5 billion, subject to any restrictions in our financing agreements and applicable law. On August 29, 2011, we announced that our board of directors had approved an increase of $300.0 million under our securities repurchase program (the "Securities Repurchase Program"). As a result, under the Securities Repurchase Program, we could repurchase up to $1.8 billion of our convertible notes, senior notes, common shares and/or other notes or shares that were issued prior to the completion of the program. Our board of directors also approved a sub-limit of up to 16.0 million common shares to be purchased for cancellation under a normal course issuer bid through the facilities of the NYSE and TSX, subject to obtaining the appropriate approvals. Initially, purchases under our Securities Repurchase Program of up to 15.0 million common shares could be made through the facilities of the NYSE, in accordance with applicable rules and guidelines, representing approximately 5% of our issued and outstanding common shares as of November 4, 2010. In August 2011, we filed, and the TSX approved, a Notice of Intention to make a normal course issuer bid to repurchase up to the remaining 1,000,000 common shares through the facilities of the TSX. Shareholders of the Company may obtain a copy of the Company's Notice of Intention with respect to its normal course issuer bid, at no charge, by contacting us. The Securities Repurchase Program terminated on November 7, 2011.

        On November 3, 2011, we announced that our board of directors had approved a new securities repurchase program (the "New Securities Repurchase Program"). Under the New Securities Repurchase Program, which commenced on November 8, 2011, we may make purchases of up to $1.5 billion of our convertible notes, senior notes, common shares and/or other future debt or shares. The New Securities Repurchase Program will terminate on November 7, 2012 or at such time as we complete our purchases. The amount of securities to be purchased and the timing of purchases under the New 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. The board of directors also approved a sub-limit under the New Securities Repurchase Program for the repurchase of an amount of common shares equal to the greater of 10% of our public float or 5% of our issued and outstanding common shares, in each case calculated as of the date of the commencement of the New Securities Repurchase Program. We are permitted to make purchases of up to 15,395,686 common shares on the open market through the facilities of the NYSE, representing approximately 5% of our issued and outstanding common shares. Subject to completion of appropriate filings with and approval by the TSX, we may also make purchases of our common shares over the

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facilities of the TSX. Purchases of common shares will be made at prevailing market prices of such shares on the NYSE or the TSX, as the case may be, at the time of the acquisition and shall be made in accordance with the respective rules and guidelines of the NYSE and the TSX. All common shares purchased under the New Securities Repurchase Program will be cancelled.

        During the year ended December 31, 2011, under the Securities Repurchase Program and New Securities Repurchase Program, we repurchased $203.8 million and $1.2 million aggregate principal amount of our 5.375% Convertible Notes, respectively, for an aggregate purchase price of $619.4 million and $3.9 million, respectively. In addition, in the year ended December 31, 2011, under the Securities Repurchase Program and New Securities Repurchase Program, we repurchased 13,664,599 and 1,534,857 of our common shares, respectively, for an aggregate purchase price of $574.1 million and $65.1 million, respectively. During the year ended December 31, 2011, under the Securities Repurchase Program and New Securities Repurchase Program, we also redeemed $10.0 million and $89.9 million aggregate principal amount of our Senior Notes, respectively, for an aggregate purchase price of $9.9 million and $88.7 million, respectively.

        In connection with the Securities Repurchase Program, through the termination date of November 7, 2011, the Company had repurchased approximately $1.5 billion, in the aggregate, of its convertible notes, common shares and senior notes. As of December 31, 2011, the Company had repurchased approximately $157.7 million, in the aggregate, of its convertible notes, senior notes and common shares under the New Securities Repurchase Program.

        Set forth below is the information regarding shares repurchased under the Securities Repurchase Program and the New Securities Repurchase Program during the fourth quarter of the year ended December 31, 2011:

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)
  

Securities Repurchase Program

                          

10/1/11

     —   $ —     —   $ 356,552  

10/1/11-10/31/11

     24,514 (2) $ 2,595.22     24,514 (2) $ 292,933  

11/1/11-11/7/11

     2,000 (2) $ 2,856.20     2,000 (2) $ 287,220  

    10,000 (3) $ 995.00     10,000 (3) $ 277,270  

New Securities Repurchase Program

                    

11/8/11

     —   $ —     —   $ 1,500,000  

11/8/11-11/30/11

     1,250 (2) $ 3,142.50     1,250 (2) $ 1,496,072  

    45,420 (3) $ 990.82     45,420 (3) $ 1,451,069  

    30,000 (4) $ 994.33     30,000 (4) $ 1,421,239  

    1,533,007 (5) $ 42.41     1,533,007 (5) $ 1,356,228  

12/1/11-12/31/11

     10,000 (6) $ 950.00     10,000 (6) $ 1,346,728  

    1,850 (5) $ 42.92     1,850 (5) $ 1,346,648  

    4,500 (4) $ 982.50     4,500 (4) $ 1,342,227  
(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.

(2)
$1,000 principal amount of 5.375% senior convertible notes due 2014.

(3)
$1,000 principal amount of 6.875% senior notes due 2018. For more information regarding our 6.875% senior notes due 2018, see note 14 of notes to consolidated financial statements in Item 15 of this Form 10-K.

(4)
$1,000 principal amount of 6.50% senior notes due 2016. For more information regarding our 6.50% senior notes due 2016, see note 14 of notes to consolidated financial statements in Item 15 of this Form 10-K.

(5)
Common shares.

(6)
$1,000 principal amount of 7.00% senior notes due 2020. For more information regarding our 7.00% senior notes due 2020, see note 14 of notes to consolidated financial statements in Item 15 of this Form 10-K.

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        Subsequent to December 31, 2011, we repurchased an additional $1.1 million principal amount of the 5.375% Convertible Notes for cash consideration of $4.0 million under the New Securities Repurchase Program.

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. generally accepted accounting principles ("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.

 
   Years Ended December 31  
 
   2011(1)(2)   2010(1)   2009   2008   2007  

Consolidated operating data:

                                

Revenues

   $ 2,463,450   $ 1,181,237   $ 820,430   $ 757,178   $ 842,818  

Operating income (loss)

     299,959     (110,085 )   181,154     124,109     188,014  
 

Net income (loss)

     159,559     (208,193 )   176,455     199,904     195,539  

Earnings (loss) per share:

                                
 

Basic

   $ 0.52   $ (1.06 ) $ 1.11   $ 1.25   $ 1.22  
 

Diluted

   $ 0.49   $ (1.06 ) $ 1.11   $ 1.25   $ 1.22  

Cash dividends declared per share

   $ —   $ 1.28   $ 0.65   $ 1.50   $ 1.50  

 

 
   At December 31  
 
   2011(1)(2)   2010(1)   2009   2008   2007  

Consolidated balance sheet:

                                

Cash and cash equivalents

   $ 164,111   $ 394,269   $ 114,463   $ 317,547   $ 433,641  

Working capital

     433,234     327,710     93,734     223,198     339,439  

Total assets

     13,141,713     10,795,117     2,059,290     1,623,565     1,782,115  

Long-term obligations

     6,651,011     3,595,277     326,085     —     —  

Common shares

     5,963,621     5,251,730     1,465,004     1,463,873     1,489,807  

Shareholders' equity (net assets)

     4,007,016     4,911,096     1,354,372     1,201,599     1,297,819  

Number of common shares issued and outstanding (000s)

     306,371     302,449     158,311     158,216     161,023  
(1)
Amounts for 2011 and 2010 include the impact of the Merger with Valeant on September 28, 2010. Amounts for 2011 also include the impact of several acquisitions of businesses. For more information regarding our acquisitions, see note 3 of notes to consolidated financial statements in Item 15 of this Form 10-K.

(2)
In 2011, we recognized impairment charges on IPR&D assets of $105.2 million in the fourth quarter of 2011, relating to the A002, A004, and A006 programs acquired as part of the Aton Pharma, Inc. acquisition in 2010, as well as the IDP-109 and IDP-115 dermatology programs. The impairment charges were triggered in the fourth quarter of 2011 due to unfavorable study results, feedback received from the FDA which would result in the incurrence of higher costs to perform additional studies, reassessment of risk and the probability of success, and/or pipeline prioritization decisions resulting in the re-allocation of Company resources to other research and development programs. In addition, we recognized $7.9 million and $19.8 million of impairment charges related to IDP-111 and 5-FU, respectively.

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

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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") as of December 31, 2011 and 2010 and each of the three years in the period ended December 31, 2011 (the "2011 Financial Statements").

        Additional information relating to the Company, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (the "2011 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 29, 2012.

        All dollar amounts are expressed in U.S. dollars, unless otherwise noted.

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").

        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 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, branded and OTC operations in Europe, Latin America, South East Asia and South Africa.

        Since the Merger, our strategy has been to focus our business on core geographies and therapeutic classes, manage pipeline assets either internally or 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 described below 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 are 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 focus on those businesses that we view to have the potential for strong operating margins and solid growth, while providing natural balance across geographies.

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

        We measure our success through total shareholder return and, on that basis, as of February 23, 2012, the market price of our common shares on the New York Stock Exchange ("NYSE") has increased approximately 85% and the market price of our common shares on the Toronto Stock Exchange ("TSX") has increased approximately 80%, since the Merger Date, as adjusted for the post-Merger special dividend of $1.00 per common share (the "post-Merger special dividend") described below under "BIOVAIL MERGER WITH VALEANT."

BIOVAIL MERGER WITH VALEANT

        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. As a result of the Merger, Valeant became a wholly-owned subsidiary of the Company. The fair value of the consideration transferred as of the Merger Date to effect the acquisition of Valeant amounted to $3.9 billion in the aggregate, which has been assigned primarily to identifiable intangible assets ($3.6 billion), goodwill ($3.0 billion), long-term debt assumed ($(2.9) billion), acquired IPR&D ($1.4 billion) and a net deferred income tax liability ($(1.3) billion).

        The significant components of the acquired IPR&D assets related to the development of ezogabine/retigabine ($891.5 million) 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 ($428.2 million), which are described below under "Products in Development". A multi-period excess earnings methodology (income approach) was used to determine the estimated fair value of the acquired IPR&D assets. The projected cash flows from these assets were adjusted for the probabilities of successful development and commercialization of each project. A risk-adjusted discount rate of 9% was used to determine the present value the projected cash flows. In connection with the first sale of Trobalt™ (retigabine) by GSK in the European Union in the second quarter of 2011, GSK paid us a $40 million milestone payment and will pay up to a 20% royalty on net sales of the product (see "Collaboration Agreement" below for further details). Material cash inflows are expected to commence between 2013 and 2016 for the dermatology products. Solely for purposes of estimating the fair value of these assets, we have estimated that we will incur costs of approximately $200 million, of which $26.4 million has been incurred through December 31, 2011, to complete the products in development.

        The aggregate fair value of the contingent consideration was determined to be $21.6 million as of the Merger Date and is related to Valeant's acquisition of Princeton Pharma Holdings LLC, and its wholly-owned operating subsidiary, Aton Pharma, Inc. ("Aton"). The contingent consideration consists of future milestones predominantly based upon achievement of approval and commercial targets for certain pipeline products (which are included in the fair value ascribed to the IPR&D assets acquired). The range of the undiscounted amounts we could be obligated to pay as contingent consideration ranges from nil to $390.0 million. During 2011, we suspended the development of the A002 program. For the year ended December 31, 2011, we recognized an impairment charge of $16.3 million to write down the IPR&D asset, which was recognized as Acquired IPR&D in our consolidated statements of income (loss). Refer to "Results of Operations — Acquired IPR&D" for further details regarding IPR&D impairment charges. The impairment charges were partially offset by a gain of $9.4 million due to changes in the fair value of acquisition-related contingent consideration. The gain was recognized as Acquisition-related contingent consideration in our consolidated statements of income (loss).

        On December 22, 2010, we paid a post-Merger special dividend of $1.00 per common share. 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.

        The Merger has resulted in, and is expected to continue to result in, significant strategic benefits to us 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

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


capitalization, profitability and our free cash flow are, and are expected to continue to be, stronger relative to either Biovail or Valeant on a stand-alone basis. We have achieved significant operational cost savings, coming from, among other things, reductions in research and development, general and administrative expenses, and sales and marketing.

        The Merger has been accounted for as a business combination under the acquisition method of accounting. Biovail was both the legal and accounting acquirer in the Merger. Accordingly, our consolidated financial statements reflect the assets, liabilities and results of operations of Valeant from the Merger Date.

ACQUISITIONS AND DISPOSITIONS

        Since the Merger, we have focused the business on core geographies and therapeutic classes through selective acquisitions, dispositions and strategic partnerships with other pharmaceutical companies. As described below, we have completed a number of transactions to expand our dermatology and branded generic product portfolios.

iNova

        On December 21, 2011, we acquired iNova from Archer Capital, Ironbridge Capital and other minority management shareholders. We made upfront payments of $656.7 million (AUD$657.9 million), and we will pay a series of potential milestones of up to $59.9 million (AUD$60.0 million) based on the success of pipeline activities, product registrations and overall revenue. The fair value of the contingent payments was determined to be $44.5 million as of the acquisition date. As of December 31, 2011, the assumptions used for determining the fair value of the acquisition-related contingent consideration have not changed significantly from those used at the acquisition date.

        The total fair value of consideration transferred of $701.2 million is comprised primarily of identifiable intangible assets ($424.0 million), goodwill ($211.8 million) and inventory ($43.4 million).

        In connection with the transaction, in November and December 2011, we entered into foreign currency forward-exchange contracts to buy AUD$625.0 million, which were settled on December 20, 2011. We have recorded a $16.4 million foreign exchange gain on the settlement of these contracts, which was recognized in Foreign exchange and other in our consolidated statements of income (loss) for the year ended December 31, 2011.

        iNova sells and distributes a range of prescription and OTC products in Australia, New Zealand, Southeast Asia and South Africa. iNova owns, develops and markets a diversified portfolio of prescription and OTC pharmaceutical products in the Asia Pacific region and South Africa, including leading therapeutic weight management brands such as Duromine®/Metermine®, as well as leading OTC brands in the cold and cough area, such as Difflam®, Duro-Tuss® and Rikodeine®.

Dermik

        On December 16, 2011, we acquired Dermik, a dermatological unit of Sanofi in the U.S. and Canada, as well as the worldwide rights to Sculptra® and Sculptra® Aesthetic, for a total cash purchase price of approximately $420.5 million. The acquisition includes Dermik's inventories and manufacturing facility located in Laval, Quebec. As described below, in connection with the acquisition of Dermik, we were required by the Federal Trade Commission ("FTC") to divest 1% clindamycin and 5% benzoyl peroxide gel, a generic version of BenzaClin®, and 5% fluorouracil cream, an authorized generic of Efudex®.

        The total fair value of the consideration transferred of $420.5 million is comprised primarily of identifiable intangible assets ($341.7 million), property, plant and equipment ($39.6 million) and inventory ($32.4 million).

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

        Dermik is a leading global medical dermatology business focused on the manufacturing, marketing and sale of therapeutic and aesthetic dermatology products.

Ortho Dermatologics

        On December 12, 2011, we acquired assets of the Ortho Dermatologics division of Janssen Pharmaceuticals, Inc. ("Janssen"), for a total cash purchase price of approximately $346.1 million. The assets acquired include prescription brands Retin-A Micro®, Ertaczo®, Renova® and Biafine®.

        The total fair value of the consideration transferred of $346.1 million is comprised primarily of identifiable intangible assets ($333.6 million).

        Ortho Dermatologics is a leader in the field of dermatology and, over the years, has developed several products to treat skin disorders and dermatologic conditions.

Afexa

        On October 17, 2011, we acquired 73.8% (80,929,921 common shares) of the outstanding common shares of Afexa Life Sciences Inc. ("Afexa") for cash consideration of $67.7 million. The acquisition date fair value of the 26.2% noncontrolling interest in Afexa of $23.8 million was estimated using quoted market prices on such date. At a special meeting of Afexa shareholders held on December 12, 2011, a subsequent acquisition transaction was approved resulting in the privatization of Afexa and the remaining shareholders receiving C$0.85 per share. Consequently, as of December 31, 2011, we owned 100% of Afexa.

        The total fair value of the consideration transferred of $91.5 million is comprised primarily of identifiable intangible assets ($80.6 million), inventory ($22.5 million) and a net deferred tax liability ($(20.5) million).

        Afexa currently markets several consumer brands, such as Cold-FX®, an OTC cold and flu treatment, and Coldsore-FX®, a topical OTC cold sore treatment.

Sanitas

        On August 19, 2011 (the "Sanitas Acquisition Date"), we acquired 87.2% of the outstanding shares of AB Sanitas ("Sanitas") for cash consideration of $392.3 million. Prior to the Sanitas Acquisition Date, we acquired 1,502,432 shares of Sanitas, which represented approximately 4.8% of the outstanding shares. As a result, as of the Sanitas Acquisition Date, we held a controlling financial interest in Sanitas of 92%, or 28,625,025 shares. The acquisition date fair value of the 8% noncontrolling interest in Sanitas of $34.8 million and the acquisition date fair value of the previously-held 4.8% equity interest of $21.1 million, were estimated using quoted market prices on such date. On September 2, 2011, we announced a mandatory non-competitive tender offer (the "Tender Offer") to purchase the remaining outstanding ordinary shares of Sanitas from all public shareholders at €10.06 per share. The Tender Offer closed on September 15, 2011, on which date we purchased an additional 1,968,631 shares (6.4% of the outstanding shares of Sanitas) for approximately $27.4 million. As a result of this purchase, we owned 30,593,656 shares or approximately 98.4% of Sanitas as of September 15, 2011. On September 22, 2011, we received approval from the Securities Commission of the Republic of Lithuania to conduct the mandatory tender offer through squeeze out procedures (the "Squeeze Out") at a price per one ordinary share of Sanitas equal to €10.06, which requested that all minority shareholders sell to us, the ordinary shares of Sanitas owned by them (512,264 ordinary shares, or 1.6% of Sanitas). The noncontrolling interest in Sanitas of approximately 1.6% to be acquired through the Squeeze Out procedures was classified as a liability in our consolidated balance sheet as it is mandatorily redeemable. As of December 31, 2011, the estimated amount due to Sanitas shareholders of $2.4 million was included in Accrued liabilities.

        The total fair value of the consideration transferred of $448.2 million is comprised primarily of the identifiable intangible assets ($247.1 million) and goodwill ($204.8 million).

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

        Sanitas has a broad branded generics product portfolio consisting of 390 products in nine countries throughout Central and Eastern Europe, primarily Poland, Russia and Lithuania. Sanitas has in-house development capabilities in dermatology, hospital injectables and ophthalmology, and a pipeline of internally developed and acquired dossiers.

Elidel®/Xerese®

        On June 29, 2011, we entered into a license agreement with Meda Pharma SARL ("Meda") to acquire the exclusive rights to commercialize both Elidel® Cream and Xerese® Cream in the U.S., Canada and Mexico. In addition, we and Meda have the right to undertake development work in respect of Elidel® and Xerese® products. We made an upfront payment to Meda of $76.0 million, and are obligated to pay a series of potential milestones of up to $16.0 million and guaranteed royalties totaling $120.0 million in the aggregate through 2011 and 2012. Thereafter, we will pay a double-digit royalty to Meda on net sales of Elidel®, Xerese® and Zovirax®, including additional minimum royalties of $120.0 million in the aggregate during 2013-2015. The fair value of the upfront and contingent consideration, inclusive of royalty payments, was determined to be $437.7 million as of the acquisition date. As the majority of the contingent consideration relates to future royalty payments, the amount ultimately to be paid under this arrangement will be dependent on the future sales levels of Elidel®, Xerese®, and Zovirax®. In accordance with the acquisition method of accounting, the royalty payments associated with this transaction are treated as part of the consideration paid for the business, and therefore we will not recognize royalty expense in our consolidated statements of income (loss) for these products. The royalty payments are being recorded as a reduction to the acquisition-related contingent consideration liability. For the year ended December 31, 2011, we recognized a loss of $11.2 million due to changes in the fair value of acquisition-related contingent consideration. The loss was recognized as Acquisition-related contingent consideration in our consolidated statements of income (loss). During the year ended December 31, 2011, we made $28.5 million of acquisition-related contingent consideration payments, including royalties and milestones, related to this transaction. In January 2012, we made additional royalty and milestone payments totaling $27.5 million.

        The total fair value of the consideration transferred is comprised primarily of product brands intangible assets ($406.4 million), acquired IPR&D assets ($33.5 million) and a net deferred tax liability ($(2.2) million). The acquired IPR&D assets relate to the development of a Xerese® life-cycle product. The projected cash flows from the acquired IPR&D assets were adjusted for the probability of successful development and commercialization of the product. A risk-adjusted discount rate of 13% was used to present value the projected cash flows. Material cash inflows for the Xerese® life-cycle product are expected to commence in 2014. We have estimated that we will incur costs of approximately $14.0 million to complete the project.

Zovirax®

        On February 22, 2011 and March 25, 2011, we acquired the U.S. and Canadian rights, respectively, to non-ophthalmic topical formulations of Zovirax® from GSK. Pursuant to the terms of the asset purchase agreements, we paid GSK an aggregate amount of $300.0 million in cash for both the U.S. and Canadian rights. We had 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 new supply agreements and new trademark license agreements with GSK with respect to the U.S. and Canadian territories.

PharmaSwiss

        On March 10, 2011, we acquired 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. As of the acquisition date, the total consideration transferred to effect the acquisition of PharmaSwiss comprised cash paid of $491.2 million (€353.1 million) and the rights to contingent consideration

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


payments of up to $41.7 million (€30.0 million) if certain net sales milestones of PharmaSwiss were achieved for the 2011 calendar year.

        The fair value of the contingent payments was determined to be $27.5 million as of the acquisition date. For the year ended December 31, 2011, we recognized a gain of $13.2 million due to changes in the fair value of acquisition-related contingent consideration. The gain was recognized as Acquisition-related contingent consideration in our consolidated statements of income (loss). We are determining whether a contingent consideration payment of $13.0 million (€10.0 million) is payable based on the net sales results for the 2011 calendar year.

        The total fair value of consideration transferred of $518.7 million is comprised primarily of identifiable intangible assets ($209.2 million), goodwill ($159.7 million) and inventories ($70.3 million).

        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 Serbia, Hungary, the Czech Republic and Poland, as well as in Greece and Israel.

Lodalis™

        On February 9, 2011, we acquired the Canadian rights to Lodalis™ (colesevelam hydrochloride), an oral bile acid sequestrant for hypercholesterolemia, from Genzyme Corporation ("Genzyme") for a $2.0 million upfront payment, to be followed by potential future milestone payments totaling up to $7.0 million. This acquisition was accounted for as a purchase of IPR&D assets with no alternative future use and, accordingly, the upfront payment was charged to acquired IPR&D expense as of the acquisition date. In the second quarter of 2011, we made a first milestone payment of $2.0 million to Genzyme, which was charged to acquired IPR&D expense in the period. In September 2011, colesevelam hydrochloride received regulatory approval from Health Canada, in the form of a Notice of Compliance ("NOC"), for commercialization in Canada, which triggered an additional milestone payment of $5.0 million, which we paid in October 2011. We recognized this milestone as an intangible asset in our consolidated balance sheet as of December 31, 2011. Subsequently, we filed for a product name change and a manufacturer name change, and the NOC for Lodalis™ was received from Health Canada on December 28, 2011. The product was launched in Canada in February 2012.

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.

        Under a separate agreement dated November 1, 2010, we 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 ribavirin 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).

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

Other Acquisitions

        In 2011, we acquired Ganehill Pty Limited ("Ganehill"), an Australian company engaged in the marketing and distribution of skin care products under the Invisible Zinc® brand. The fair value of the total cash and contingent consideration transferred to effect the acquisition of Ganehill was $19.4 million, which was assigned primarily to product brands intangible assets ($12.7 million) and goodwill ($5.4 million). In addition, we acquired the product rights in Greece for Procef®, Niflamol®, Superace®, and Monopril® for total consideration of $12.0 million, which was assigned primarily to identifiable intangible assets, and we also acquired certain other businesses, including the Canadian rights to Aczone™, Delatestryl® and Viroptic®, for approximately $17.7 million in the aggregate, which was assigned primarily to identifiable intangible assets. We also acquired from Fleming and Company, Pharmaceuticals the product rights to a number of brands, including Ocean® and Nephrocaps®. The fair value of the total consideration transferred was $15.7 million, which was assigned primarily to product brands intangible assets.

Divestitures of IDP-111 and 5-FU

        In connection with the acquisition of Dermik, we were required by the FTC to divest 1% clindamycin and 5% benzoyl peroxide gel ("IDP-111"), a generic version of BenzaClin®, and 5% fluorouracil cream ("5-FU"), an authorized generic of Efudex®.

        On February 3, 2012, we sold the IDP-111 and 5-FU products to Mylan Pharmaceuticals, Inc. for $66.2 million in cash. In the fourth quarter of 2011, we recognized $7.9 million and $19.8 million of impairment charges related to the write-down of the carrying values of the IDP-111 and 5-FU intangible assets, respectively, to their estimated fair values, less costs to sell. The impairment charges are included in Amortization of intangible assets in our consolidated statements of income (loss) for the year ended December 31, 2011. The adjusted carrying values of $54.4 million and $14.8 million for IDP-111 and 5-FU, respectively, were classified as Assets held for sale on our consolidated balance sheet as of December 31, 2011 and are included within the U.S. Dermatology reporting segment.

Cloderm®

        On March 31, 2011, we out-licensed product rights to Cloderm® Cream, 0.1%, in the U.S. to Promius Pharma LLC, an affiliate of Dr. Reddy's Laboratories, in exchange for a $36.0 million upfront payment, which was received in early April 2011, and future royalty payments. In connection with the out-license of product rights to Cloderm®, we recognized the upfront payment as alliance revenue in the first quarter of 2011, and expensed the $30.7 million carrying amount of the Cloderm® intangible assets as cost of alliance revenue. We are recognizing the future royalty payments as alliance revenue as they are earned.

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

PRODUCTS IN DEVELOPMENT

        The following products, among others, are currently (or were during 2011) in clinical development:

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

Dermatology Products

        A number of dermatology product candidates are in development including:

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

COLLABORATION AGREEMENT

        In October 2008, Valeant closed the License and Collaboration Agreement (the "Collaboration Agreement") to develop ezogabine/retigabine in collaboration with GSK. 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.

        Under the terms of the Collaboration Agreement, GSK will pay us up to $545.0 million, of which $40.0 million was received and recognized by us in the second quarter of 2011, as described below, 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.

        In March 2011, the European Commission granted marketing authorization for Trobalt™ (retigabine) as an adjunctive treatment of partial onset seizures, with or without secondary generalization in adults aged 18 years and above with epilepsy. In June 2011, the FDA approved the NDA for Potiga™ (ezogabine) tablets as adjunctive treatment of partial-onset seizures in patients aged 18 years and older; however, the FDA recommended that ezogabine be scheduled as a controlled substance under the Controlled Substances Act prior to the marketing or launch of Potiga™. In December 2011, ezogabine/retigabine received scheduling as a controlled substance, which triggered the commencement of amortization.

        In connection with the first sale of Trobalt™ by GSK in the European Union (which occurred in early May 2011), GSK paid us a $40.0 million milestone payment and will pay up to a 20% royalty on net sales of the product. Upon the first sale of Potiga™ in the U.S. (which is anticipated to occur in the second quarter of 2012), GSK will pay us a $45.0 million milestone payment, and we will share up to 50% of the net profits from the sale of Potiga™. We are recognizing the milestone payments as alliance and royalty revenue upon achievement. Our selling, general and administrative expenses will continue to increase through the second quarter of 2012, in connection with pre-launch activities associated with Potiga™.

        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 are required to make certain milestone and royalty payments to Meda Pharma. Within the U.S., Canada, Australia and New Zealand, any royalty payments 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. In connection with the approval of the NDA for Potiga™, we made a $6.0 million milestone payment to Meda Pharma in the second quarter of 2011. As this potential milestone payment had been included in the estimated net future cash flows used to determine the fair value for the ezogabine/retigabine IPR&D assets as of the Merger Date, the payment of this milestone to Meda Pharma was recorded as an addition to the value of those assets.

37


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

        The complementary nature of the Biovail and Valeant businesses has provided an opportunity to capture significant operating synergies from reductions in research and development, general and administrative expenses, and sales and marketing. In total, we have identified approximately $350 million of annual cost synergies that we expect to realize by the end of 2012. Approximately $315 million of cost synergies were realized in 2011. This amount does not include potential revenue synergies or the potential benefits of expanding the Biovail corporate structure to Valeant's operations.

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

        We estimate that we will incur total costs in the range of up to $185 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, of which $181.8 million has been incurred as of December 31, 2011. These costs include: employee termination costs (including related share-based payments) payable to approximately 500 employees of Biovail and Valeant who have been terminated as a result of Merger; IPR&D termination costs related to the transfer to other parties of product-development programs that did not align with our research and development model; costs to consolidate or close facilities and relocate employees, asset impairment charges to write down property, plant and equipment to fair value; and contract termination and lease cancellation costs.

        The following table summarizes the major components of costs incurred in connection with our Merger-related initiatives through December 31, 2011:

 
   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)
  $   $   $   $   $  

Balance, January 1, 2010

     —     —     —     —     —  

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  

Costs incurred and charged to expense

     14,548     3,455     —     28,938     46,941  

Cash payments

     (38,168 )   (2,033 )   —     (15,381 )   (55,582 )

Non-cash adjustments

     989     (741 )   —     (4,913 )   (4,665 )
                       

Balance, December 31, 2011

     2,158     681     —     10,314     13,153  
                       
(1)
As described below under "— Research and Development Pipeline Rationalization".

        We do not record restructuring costs in our business segments.

38


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

Employee Termination Costs

        We recognized employee termination costs of $14.5 million and $58.7 million in 2011 and 2010, respectively, for severance and related benefits payable to approximately 500 employees of Biovail and Valeant who have been 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, 2011, $72.1 million of the termination costs had been paid, and we expect that the remaining costs will be paid in the first quarter of 2012.

        In addition, we recognized incremental share-based compensation expense of $3.5 million and $49.5 million in 2011 and 2010, respectively, related to stock options and restricted share units ("RSUs") held by terminated employees of Biovail and Valeant.

Research and Development Pipeline Rationalization

        Prior to the Merger, our product development and business development efforts were focused on unmet medical needs in specialty central nervous system ("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 our new research and development model. As a result, we recognized IPR&D termination charges of $13.8 million related to negotiated settlements with counterparties, which we recognized and paid in the fourth quarter of 2010.

        In addition to the settlement payments described above, we 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.

Contract Termination, Facility Closure and Other Costs

        Facility closure costs incurred in 2011 included a $9.8 million charge for the remaining operating lease obligations (net of estimated sublease rentals that could be reasonably obtained) related to our vacated Mississauga, Ontario corporate office facility and a charge of $1.4 million related to a lease termination payment on our Aliso Viejo, California corporate office facility. We have transitioned a number of our corporate office functions to Bridgewater, New Jersey. As a result, a portion of the previously vacated space in the Bridgewater facility have been reoccupied, resulting in a $2.0 million reversal of a previously recognized restructuring accrual related to that space.

        In addition to costs associated with our Merger-related initiatives, we incurred $50.9 million of integration-related costs in 2011, of which $37.5 million had been paid as of December 31, 2011. These costs were primarily related to the integration of operations following the acquisitions of Afexa, PharmaSwiss, Dermik, Ortho Dermatologics, Sanitas and iNova, the consolidation of our manufacturing facilities in Brazil, and worldwide systems integration initiatives. We have identified approximately $200 million, in the aggregate, in expected annualized cost synergies related to these acquisitions. In 2011, we began implementing the actions necessary to realize these synergies, and we anticipate that the implementation will be completed in 2012.

39


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

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 during the three year ended December 31, 2011:

 
   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, 2009

     —     —     —     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  
                               

Costs incurred and charged to expense

     —     —     —     —     —     (356 )   (356 )

Cash payments

     —     —     —     —     —     (1,078 )   (1,078 )

Non-cash adjustments

     —     —     —     —     —     (2,246 )   (2,246 )
                               

Balance, December 31, 2011

     —     —     —     —     —     —     —  
                               

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.

        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 in 2010 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 in 2010 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, we recorded impairment charges of $7.6 million to write down the carrying value of the property, plant and equipment located in Puerto Rico to its estimated fair value.

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

40


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


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.

        Prior to 2010, we completed the closure of our research and development facilities in Mississauga, Ontario and Dublin, Ireland, and the consolidation of our previous 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. In June 2011, we vacated this facility. Refer above under "Restructuring and Integration — Merger-Related Cost-Rationalization and Integration Initiatives — Contract Termination, Facility Closure and Other Costs", for further discussion.

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

        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 has been 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 2011 or 2010. In 2011, we made a total payment of $0.6 million related to the annual fee assessed on prescription drug manufacturers and importers that sell branded prescription drugs to specified U.S. government programs (e.g., Medicare and Medicaid). We have also incurred a cost of $6.0 million on Medicare Part D utilization incurred by beneficiaries whose prescription drug costs cause them to be subject to the Medicare Part D coverage gap (i.e., the "donut hole").

        Various legal challenges have been filed against this new legislation, with some lower courts reaching conflicting decisions. The Supreme Court has agreed to hear argument on these challenges in March 2012. We cannot predict at this time what impact these challenges will have on our business.

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.

41


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

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

 
   Years Ended December 31   Change  
 
   2011   2010   2009   2010 to 2011   2009 to 2010  
($ in 000s, except per share data)
  $   $   $   $   %   $   %  

Revenues

     2,463,450     1,181,237     820,430     1,282,213     109     360,807     44  

Net income (loss)

     159,559     (208,193 )   176,455     367,752     NM     (384,648 )   NM  

Basic earnings (loss) per share

     0.52     (1.06 )   1.11     1.58     NM     (2.17 )   NM  

Diluted earnings (loss) per share

     0.49     (1.06 )   1.11     1.55     NM     (2.17 )   NM  

Cash dividends declared per share

     —     1.280     0.645     (1.280 )   NM     0.635     NM  

 

 
   As of December 31   Change  
 
   2011   2010   2009   2010 to 2011   2009 to 2010  
 
   $   $   $   $   %   $   %  

Total assets

     13,141,713     10,795,117     2,059,290     2,346,596     22     8,735,827     424  

Long-term debt, including current portion

     6,651,011     3,595,277     326,085     3,055,734     85     3,269,192     NM  

NM — Not meaningful

Financial Performance

Changes in Revenues

        Total revenues increased $1,282.2 million, or 109%, to $2,463.5 million in 2011, compared with $1,181.2 million in 2010, primarily due to:

        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:

42


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

        Those factors were partially offset by:

Changes in Earnings

        Net income increased $367.8 million to $159.6 million (basic and diluted earnings per share ("EPS") of $0.52 and $0.49, respectively) in 2011, compared with net loss of $208.2 million (basic and diluted loss per share of $1.06) in 2010, reflecting the following factors:

        Those factors were partially offset by:

43


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

        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 EPS of $1.11) in 2009, reflecting the following factors:

44


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

        Those factors were partially offset by:

Cash Dividends

        No dividends were declared or paid in 2011. 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. In addition, the covenants contained in the Second Amended and Restated Credit and Guaranty Agreement (the "Credit Agreement") include restrictions on the payment of dividends. Prior to the Merger, we declared cash dividends per share of $0.28 in 2010, compared with $0.645 in 2009. 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").

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:

        As described in Item 1 titled "Business" of this Form 10-K, we are planning to change our segment structure effective in the first quarter of 2012.

45


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

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 sum due to rounding.

 
   Years Ended December 31   Change  
 
   2011(1)   2010(2)   2009   2010 to 2011   2009 to 2010  
($ in 000s)
  $   %   $   %   $   %   $   %   $   %  

U.S. Neurology and Other(3)

     829,289     34     658,312     56     575,321     70     170,977     26     82,991     14  

U.S. Dermatology(4)

     568,298     23     219,008     19     146,267     18     349,290     159     72,741     50  

Canada and Australia(5)

     340,240     14     161,568     14     83,959     10     178,672     111     77,609     92  

Branded Generics — Europe(6)

     470,783     19     73,312     6     14,883     2     397,471     542     58,429     393  

Branded Generics — Latin America

     254,840     10     69,037     6     —     —     185,803     NM     69,037     NM  
                                               

Total revenues

     2,463,450     100     1,181,237     100     820,430     100     1,282,213     109     360,807     44  
                                           
(1)
Reflects revenues from Valeant products and services as follows: U.S. Neurology and Other — $229.5 million; U.S. Dermatology — $275.0 million; Canada and Australia — $190.1 million; Branded Generics — Europe — $186.3 million; and Branded Generics — Latin America — $253.8 million.

(2)
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.

(3)
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.

(4)
Includes sales of Zovirax® products.

(5)
Includes sales of Wellbutrin® XL, Tiazac® and Glumetza® products. In addition, includes revenues from Afexa's product sales of Cold-FX®.

(6)
Includes sales of Xenazine® and Wellbutrin XL® products in countries outside of the U.S. and Canada.

        Total revenues increased $1,282.2 million, or 109%, to $2,463.5 million in 2011, compared with $1,181.2 million in 2010. A substantial portion of the increase in 2011 was due to an increase in incremental revenues from Valeant of $860.1 million, while the remaining increase was mainly attributable to the effect of the following factors:

46


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. 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 was mainly attributable to the effect of the following factors:

        Those factors were partially offset by:

47


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 segment 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  
 
   2011(1)   2010(2)   2009   2010 to 2011   2009 to 2010  
($ in 000s)
  $   %   $   %   $   %   $   %   $   %  

U.S. Neurology and Other

     415,273     50     251,129     38     274,548     48     164,144     65     (23,419 )   (9 )

U.S. Dermatology

     185,129     33     47,737     22     87,860     60     137,392     288     (40,123 )   (46 )

Canada and Australia

     104,083     31     51,043     32     35,037     42     53,040     104     16,006     46  

Branded Generics — Europe

     18,331     4     20,646     28     9,152     61     (2,315 )   (11 )   11,494     126  

Branded Generics — Latin America

     (2,164 )   (1 )   (3,889 )   (6 )   —     —     1,725     NM     (3,889 )   NM  
                                                     

Total segment profit

     720,652     29     366,666     31     406,597     50     353,986     97     (39,931 )   (10 )
                                           
(1)
Segment profit (loss) reflects Valeant's operations, including the impact of acquisition accounting adjustments related to inventory and identifiable intangible assets as follows: U.S. Neurology and Other — $42.6 million; U.S. Dermatology — $54.5 million; Canada and Australia — $32.3 million; Branded Generics — Europe — $30.1 million; and Branded Generics — Latin America — $48.7 million.

(2)
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.

48


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

        Total segment profit increased $354.0 million, or 97%, to $720.7 million in 2011, compared with $366.7 million in 2010, mainly attributable to the net impact of the factors described in the footnotes under the Segment Profit table above as well as the following:

        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:

49


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 sum due to rounding.

 
   Years Ended December 31   Change  
 
   2011   2010   2009   2010 to 2011   2009 to 2010  
($ in 000s)
  $   %   $   %   $   %   $   %   $   %  

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

     683,750     28     395,595     33     204,309     25     288,155     73     191,286     94  

Cost of alliance and service revenues

     43,082     2     10,155     1     13,849     2     32,927     324     (3,694 )   (27 )

Selling, general and administrative

     572,472     23     276,546     23     167,633     20     295,926     107     108,913     65  

Research and development

     65,687     3     68,311     6     47,581     6     (2,624 )   (4 )   20,730     44  

Amortization of intangible assets

     557,814     23     219,758     19     104,730     13     338,056     154     115,028     110  

Restructuring and integration costs

     97,667     4     140,840     12     30,033     4     (43,173 )   (31 )   110,807     369  

Acquired IPR&D

     109,200     4     89,245     8     59,354     7     19,955     22     29,891     50  

Acquisition-related costs

     32,964     1     38,262     3     5,596     1     (5,298 )   (14 )   32,666     584  

Legal settlements

     11,841     —     52,610     4     6,191     1     (40,769 )   (77 )   46,419     750  

Acquisition-related contingent consideration

     (10,986 )   —     —     —     —     —     (10,986 )   NM     —     NM  
                                               

Total operating expenses

     2,163,491     88     1,291,322     109     639,276     78     872,169     68     652,046     102  
                                           

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 $288.2 million, or 73%, to $683.8 million in 2011, compared with $395.6 million in 2010. The cost of goods sold as a percentage of total revenue decreased from 33% in 2010 to 28% in 2011, primarily due to the effect of a lower supply price for Zovirax® inventory purchased from GSK, as a result of a new supply agreement that became effective with the acquisition of the U.S. commercialization rights, which favorably impacted cost of goods sold by $48.7 million in 2011.

50


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

        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:

Cost of Alliance and Service Revenues

        Cost of alliance and services revenues reflects the costs associated with providing contract services to, and generating alliance revenue from, external customers.

        Cost of alliance and service revenues increased $32.9 million to $43.1 million in 2011, compared with $10.2 million in 2010, primarily due to the inclusion of the $30.7 million carrying amount of the Cloderm® intangible asset, which was expensed on the out-license of the product rights in the first quarter of 2011.

        Cost of alliance and service revenues declined $3.7 million, or 27%, to $10.2 million in 2010, compared with $13.8 million in 2009, primarily due to:

        That factor was partially offset by:

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.

51


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

        Selling, general and administrative expenses increased $295.9 million, or 107%, to $572.5 million in 2011, compared with $276.5 million in 2010, primarily due to:

        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:

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.

        Research and development expenses declined $2.6 million, or 4%, to $65.7 million in 2011, compared with $68.3 million in 2010, which was attributable to the net effect of the termination of certain of our specialty CNS drug development programs in the fourth quarter of 2010 partially offset by the addition of a full year of Valeant's research and development expenses in 2011.

        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 assessed our product development pipeline and 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 enrollment and a lack of commercial interest in the product, and recognized the contractual obligations related to the termination of these studies.

52


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

Amortization of Intangible Assets

        Amortization expense increased $338.1 million, or 154%, to $557.8 million in 2011, compared with $219.8 million in 2010, primarily due to:

        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.

Restructuring and Integration Costs

        As described above under "Restructuring and Integration — Merger-Related Cost-Rationalization and Integration Initiatives and — Pre-Merger Cost-Rationalization Initiatives", we recognized primarily Merger-related restructuring charges and other integration costs of $97.7 million in 2011, compared with restructuring charges of $140.8 million and $30.0 million in 2010 and 2009, 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 2011, we recorded charges of $109.2 million related to the impairment of acquired IPR&D assets relating to the A002, A004, and A006 programs acquired as part of the Aton acquisition in 2010, as well as the IDP-109 and IDP-115 dermatology programs ($105.2 million). The impairment charges were triggered in the fourth quarter of 2011 due to unfavorable study results, feedback received from the FDA which would result in the incurrence of higher costs to perform additional studies, reassessment of risk and the probability of success, and/or pipeline prioritization decisions resulting in the re-allocation of our resources to other research and development ("R&D") programs. In addition in 2011, we recorded a charge of $4.0 million related to the acquisition of the Canadian rights to Lodalis™, which was accounted for as a purchase of IPR&D assets with no alternative future use.

        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 of 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.

Acquisition-Related Costs

        Acquisition-related costs declined $5.3 million, or 14%, to $33.0 million in 2011, compared to $38.3 million in 2010, reflecting lower Merger-related expenses incurred in 2011, partially offset by acquisition-related expenses for PharmaSwiss, Sanitas, Dermik, Ortho Dermatologics, Afexa and iNova. In 2009, we incurred costs of $5.6 million in connection with the tetrabenazine acquisition.

53


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

Legal Settlements

        In 2011, we recorded legal settlement charges of $11.8 million primarily due to the settlement of litigation and disputes related to revenue-sharing arrangements with, or other payment obligations to, third parties.

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

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  
 
   2011   2010   2009   2010 to 2011   2009 to 2010  
($ in 000s; Income (Expense))
  $   $   $   $   %   $   %  

Interest income

     4,084     1,294     1,118     2,790     216     176     16  

Interest expense

     (333,041 )   (84,307 )   (24,881 )   (248,734 )   295     (59,426 )   239  

Write-down of deferred financing charges

     (1,485 )   (5,774 )   (537 )   4,289     (74 )   (5,237 )   NM  

Loss on extinguishment of debt

     (36,844 )   (32,413 )   —     (4,431 )   14     (32,413 )   NM  

Foreign exchange and other

     26,551     574     507     25,977     NM     67     13  

Gain (loss) on investments, net

     22,776     (5,552 )   17,594     28,328     NM     (23,146 )   (132 )
                                   

Total non-operating expense

     (317,959 )   (126,178 )   (6,199 )   (191,781 )   152     (119,979 )   NM  
                               

NM — Not meaningful

Interest Expense

        Interest expense increased $248.7 million, or 295%, to $333.0 million in 2011, compared with $84.3 million in 2010, reflecting $243.4 million related to the legacy Valeant debt assumed as of the Merger Date (partially reduced by the repayment of the Term Loan A Facility in the first quarter of 2011) and the post-Merger issuances of senior notes in the fourth quarter of 2010 and first quarter of 2011, $25.3 million related to the borrowings under our senior secured term loan facility in the third quarter of 2011 and the borrowings under our senior secured credit facilities in the fourth quarter of 2011, partially offset by a decrease of $19.2 million in interest expense related to the repurchases of 5.375% Convertible Notes (as described below under "Financial Condition, Liquidity and Capital Resources — Financial Assets (Liabilities)"). Interest expense in 2011 includes non-cash amortization of debt discounts and deferred financing costs of $25.6 million, in the aggregate.

        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.

Write-Down of Deferred Financing Charges

        In 2011, we recorded $1.5 million of charges primarily due to a write-off of $1.0 million of deferred financing costs as a result of the amendment and restatement of the credit agreement on October 20, 2011. For more information regarding the credit agreement, see below "Financial Condition, Liquidity and Capital Resources — Financial Assets (Liabilities)".

        In 2010, we recorded a write-off of $5.8 million of deferred financing costs as a result of the termination of the Biovail secured revolving credit facility as of the Merger Date.

54


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

Loss on Extinguishment of Debt

        In 2011, we recognized losses of $36.8 million, primarily related to the repurchase of a portion of the 5.375% Convertible Notes ($31.6 million) (as described below under "Financial Condition, Liquidity and Capital Resources — Securities Repurchase Program and New Securities Repurchase Program") and the share settlement of the 4.0% Convertible Notes ($4.7 million) (as described below under "Financial Condition, Liquidity and Capital Resources — Financial Assets (Liabilities)").

        In 2010, we recognized losses of $32.4 million, primarily related to the repurchase of a portion of the 5.375% Convertible Notes ($20.7 million) (as described below under "Financial Condition, Liquidity and Capital Resources — Securities Repurchase Program") and on the cash settlement of the written call options on our common shares ($10.1 million).

Foreign Exchange and Other

        Foreign exchange and other increased $26.0 million to $26.6 million in 2011, compared with $0.6 million in 2010, primarily due to the $16.4 million and $2.7 million net gain realized on foreign currency forward contracts entered in connection with the acquisitions of iNova and PharmaSwiss, respectively, in 2011.

Gain (Loss) on Investments, Net

        In March 2011, in connection with an offer to acquire Cephalon, we invested $60.0 million to acquire shares of common stock of Cephalon. On May 2, 2011, Cephalon announced that it had agreed to be acquired by Teva Pharmaceutical Industries Inc. and, consequently, we disposed of our entire equity investment in Cephalon for net proceeds of $81.3 million, which resulted in a net realized gain of $21.3 million that was recognized in earnings in the second quarter of 2011.

        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 in 2009. In addition, 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 sum due to rounding.

 
   Years Ended December 31   Change
 
   2011   2010   2009   2010 to 2011   2009 to 2010
($ in 000s; Income (Expense))
  $   $   $   $   %   $   %

Current income tax expense

     (39,891 )   (27,333 )   (14,500 )   (12,558 ) 46     (12,833 ) 89

Deferred income tax benefit

     217,450     55,403     16,000     162,047   NM     39,403   NM
                             

Total recovery of income taxes

     177,559     28,070     1,500     149,489   NM     26,570   NM
                             

NM — Not meaningful

        In 2011, our effective tax rate was impacted by (i) the release of valuation allowance against a portion of the deferred tax assets in respect of our Canadian tax attributes recognized to the extent of deferred tax liabilities from acquisition; (ii) the release of liabilities for uncertain tax positions; (iii) changes in enacted state tax law for the U.S.; (iv) non-deductible stock based compensation and realized foreign exchange gains where a full valuation allowance is recorded against tax loss carryforwards; (v) income earned in jurisdictions with a lower statutory rate than in Canada and (vi) losses in a jurisdiction with a higher statutory tax rate than in Canada.

55


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

        In each of the fourth quarters of 2010 and 2009, 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 in the fourth quarter of 2009, with a corresponding increase to net income. In 2010, the Merger resulted in U.S. federal and state tax loss carryforwards becoming subject to the ownership change limitations of the U.S. Internal Revenue Code and similar state legislation. As a result, we increased the valuation allowance by $45.4 million in the fourth quarter of 2010, with a corresponding decrease to net income. In Canada, due to deferred tax liabilities arising from the Merger, we reduced valuation allowance by $46.9 million in the fourth quarter of 2010, with a corresponding increase to net income. In determining the amount of the valuation allowance that was necessary, we considered the amount of U.S. tax loss carryforwards, Canadian tax loss carryforwards, scientific research and experimental development pool, and investment tax credits that we would more likely than not be able to utilize based on future sources of income.

SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

        The following table presents a summary of our unaudited quarterly results of operations and operating cash flows in 2011 and 2010:

 
   2011   2010  
 
   Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4  
($ in 000s)
  $   $   $   $   $   $   $   $  

Revenue

     565,026     609,387     600,584     688,453     219,635     238,771     208,267     514,564  

Expenses

     490,283     490,921     488,226     694,061     203,268     189,959     334,579     563,516  
                                   

Operating income (loss)

     74,743     118,466     112,358     (5,608 )   16,367     48,812     (126,312 )   (48,952 )
                                   

Net income (loss)

     6,482     56,360     40,862     55,855     (3,150 )   33,969     (207,882 )   (31,130 )
                                   

Basic earnings (loss) per share

     0.02     0.19     0.13     0.18     (0.02 )   0.21     (1.27 )   (0.10 )
                                   

Diluted earnings (loss) per share

     0.02     0.17     0.13     0.18     (0.02 )   0.21     (1.27 )   (0.10 )
                                   

Net cash provided by (used in) operating activities

     86,330     226,656     173,707     189,780     44,753     108,913     110,924     (1,399 )
                                   

Fourth Quarter of 2011 Compared to Fourth Quarter of 2010

Results of Operations

        Total revenues increased $173.9 million, or 34%, to $688.5 million in the fourth quarter of 2011, compared with $514.6 million in the fourth quarter of 2010, reflecting the following factors:

        Those factors were partially offset by:

56


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

        Net income increased $87.0 million to $55.9 million in the fourth quarter of 2011, compared with net loss of $31.1 million in the fourth quarter of 2010, reflecting the following factors:

        Those factors were partially offset by:

Cash Flows From Operations

        Net cash provided by operating activities was $189.8 million in the fourth quarter of 2011, compared with net cash used in operating activities of $1.4 million in the fourth quarter of 2010, reflecting an increase of $191.2 million, primarily due to:

57


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

        The remaining increase is primarily due to the inclusion of cash flows from the operations of PharmaSwiss, Elidel®/Xerese®, Sanitas, Dermik, Ortho Dermatologics and Afexa in 2011, as well as growth from our existing portfolio.

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, 2011 and 2010:

 
   As of December 31    
    
  
 
   2011   2010   Change  
($ in 000s; Asset (Liability))
  $   $   $   %  

Cash and cash equivalents

     164,111     394,269     (230,158 )   (58 )

Long-lived assets(1)

     11,670,826     9,655,908     2,014,918     21  

Long-term debt, including current portion

     (6,651,011 )   (3,595,277 )   (3,055,734 )   85  

Shareholders' equity

     4,007,016     4,911,096     (904,080 )   (18 )
(1)
Long-lived assets comprise property, plant and equipment, intangible assets and goodwill.

Cash and Cash Equivalents

        Cash and cash equivalents declined $230.2 million, or 58%, to $164.1 million as of December 31, 2011, compared with $394.3 million at December 31, 2010, which primarily reflected the following uses of cash:

58


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

        Those factors were partially offset by the following sources of cash:

Long-Lived Assets

        Long-lived assets increased $2,014.9 million, or 21%, to $11,670.8 million as of December 31, 2011, compared with $9,655.9 million at December 31, 2010, primarily due to:

        Those factors were partially offset by:

59


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

Long-term Debt

        Long-term debt (including the current portion) increased $3,055.7 million, or 85%, to $6,651.0 million as of December 31, 2011, compared with $3,595.3 million at December 31, 2010, primarily due to:

        Those factors were partially offset by:

Shareholders' Equity

        Shareholders' equity declined $904.1 million, or 18%, to $4,007.0 million as of December 31, 2011, compared with $4,911.1 million at December 31, 2010, 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 cash generated from operations; the issuance of long-term debt and borrowings under our senior secured 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  
 
   2011   2010   2009   2010 to 2011   2009 to 2010  
($ in 000s)
  $   $   $   $   %   $   %  

Net cash provided by operating activities

     676,473     263,191     360,897     413,282     157     (97,706 )   (27 )

Net cash (used in) provided by investing activities

     (2,844,508 )   228,939     (742,772 )   (3,073,447 )   NM     971,711     NM  

Net cash provided by (used in) financing activities

     1,948,165     (213,283 )   177,047     2,161,448     NM     (390,330 )   NM  

Effect of exchange rate changes on cash and cash equivalents

     (10,288 )   959     1,744     (11,247 )   NM     (785 )   NM  
                                   

Net (decrease) increase in cash and cash equivalents

     (230,158 )   279,806     (203,084 )   (509,964 )   (182 )   482,890     NM  

Cash and cash equivalents, beginning of year

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

Cash and cash equivalents, end of year

     164,111     394,269     114,463     (230,158 )   (58 )   279,806     NM  
                               

NM — Not meaningful

Operating Activities

        Net cash provided by operating activities increased $413.3 million, or 157%, to $676.5 million in 2011, compared with $263.2 million in 2010, primarily due to:

        Those factors were partially offset by:

        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:

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 used in investing activities was $2,844.5 million in 2011, compared with net cash provided by investing activities of $228.9 million in 2010, reflecting an increase of $3,073.5 million, primarily due to:

        Those factors were partially offset by:

        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:

Financing Activities

        Net cash provided by financing activities was $1,948.2 million in 2011, compared with net cash used in financing activities of $213.3 million in 2010, reflecting an increase of $2,161.5 million, primarily due to:

62


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

        Those factors were partially offset by:

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

        Those factors were partially offset by:

63


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

Financial Assets (Liabilities)

        The following table displays our net financial liability position as of December 31, 2011 and 2010:

 
    
   As of December 31    
    
  
 
    
   2011   2010   Change  
 
   Maturity
Date 		 
($ in 000s; Asset (Liability))
  $   $   $   %  

Financial assets:

                              
 

Cash and cash equivalents

         164,111     394,269     (230,158 )   (58 )
 

Marketable securities

         6,338     8,166     (1,828 )   (22 )
                         
 

Total financial assets

         170,449     402,435     (231,986 )   (58 )
                         

Financial liabilities:

                              
 

Revolving Credit Facility

   April 2016     (220,000 )   —     (220,000 )   NM  
 

New Term Loan A Facility

   April 2016     (2,185,520 )   —     (2,185,520 )   NM  
 

Term Loan A Facility

         —     (975,000 )   975,000     NM  

Senior Notes:

                              
 

6.50%

   July 2016     (915,500 )   —     (915,500 )   NM  
 

6.75%

   October 2017     (497,949 )   (497,589 )   (360 )   NM  
 

6.875%

   December 2018     (938,376 )   (992,498 )   54,122     NM  
 

7.00%

   October 2020     (686,228 )   (695,735 )   9,507     NM  
 

6.75%

   August 2021     (650,000 )   —     (650,000 )   NM  
 

7.25%

   July 2022     (540,427 )   —     (540,427 )   NM  

Convertible Notes:

                              
 

4.0% Convertible Notes

   November 2013     —     (220,792 )   220,792     NM  
 

5.375% Convertible Notes

   August 2014     (17,011 )   (196,763 )   179,752     (91 )

Other:

                              
 

Cambridge obligation

         —     (16,900 )   16,900     (100 )
                         
 

Total financial liabilities

         (6,651,011 )   (3,595,277 )   (3,055,734 )   85  
                         

Net financial liabilities

         (6,480,562 )   (3,192,842 )   (3,287,720 )   103  
                       

NM — Not meaningful

        On September 27, 2010, Valeant and certain of its subsidiaries entered into a Credit and Guaranty Agreement (the "Old Credit Agreement") with a syndicate of lending institutions, consisting of (1) a four-and-one half-year non-amortizing $125.0 million revolving credit facility, (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 (the "Term Loan B Facility"). Effective November 29, 2010, the Term Loan B Facility was repaid in full. Effective March 8, 2011, Valeant terminated the Old Credit Agreement, using a portion of the net proceeds from the combined offering of the 2016 Notes and 7.25% senior notes due 2022 (the "2022 Notes") (as described below) to prepay the amounts outstanding under the Term Loan A Facility.

        On February 8, 2011, Valeant issued $650.0 million aggregate principal amount of 6.75% senior notes due 2021 at par (the "2021 Notes"). Interest on the 2021 Notes accrues at the rate of 6.75% per year. The net proceeds of the 2021 Notes offering were principally used to finance the PharmaSwiss and Zovirax® acquisitions.

        On March 8, 2011, Valeant issued $950.0 million aggregate principal amount of 2016 Notes and $550.0 million aggregate principal amount of 2022 Notes. The 2016 Notes accrue interest at the rate of 6.50% per year, and the 2022 Notes accrue interest at the rate of 7.25% per year. The 2016 Notes were issued at par and the 2022 Notes were issued at 98.125% of par for an effective annual yield of 7.50%. Net proceeds of the 2016 Notes and 2022 Notes offering were principally used to prepay the amounts outstanding under Valeant's

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


Term Loan A Facility, as described above, and to fund the repurchase of our common shares from ValueAct in March 2011 (as described below under "— Securities Repurchase Program").

        The senior notes issued by Valeant 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 its other senior notes. Certain of the future subsidiaries of Valeant and the Company may be required to guarantee the senior notes. The non-guarantor subsidiaries had total assets of $3,056.3 million and total liabilities of $853.1 million as of December 31, 2011, and net revenues of $617.7 million and net loss from operations of $2.4 million for the year ended December 31, 2011.

        On April 20, 2011, we distributed a notice of redemption to holders of the 4.0% Convertible Notes, pursuant to which all of the outstanding 4.0% Convertible Notes on May 20, 2011 would be redeemed. Prior to that date, at the election of the holders, all of the outstanding 4.0% Convertible Notes were converted into 17,782,764 common shares of the Company, at a conversion rate of 79.0667 common shares per $1,000 principal amount of notes, which represented a conversion price of approximately $12.65 per share. The carrying amount of the 4.0% Convertible Notes prior to settlement was $221.3 million and the aggregate fair value of the common shares issued to effect the settlement was $892.0 million. The difference of $670.7 million between the carrying amount and the fair value of the common shares issued upon settlement was recognized as a loss on extinguishment of debt ($4.7 million) and a charge to shareholders' equity ($666.0 million).

        With respect to Valeant's call option agreements in respect of the shares underlying the conversion of $200.0 million principal amount of the 4.0% Convertible Notes, these agreements consisted of purchased call options on 15,813,338 common shares, which matured on May 20, 2011, and written call options on the identical number of shares, which matured on August 18, 2011. Following the Merger Date, these call options were to be settled in common shares of the Company. In June 2011, we received 11,479,365 common shares of the Company on the net-share settlement of the purchased call options, which common shares were subsequently cancelled. In September 2011, Valeant amended the written call option agreements, so that Valeant could elect to settle all or some of the written call options in cash. In the third quarter of 2011, Valeant paid $66.9 million in cash and issued 7,518,595 of its common shares on a net-share basis to settle the written call options. Subsequent to September 30, 2011, 961,461 common shares were issued on a net-share basis to complete the settlement of the written call options.

        On August 10, 2011, Valeant entered into the Amended and Restated Credit and Guaranty Agreement (the "Agreement") with the Company and certain of our subsidiaries as guarantors. The Agreement amended and restated the terms of a credit agreement entered into on June 29, 2011, which provided for a one-and-one-half-year non-amortizing $200.0 million revolving credit facility (the "Revolving Credit Facility"). The Revolving Credit Facility remained in effect under the Agreement, which additionally provided for a three-month non-amortizing $650.0 million term loan facility (the "Bridge Facility"). The Agreement contained an uncommitted incremental term loan facility, pursuant to which one or more existing lenders or other lenders, at their sole discretion and subject to certain conditions, might provide up to an additional $500.0 million in term loans under the Bridge Facility upon Valeant's request. The Bridge Facility and the Revolving Credit Facility were scheduled to mature on December 15, 2011 and December 29, 2012, respectively. In connection with the amendment and restatement of the credit facilities on October 20, 2011 (as described below), Valeant repaid the amounts outstanding under the Revolving Credit Facility and Bridge Facility.

        In connection with the acquisition of Sanitas, we assumed Sanitas's outstanding long-term debt, including current portion, of approximately $67.1 million at the Sanitas Acquisition Date. Sanitas had a Facility Agreement (the "Sanitas Agreement") and Revolving Credit Line Agreement (together, the "Sanitas Credit Facilities") with two financial institutions. The Sanitas Agreement provided for a 310.0 million Polish zloty term loan facility, maturing in May 2014. The Revolving Credit Line Agreement provided 20.0 million Polish zloty, maturing in May 2012. Effective December 1, 2011, we terminated the Sanitas Agreement and repaid the amounts outstanding under the Sanitas Credit Facilities.

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

        On October 20, 2011, we and certain of our subsidiaries as guarantors entered into the Credit Agreement with a syndicate of financial institutions. The Credit Agreement amended and restated the terms of the Agreement entered into on August 10, 2011. The Credit Agreement provides for a $275 million revolving credit facility, including a sublimit for the issuance of standby and commercial letters of credit and a sublimit for swing line loans (the "New Revolving Credit Facility"), and a $1.725 billion senior secured term loan A facility (the "New Term Loan A Facility"), which includes a $500 million delayed draw term loan facility (the "Delayed Draw Facility"). The Credit Agreement also contains an uncommitted incremental facility, pursuant to which one or more existing lenders or other lenders, at their sole discretion and subject to certain conditions, may provide up to an additional $500.0 million in term loans or revolving loans. The New Revolving Credit Facility matures on April 20, 2016 and does not amortize. The New Term Loan A Facility matures on April 20, 2016 and amortizes quarterly commencing March 31, 2012 at an initial annual rate of 5.0%. The amortization schedule under the New Term Loan A Facility will increase to 10.0% annually commencing March 31, 2013 and 20% annually commencing March 31, 2014, payable in quarterly installments.

        On December 19, 2011, under the New Term Loan A Facility, we syndicated $500.0 million of incremental term loans (the "Incremental Term Loans" and, together with the New Revolving Credit Facility and the New Term Loan A Facility, the "Senior Secured Credit Facilities") in connection with our acquisition of iNova. The Incremental Term Loans will mature in April 2016 and have terms that are consistent with our New Term Loan A Facility. As of December 31, 2011, $220.0 million in aggregate principal amount in revolving loans was outstanding under the New Revolving Credit Facility and $2,185.5 million in term loans was outstanding under the New Term Loan A Facility.

        On February 13, 2012, we and certain of our subsidiaries as guarantors entered into the Third Amended and Restated Credit and Guaranty Agreement (the "New Credit Agreement") with a syndicate of financial institutions and investors. Under the New Credit Agreement, in addition to the Senior Secured Credit Facilities, we syndicated a $600.0 million senior secured tranche B term loan facility (the "Tranche B Term Loans" and, together with the Senior Secured Credit Facilities, the "New Senior Secured Credit Facilities") to fund the repayment of outstanding amounts under our Revolving Credit Facility and for general corporate purposes, including acquisitions. The Tranche B Term Loans mature on February 13, 2019 and amortizes quarterly commencing June 30, 2012 at an annual rate of 1.0%.

        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 and funds available under the New Senior Secured Credit Facilities will be sufficient to meet our current liquidity needs. We have no material commitments for expenditures related to property, plant and equipment. Since part of our business strategy is to expand through strategic acquisitions, we may be required to seek additional debt financing, issue additional equity securities or sell assets, as necessary, to finance future acquisitions or for other general corporate purposes. In January 2012, Moody's Investor Services ("Moody's") downgraded our senior secured debt rating from Baa3 to Ba1. At the same time, Moody's reaffirmed our Corporate Family rating (Ba3) and our senior unsecured debt rating (B1). Increased debt levels could result in further ratings pressure. A further downgrade may increase our cost of borrowing and may negatively impact our ability to raise additional debt capital.

        As of December 31, 2011, we were in compliance with all of our covenants related to our outstanding debt. Our short-term debt maturities consist of $111.2 million outstanding principal amount under the New Term A Facility, due in quarterly installments of $27.8 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.

Securities Repurchase Program

        On November 4, 2010, we announced that the board of directors had approved a securities repurchase program, pursuant to which we were able to make purchases of our common shares, convertible notes and/or senior notes, from time to time, up to an aggregate maximum value of $1.5 billion, subject to any restrictions in the Company's financing agreements and applicable law. On August 29, 2011, we announced that the board of

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


directors had approved an increase of $300.0 million under our securities repurchase program (the "Securities Repurchase Program"). As a result, under the Securities Repurchase Program, we were able to repurchase up to $1.8 billion of our convertible notes, senior notes, common shares and/or other notes or shares that were issued prior to the completion of the program.

        On November 4, 2010, our board of directors also approved a sub-limit of up to 16.0 million common shares to be purchased for cancellation under a normal course issuer bid through the facilities of the NYSE and TSX, subject to obtaining the appropriate approvals. Initially, purchases under our Securities Repurchase Program of up to 15.0 million common shares could be made through the facilities of the NYSE, in accordance with applicable rules and guidelines, representing approximately 5% of our issued and outstanding common shares as of November 4, 2010. In August 2011, we filed, and the TSX approved, a Notice of Intention to make a normal course issuer bid to repurchase up to the remaining 1,000,000 common shares through the facilities of the TSX. Shareholders of the Company may obtain a copy of the Company's Notice of Intention with respect to its normal course issuer bid, at no charge, by contacting the Company. The Securities Repurchase Program terminated on November 7, 2011.

        In 2011, under our Securities Repurchase Program, we repurchased $203.8 million aggregate principal amount of the 5.375% Convertible Notes for an aggregate purchase price of $619.4 million.

        In March 2011, we repurchased 7,366,419 of our common shares from ValueAct for an aggregate purchase price of $274.8 million. These common shares were subsequently cancelled. As of December 31, 2011, we had recorded an estimated $24.2 million receivable from ValueAct in relation to withholding taxes on the March 2011 repurchase. We expect that this payment will be received in the first half of 2012. In May 2011, a subsidiary of the Company purchased 4,498,180 of our common shares from ValueAct for an aggregate purchase price of $224.8 million. In June 2011, the Company purchased these common shares from its subsidiary and the common shares were subsequently cancelled. G. Mason Morfit is a partner and a member of the Management Committee of ValueAct Capital. Mr. Morfit joined the Company's 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 addition, in 2011, under the Securities Repurchase Program, we repurchased 1,800,000 of our common shares for an aggregate purchase price of $74.5 million. These common shares were subsequently cancelled. As a result, in 2011, under the Securities Repurchase Program, we repurchased, in the aggregate, 13,664,599 common shares for an aggregate purchase price of $574.1 million.

        In 2011, under the Securities Repurchase Program, we have also redeemed $10.0 million aggregate principal amount of 2018 Notes for an aggregate purchase price of $9.9 million.

        In 2010, under the Securities Repurchase Program, we repurchased $126.3 million principal amount of the 5.375% Convertible Notes for consideration of $259.2 million and 2,305,000 million of our common shares for consideration of $60.1 million.

        In connection with the Securities Repurchase Program through the termination date of November 7, 2011, we had repurchased approximately $1.5 billion, in the aggregate, of our convertible notes, senior notes and common shares.

New Securities Repurchase Program

        On November 3, 2011, we announced that our board of directors had approved a new securities repurchase program (the "New Securities Repurchase Program"). Under the New Securities Repurchase Program, which commenced on November 8, 2011, we may make purchases of up to $1.5 billion of our convertible notes, senior notes, common shares and/or other future debt or shares. The New Securities Repurchase Program will terminate on November 7, 2012 or at such time as we complete our purchases. The amount of securities to be purchased and the timing of purchases under the New 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.

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

        The board of directors also approved a sub-limit under the New Securities Repurchase Program for the repurchase of an amount of common shares equal to the greater of 10% of our public float or 5% of our issued and outstanding common shares, in each case calculated as of the date of the commencement of the New Securities Repurchase Program. We are permitted to make purchases of up to 15,395,686 common shares on the open market through the facilities of the NYSE, representing approximately 5% of our issued and outstanding common shares on the date of the commencement of the New Securities Repurchase Program. Subject to completion of appropriate filings with and approval by the TSX, we may also make purchases of our common shares over the facilities of the TSX. Purchases of common shares will be made at prevailing market prices of such shares on the NYSE or the TSX, as the case may be, at the time of the acquisition and shall be made in accordance with the respective rules and guidelines of the NYSE and the TSX. All common shares purchased under the New Securities Repurchase Program will be cancelled.

        In 2011, under the New Securities Repurchase Program, we repurchased $1.2 million aggregate principal amount of the 5.375% Convertible Notes for an aggregate purchase price of $3.9 million.

        In 2011, under the New Securities Repurchase Program, we also repurchased 1,534,857 of our common shares for an aggregate purchase price of $65.1 million and we redeemed $89.9 million aggregate principal amount of our senior notes for an aggregate purchase price of $88.7 million.

        In addition, under the New Securities Repurchase Program, through February 23, 2012, we have repurchased an additional $161.7 million, in the aggregate, of our convertible notes, senior notes and common shares.

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.

        The following table summarizes our contractual obligations as of December 31, 2011:

 
   Payments Due by Period  
 
   Total   2012   2013 and 2014   2015 and 2016   Thereafter  
($ in 000s)
  $   $   $   $   $  

Long-term debt obligations, including interest(1)

     9,265,570     482,592     1,408,502     3,224,441     4,150,035  

Acquisition-related contingent consideration(2)

     221,038     82,288     88,750     50,000     —  

Lease obligations

     70,747     15,847     20,401     6,433     28,066  

Purchase obligations(3)

     51,888     41,466     6,398     4,024     —  
                       

Total contractual obligations

     9,609,243     622,193     1,524,051     3,284,898     4,178,101  
                       
(1)
Expected interest payments assume repayment of the principal amount of the debt obligations at maturity.

(2)
Primarily reflects the minimum guaranteed obligations related to the license agreement for Elidel® and Xerese®. These amounts do not include contingent obligations related to future milestone payments or potential royalty payments in excess of the minimum guaranteed obligations related to the Elidel® and Xerese® license agreement. Such contingent obligations are recorded at fair value in our consolidated financial statements. Refer to "Acquisitions and Dispositions" above for additional information.

(3)
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.

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

        The above table does not reflect the following contingent payments:

        Also excluded from the above table is a liability for uncertain tax positions totaling $91.7 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, 2012, we had 306,583,018 issued and outstanding common shares and 1,842,257 common shares issuable in connection with the Merger. In addition, we had 10,545,227 stock options and 1,742,830 time-based RSUs that each represent the right of a holder to receive one of the Company's common shares, and 2,094,544 performance-based RSUs that represent the right of a holder to receive up to 400% of the RSUs granted. A maximum of 4,391,640 common shares could be issued upon vesting of the performance-based RSUs outstanding.

        Assuming full share settlement, 1,226,271 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).

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 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. These operations are subject to risks inherent in conducting business abroad, including price and

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


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 revenues in relation to same currency expenses. As of December 31, 2011, a 1% change in foreign currency exchange rates would have impacted our shareholders' equity by approximately $35 million.

        In 2011 and 2010, the repurchase of $205.0 million and $126.3 million principal amount of the U.S. dollar-denominated 5.375% Convertible Notes, respectively, resulted in a foreign exchange gain for Canadian income tax purposes of approximately $24.0 million and $10.0 million, respectively. 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, 2011, 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 $1.6 million. In 2011, the repurchase of $30.0 million principal amount of the U.S. dollar denominated New Revolving Credit Facility resulted in a foreign exchange gain of $0.1 million. The payment of the remaining balance of the New Revolving Credit Facility and the New Term Loan A Facility 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 rates between the U.S. and Canadian dollar at the time the New Revolving Credit Facility is paid. As of December 31, 2011, the unrealized foreign exchange gain on the translation of the remaining principal amount of the New Revolving Credit Facility and the New Term Loan A Facility was approximately $1.9 million and $17.2 million, respectively. Additionally, as of December 31, 2011, the unrealized foreign exchange gain on certain intercompany balances was equal to $286.0 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, the New Revolving Credit Facility, New Term Loan A Facility and the intercompany loans does not result in a 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, 2011, we had $4,268.8 million and $2,445.0 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, 2011 was $4,287.6 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 $231.3 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 $24.4 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

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


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.

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, 2009

     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  
                           

Current year provision

     41,004     59,804     233,050     103,249     41,279     478,386  

Prior year provision

     —     (7,843 )   548     —     —     (7,295 )

Payments or credits

     (40,891 )   (43,539 )   (192,196 )   (98,252 )   (43,814 )   (418,692 )
                           

Balance, December 31, 2011

     7,762     119,064     121,106     15,238     11,566     274,736  
                           

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

        The year-over-year increase in our provision for returns in 2011 was impacted by the revenue growth in our European businesses, which generally do not carry a right of return.

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 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, excluding our European businesses which generally do not carry a right of return. 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

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


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. A change of 1% in the estimated return rates would have impacted our pre-tax earnings by approximately $17 million for the year ended December 31, 2011.

        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 2011, 2010 and 2009 were not material to our revenues or earnings.

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 can be billed 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. A change of 1% in the volume of product sold through to plan participants would have impacted our pre-tax earnings by approximately $8 million for the year ended December 31, 2011. 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.

        Managed Care rebates relate to our contractual agreements to sell products to managed care organizations and pharmacy benefit managers at contractual rebate percentages in exchange for volume and/or market share.

        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

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


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, changes in our product portfolio due to recent acquisitions 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 2011 and 2010 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.

        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 part of our valuation procedures, we typically consult an independent advisor. There are several methods that can be used to determine fair value. For intangible assets, 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:

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

        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.

        Some of the acquisitions that we have consummated involve contingent consideration to be potentially paid based upon the occurrence of future events. Acquisition-related contingent consideration is initially recognized at fair value and then remeasured each reporting period. The estimates of fair value contain uncertainties as they involve assumptions about the likelihood of achieving specified milestone criteria, projections of future financial performance, and assumed discount rates. A change in any of these assumptions could produce a different fair value, which could have a material impact on our results of operations.

Intangible Assets

        We evaluate potential impairments of amortizable intangible assets acquired through asset acquisitions or business combinations 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 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. In particular, we will continue to monitor closely the progression of our R&D programs, as their likelihood of success is contingent upon the achievement of future development milestones, some of which are currently expected to occur as early as 2012. Such programs include, among others, our modified-release Retigabine product, IDP-107, IDP-108 and our Xerese® lifecycle product. Refer to "Products in Development" above for additional information regarding our R&D programs.

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

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 five 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. We conducted our annual goodwill impairment test in the fourth quarter of 2011 for each of the seven reporting units. We estimated the fair values of our reporting units using a discounted cash flow analysis approach. These calculations contain uncertainties as they require us to make assumptions about future cash flows and the appropriate discount rate to reflect the risk 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. We determined that none of the goodwill associated with our reporting units was impaired. The estimated fair values of each reporting unit substantially exceeded their carrying values at the date of testing. We applied a hypothetical 10% decrease to the fair values of each reporting unit, which at such date, would not have triggered additional impairment testing and analysis.

        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, among other factors, 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.

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

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 liabilities; and tax matters. We are required to accrue for such loss contingencies if it is probable that the outcome will be unfavorable 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 2011 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 favorably for us and could have a material adverse effect on our reported effective tax rate and after-tax cash flows. We record liabilities for uncertain tax positions, which involves significant management judgment. New laws and new interpretations of laws and rulings by tax authorities may affect the liability for uncertain tax positions. Due to the subjectivity and complex nature of the underlying issues, actual payments or assessments may differ from our estimates. To the extent that our estimates differ from amounts eventually assessed and paid our income and cash flows 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.

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

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 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. Treasury 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 2011 Financial Statements.

Recently Issued Accounting Standards, Not Adopted as of December 31, 2011

        Effective January 1, 2012, we will adopt the provisions of the following new accounting standards:

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

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").

        These forward-looking statements relate to, among other things: the expected benefits of our acquisitions (including the Merger) and other transactions, 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:

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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 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 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. We undertake no obligation to update any of these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect actual outcomes.

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

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, 2011 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 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.

        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 framework described 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 control over financial reporting was effective as of December 31, 2011.

        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 PharmaSwiss, Sanitas, Afexa, Dermik, Ortho Dermatologics, iNova and Ganehill, (together, the "Acquired Companies") which represented approximately 11% of the Company's consolidated revenues for the year ended December 31, 2011, and assets associated with the Acquired Companies represented approximately 4% of the Company's consolidated total assets as of December 31, 2011.

        The effectiveness of the Company's internal controls over financial reporting as of December 31, 2011 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report on page F-3 of the 2011 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, 2011 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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Table of Contents

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 — Quantitative and Qualitative Disclosures About Market Risk" 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

        Not applicable.

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

Item 9B.    Other Information

        None.

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 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 2012 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 as an annex to our Standards of Business Conduct, which is located 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 2012 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 2012 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 2012 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 2011 and 2010 is incorporated herein by reference from information included in the 2012 Proxy Statement.

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 PART IV

Item 15.    Exhibits, Financial Statement Schedules

        Documents filed as a part of the report:


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, 2011

                                

Allowance for doubtful accounts

   $ 6,692   $ 1,467   $ 4,669   $ (500 ) $ 12,328  

Allowance for inventory obsolescence

   $ 28,065   $ 4,051   $ 2,730   $ (12,027 ) $ 22,819  

Deferred tax asset valuation allowance

   $ 186,399   $ (35,062 ) $ 41,517   $ (64,112 ) $ 128,742  

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  

Deferred tax asset valuation allowance

   $ 153,955   $ 22,075   $ 10,369   $ —   $ 186,399  

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  

Deferred tax asset valuation allowance

   $ 157,137   $ 8,440   $ (11,622 ) $ —   $ 153,955  

        In the year ended December 31, 2011, the decline in the allowance for inventory obsolescence primarily reflected the write off of obsolete inventory against the allowance.

84


 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.a.r.l. and the stockholders of PharmaSwiss SA, originally filed as Exhibit 2.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which is incorporated by reference herein.**††
  2.8   Asset Purchase Agreement, dated February 2, 2011, between Biovail Laboratories International SRL and GlaxoSmithKline LLC, originally filed as Exhibit 2.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which is incorporated by reference herein.**††
  2.9   Purchase Agreement, dated as of February 24, 2011, between the Company and ValueAct Capital Master Fund, L.P., originally filed as Exhibit 2.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which is incorporated by reference herein.††
  2.10   Purchase Agreement, dated as of May 6, 2011, between ValueAct Capital Master Fund, L.P. and 0909657 B.C. Ltd., originally filed as Exhibit 2.4 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2011, which is incorporated by reference herein.**††
  2.11   Asset Purchase Agreement dated July 8, 2011 among Valeant Pharmaceuticals International, Inc., Valeant International (Barbados) SRL and Sanofi, originally filed as Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2011, which is incorporated by reference herein. **††

85

Exhibit
Number
 
Exhibit Description
  2.12   Asset Purchase Agreement dated July 15, 2011 among Valeant Pharmaceuticals International, Inc. (as guarantor only), Valeant International (Barbados) SRL, Valeant Pharmaceuticals North America LLC and Janssen Pharmaceuticals, Inc., originally filed as Exhibit 2.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2011, which is incorporated by reference herein.**††
  3.1   Certificate and Articles of Amalgamation of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed on January 5, 2012, which is incorporated by reference herein.
  3.2   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.
  3.3   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.
  3.4   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.
  3.5   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 Biovail, The Bank of New York Mellon, as trustee, and BNY Trust Company of Canada, as co-trustee, 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.

86

Exhibit
Number
 
Exhibit Description
  4.7*   Second Supplemental Indenture, dated as of December 31, 2010, by and among Valeant, Valeant Canada GP Limited, Valeant Canada LP, V-BAC Holding Corp. and The Bank of New York Mellon Trust Company, N.A., as Trustee, to the Indenture, dated as of September 28, 2010, by and among Valeant, the Company, The Bank of New York Mellon Trust Company, N.A., as trustee, and the guarantors listed therein.
  4.8   Third Supplemental Indenture, dated as of October 20, 2011, by and among Valeant, Biovail International S.à r.l., PharmaSwiss SA and The Bank of New York Mellon Trust Company, N.A., as trustee, to the 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 10.6 to the Company's Current Report on Form 8-K filed on October 26, 2011, which is incorporated by reference herein.
  4.9   Fourth Supplemental Indenture, dated as of February 13, 2012, by and among Valeant, Valeant Holdco 2 Pty Ltd., (ACN 154 341 367), Wirra Holdings Pty Limited, (ACN 122 216 577), Wirra Operations Pty Limited, (ACN 122 250 088), iNova Pharmaceuticals (Australia) Pty Ltd., (ACN 000 222 408), iNova Sub Pty Ltd., (ACN 134 398 815), Wirra IP Pty Ltd., (ACN 122 536 350), and The Bank of New York Mellon Trust Company, N.A., as trustee, to 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 10.6 to the Company's Current Report on Form 8-K filed on February 17, 2012, which is incorporated by reference herein.
  4.10   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.
  4.11*   First Supplemental Indenture, dated as of December 31, 2010, by and among Valeant, Valeant Canada GP Limited, Valeant Canada LP, V-BAC Holding Corp. and The Bank of New York Mellon Trust Company, N.A., as Trustee, to the Indenture, dated as of November 23, 2010, by and among Valeant, the Company, The Bank of New York Mellon Trust Company, N.A., as Trustee, and the guarantors listed therein.
  4.12   Second Supplemental Indenture, dated as of October 20, 2011, by and among Valeant, Biovail International S.à.r.l., PharmaSwiss SA and The Bank of New York Mellon Trust Company, N.A., as trustee, to the 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 10.5 to the Company's Current Report on Form 8-K filed on October 26, 2011, which is incorporated by reference herein.
  4.13   Third Supplemental Indenture, dated as of February 13, 2012, by and among Valeant, Valeant Holdco 2 Pty Ltd., (ACN 154 341 367), Wirra Holdings Pty Limited, (ACN 122 216 577), Wirra Operations Pty Limited, (ACN 122 250 088), iNova Pharmaceuticals (Australia) Pty Ltd., (ACN 000 222 408), iNova Sub Pty Ltd., (ACN 134 398 815), Wirra IP Pty Ltd., (ACN 122 536 350), and The Bank of New York Mellon Trust Company, N.A., as trustee, to the 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 10.5 to the Company's Current Report on Form 8-K filed on February 17, 2012, which is incorporated by reference herein.
  4.14   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, 2011, which is incorporated by reference herein.

87

Exhibit
Number
 
Exhibit Description
  4.15   First Supplemental Indenture, dated as of October 20, 2011, by and among Valeant, Biovail International S.à r.l., PharmaSwiss SA and The Bank of New York Mellon Trust Company, N.A., as trustee, to the 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 10.4 to the Company's Current Report on Form 8-K filed on October 26, 2011, which is incorporated by reference herein.
  4.16   Second Supplemental Indenture, dated as of February 13, 2012, by and among Valeant, Valeant Holdco 2 Pty Ltd., (ACN 154 341 367), Wirra Holdings Pty Limited, (ACN 122 216 577), Wirra Operations Pty Limited, (ACN 122 250 088), iNova Pharmaceuticals (Australia) Pty Ltd., (ACN 000 222 408), iNova Sub Pty Ltd., (ACN 134 398 815), Wirra IP Pty Ltd., (ACN 122 536 350), and The Bank of New York Mellon Trust Company, N.A., as trustee, to the 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 10.4 to the Company's Current Report on Form 8-K filed on February 17, 2012, which is incorporated by reference herein.
  4.17   Indenture, dated as of March 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 March 10, 2011, which is incorporated by reference herein.
  4.18   First Supplemental Indenture, dated as of October 20, 2011, by and among Valeant, Biovail International S.à r.l., PharmaSwiss SA and The Bank of New York Mellon Trust Company, N.A., as trustee, to the Indenture, dated as of March 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 10.3 to the Company's Current Report on Form 8-K filed on October 26, 2011, which is incorporated by reference herein.
  4.19   Second Supplemental Indenture, dated as of February 13, 2012, by and among Valeant, Valeant Holdco 2 Pty Ltd., (ACN 154 341 367), Wirra Holdings Pty Limited, (ACN 122 216 577), Wirra Operations Pty Limited, (ACN 122 250 088), iNova Pharmaceuticals (Australia) Pty Ltd., (ACN 000 222 408), iNova Sub Pty Ltd., (ACN 134 398 815), Wirra IP Pty Ltd., (ACN 122 536 350), and The Bank of New York Mellon Trust Company, N.A., as trustee, to the Indenture, dated as of March 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 10.3 to the Company's Current Report on Form 8-K filed on February 17, 2012, which is incorporated by reference herein.
  10.1†   Valeant Pharmaceuticals International, Inc. 2011 Omnibus Incentive Plan (the "2011 Omnibus Incentive Plan"), effective as of April 6, 2011, as amended on and approved by the shareholders on May 16, 2011, originally filed as Annex A to the Company's Management Proxy Circular and Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 14, 2011, as amended by the Supplement dated May 10, 2011 to the Company's Management Proxy Circular and Proxy Statement filed with the Securities and Exchange Commission on May 10, 2011, which is incorporated by reference herein.
  10.2*†   Form of Stock Option Grant Agreement under the 2011 Omnibus Incentive Plan.
  10.3*†   Form of Matching Restricted Stock Unit Grant Agreement under the 2011 Omnibus Incentive Plan.
  10.4*†   Form of Share Unit Grant Agreement (Performance Vesting) under the 2011 Omnibus Incentive Plan.

88

Exhibit
Number
 
Exhibit Description
  10.5†   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.
  10.6†   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.
  10.7†   Amendment, dated April 6, 2011 and approved by the shareholders on May 16, 2011, to Biovail Corporation 2007 Equity Compensation Plan, originally filed as Annex B to the Company's Management Proxy Circular and Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 14, 2011, which is incorporated by reference herein.
  10.8†   Form of Stock Option Grant Notice and Form of Stock Option Grant Agreement under the 2007 Equity Compensation Plan, originally filed as Exhibit 10.44 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which is incorporated by reference herein.
  10.9†   Form of Unit Grant Notice and Form of Unit Grant Agreement under the 2007 Equity Compensation Plan, originally filed as Exhibit 10.45 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which is incorporated by reference herein.
  10.10†   Form of Unit Grant Notice (Performance Vesting) and Form of Unit Grant Agreement (Performance Vesting) under the 2007 Equity Compensation Plan, originally filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which is incorporated by reference herein.
  10.11†   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.
  10.12†   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.
  10.13†   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.
  10.14†   Valeant Pharmaceuticals International, Inc. Directors Share Unit Plan, effective May 16, 2011, originally filed as Exhibit 10.6 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2011, which is incorporated by reference herein.
  10.15†   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.
  10.16†   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.
  10.17†   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.

89

Exhibit
Number
 
Exhibit Description
  10.18   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.
  10.19†   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.
  10.20†   Employment Agreement between the Company and J. Michael Pearson, dated as of March 21, 2011, originally filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 23, 2011, which is incorporated by reference herein.
  10.21*†   Employment Letter between the Company and Howard Schiller, dated as of November 10, 2011.
  10.22†   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.
  10.23†   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.
  10.24†   Employment Letter between Valeant Pharmaceuticals International, Inc. and Brian Stolz, dated June 27, 2011, originally filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on July 7, 2011, which is incorporated by reference herein.
  10.25†   Separation Agreement between Valeant Pharmaceuticals International, Inc. and Mark Durham, dated July 7, 2011, originally filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 7, 2011, which is incorporated by reference herein.
  10.26*†   Employment letter between the Company and Richard Masterson dated as of November 11, 2010.
  10.27   Third Amended and Restated Credit and Guaranty Agreement, dated as of February 13, 2012, among the Company, certain subsidiaries of the Company as Guarantors, each of the lenders named therein, J.P. Morgan Securities LLC, Goldman Sachs Lending Partners LLC ("GSLP") and Morgan Stanley Senior Funding, Inc. ("Morgan Stanley"), as Joint Lead Arrangers and Joint Bookrunners, JPMorgan Chase Bank, N.A. ("JPMorgan") and Morgan Stanley, as Co-Syndication Agents, JPMorgan, as Issuing Bank, GSLP, as Administrative Agent and Collateral Agent, and the other agents party thereto, originally filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 17, 2012, which is incorporated by reference herein.
  10.28   Second Amended and Restated Credit and Guaranty Agreement, dated as of October 20, 2011, among the Company, certain subsidiaries of the Company, as Guarantors, each of the lenders named therein, GSLP and J.P. Morgan Securities LLC, as Joint Lead Arrangers and Joint Bookrunners, JPMorgan, as Syndication Agent and Issuing Bank, GSLP, as Administrative Agent and Collateral Agent, and the other agents party thereto ("Second Amended and Restated Credit and Guaranty Agreement of Valeant Pharmaceuticals International, Inc."), originally filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 26, 2011, which is incorporated by reference herein.
  10.29   Amendment No. 1 to Second Amended and Restated Credit and Guaranty Agreement of Valeant Pharmaceuticals International, Inc., dated as of February 13, 2012, originally filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on February 17, 2012, which is incorporated by reference herein.

90

Exhibit
Number
 
Exhibit Description
  10.30   Amended and Restated Credit and Guaranty Agreement, dated as of August 10, 2011, among Valeant, and the Company and certain subsidiaries of the Company, as Guarantors, each of the lenders named therein, GSLP as Sole Lead Arranger, Sole Bookrunner and Syndication Agent, and GSLP, as Administrative Agent and Collateral Agent ("Amended and Restated Credit and Guaranty Agreement of Valeant Pharmaceuticals International"), originally filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 15, 2011, which is incorporated by reference herein.
  10.31   Amendment No. 1 to Amended and Restated Credit and Guaranty Agreement of Valeant Pharmaceuticals International, dated as of August 12, 2011, originally filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed on August 15, 2011, which is incorporated by reference herein.
  10.32*   Amendment No. 2 to Amended and Restated Credit and Guaranty Agreement of Valeant Pharmaceuticals International, dated as of September 6, 2011.
  10.33   Amendment No. 3 to Amended and Restated Credit and Guaranty Agreement of Valeant Pharmaceuticals International, dated as of October 20, 2011, originally filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on October 26, 2011, which is incorporated by reference herein.
  10.34   Credit and Guaranty Agreement, dated June 29, 2011, among Valeant, and the Company and certain subsidiaries of the Company, as Guarantors, each of the lenders named therein, GSLP as Sole Lead Arranger, Sole Bookrunner and Syndication Agent, and GSLP, as Administrative Agent and Collateral Agent ("Credit and Guaranty Agreement of Valeant Pharmaceuticals International"), originally filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 6, 2011, which is incorporated by reference herein.
  10.35   Amendment No. 1 to Credit and Guaranty Agreement of Valeant Pharmaceuticals International, dated as of August 10, 2011, originally filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on August 15, 2011, which is incorporated by reference herein.
  10.36   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.
  10.37   Amendment No. 1 to the Credit Agreement, dated December 31, 2010, originally filed as Exhibit 10.25 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which is incorporated by reference herein.
  10.38   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.
  10.39   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.††
  10.40   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.††

91

Exhibit
Number
 
Exhibit Description
  10.41   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.**
  10.42   Trademark and Domain Name License Agreement, dated as of February 22, 2011, by and between GlaxoSmithKline LLC and Biovail Laboratories International SRL, originally filed as Exhibit 10.31 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which is incorporated by reference herein.
  10.43   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.**
  10.44   License Agreement, dated June 29, 2011, between Meda Pharma SARL and Valeant International (Barbados) SRL, originally filed as Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2011, which is incorporated by reference herein.
  10.45   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.
  10.46   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.
  10.47   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.
  10.48   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.
  10.49   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.
  10.50   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.
  10.51   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.
  10.52   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.

92

Exhibit
Number
 
Exhibit Description
  10.53   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.**††
  10.54   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.**
  10.55   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.**
  16.1   Letter, dated March 2, 2011, from Ernst & Young LLP, originally filed as Exhibit 16.1 of the Company's Current Report on Form 8-K/A filed on March 2, 2011, which is incorporated by reference herein.
  21.1*   Subsidiaries of Valeant Pharmaceuticals International, Inc.
  23.1*   Consent of Ernst & Young LLP.
  23.2*   Consent of PricewaterhouseCoopers 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.
  *101.INS   XBRL Instance Document
  *101.SCH   XBRL Taxonomy Extension Schema
  *101.CAL   XBRL Taxonomy Extension Calculation Linkbase
  *101.LAB   XBRL Taxonomy Extension Label Linkbase
  *101.PRE   XBRL Taxonomy Extension Presentation Linkbase
  *101.DEF   XBRL Taxonomy Extension Definition Document
*
Filed herewith.

**
Portions of this exhibit have been omitted pursuant to an application for or an order with respect to confidential treatment. Such information has been omitted 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.

93

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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 29, 2012        
         
    By:   /s/ J. MICHAEL PEARSON
 J. Michael Pearson
 Chairman of the Board and 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/ J. MICHAEL PEARSON
 J. Michael Pearson		   Chairman of the Board and Chief Executive Officer   February 29, 2012

 
/s/ HOWARD B. SCHILLER
 Howard B. Schiller
 
Executive Vice-President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
 
February 29, 2012

 
/s/ ROBERT A. INGRAM
 Robert A. Ingram
 
Lead Director
 
February 29, 2012

 
/s/ RONALD FARMER
 Ronald Farmer
 
Director
 
February 29, 2012

 
/s/ THEO MELAS-KYRIAZI
 Theo Melas-Kyriazi
 
Director
 
February 29, 2012

 
/s/ G. MASON MORFIT
 G. Mason Morfit
 
Director
 
February 29, 2012

 
/s/ DR. LAURENCE E. PAUL
 Dr. Laurence E. Paul
 
Director
 
February 29, 2012

 
/s/ ROBERT N. POWER
 Robert N. Power
 
Director
 
February 29, 2012

94

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Signature
 
Title
 
Date

 
 
 
 
 
 
  /s/ NORMA A. PROVENCIO
 Norma A. Provencio		   Director   February 29, 2012

 
/s/ LLOYD M. SEGAL
 Lloyd M. Segal
 
Director
 
February 29, 2012

 
/s/ KATHARINE B. STEVENSON
 Katharine B. Stevenson
 
Director
 
February 29, 2012

95

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VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
   Page

Reports 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

   F-4

Consolidated Balance Sheets as of December 31, 2011 and 2010

   F-5

Consolidated Statements of Income (Loss) for the years ended December 31, 2011, 2010 and 2009

   F-6

Consolidated Statements of Shareholders' Equity for the years ended December 31, 2011, 2010 and 2009

   F-7

Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009

   F-8

Notes to Consolidated Financial Statements

   F-9

F-1

Table of Contents


REPORTS 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.

        PricewaterhouseCoopers 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 Audit and Risk Committee. The members of the Audit and Risk Committee are outside Directors. The Audit and Risk Committee considers, for review by the Board of Directors and approval by the shareholders, the engagement or reappointment of the external auditors. PricewaterhouseCoopers LLP has full and free access to the Audit and Risk Committee.

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 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.

        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 described 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 control over financial reporting was effective as of December 31, 2011.

        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 iNova, Dermik, Ortho Dermatologics, Afexa Life Sciences Inc., AB Sanitas, PharmaSwiss S.A. and Ganehill Pty Limited (together, the "Acquired Companies"), which the Company acquired through purchase business combinations during the year ended December 31, 2011. The Acquired Companies represented approximately 11% of the Company's consolidated revenues for the year ended December 31, 2011, and assets associated with the Acquired Companies represented approximately 4% of the Company's consolidated total assets as of December 31, 2011.

        The effectiveness of the Company's internal control over financial reporting as of December 31, 2011 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report on page F-3 herein.

/s/ J. MICHAEL PEARSON
J. Michael Pearson
Chairman of the Board and
Chief Executive Officer		   /s/ HOWARD B. SCHILLER
Howard B. Schiller
Executive Vice President and
Chief Financial Officer

February 29, 2012

F-2

Table of Contents


 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Directors of
 Valeant Pharmaceuticals International, Inc.

        In our opinion, the consolidated balance sheet as of December 31, 2011 and the related consolidated statements of income (loss), shareholders' equity, and cash flows for the year then ended present fairly, in all material respects, the financial position of Valeant Pharmaceuticals International, Inc. and its subsidiaries at December 31, 2011 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year ended December 31, 2011 appearing under Item 15(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated 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 the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

        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 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the 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.

        As described in the Report of Management on Internal Control Over Financial Reporting, management has excluded iNova, Dermik, Ortho Dermatologics, Afexa Life Sciences Inc., AB Sanitas, PharmaSwiss S.A. and Ganehill Pty Limited (together, the "Acquired Companies") from its assessment of internal control over financial reporting as of December 31, 2011 because the Acquired Companies were acquired by the Company in purchase business combinations during 2011. We have also excluded the Acquired Companies from our audit of internal control over financial reporting. The Acquired Companies are wholly-owned subsidiaries whose total assets and total revenues represent 4% and 11%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2011.

    /s/ PricewaterhouseCoopers LLP
Toronto, Canada
February 29, 2012		   Chartered Accountants
Licensed Public Accountants

F-3

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 the related consolidated statements of income (loss), shareholders' equity, and cash flows for each of the two years in the period ended December 31, 2010. Our audits also included the financial statement schedule II included in Item 15 for each of the two years in the period ended December 31, 2010. 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 the consolidated results of its operations and its cash flows for each of the two 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.


 
 
/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  
 
   2011   2010  

Assets

              

Current assets:

              
 

Cash and cash equivalents

   $ 164,111   $ 394,269  
 

Marketable securities

     6,338     6,083  
 

Accounts receivable, net

     569,268     274,819  
 

Inventories, net

     355,212     229,582  
 

Prepaid expenses and other current assets

     33,651     26,088  
 

Assets held for sale

     72,239     4,014  
 

Income taxes receivable

     8,233     8,243  
 

Deferred tax assets, net

     148,454     77,068  
           
 

Total current assets

     1,357,506     1,020,166  

Marketable securities

     —     2,083  

Property, plant and equipment, net

     414,242     281,752  

Intangible assets, net

     7,657,798     6,372,780  

Goodwill

     3,598,786     3,001,376  

Deferred tax assets, net

     54,681     80,085  

Other long-term assets, net

     58,700     36,875  
           
 

Total assets

   $ 13,141,713   $ 10,795,117  
           

Liabilities

              

Current liabilities:

              
 

Accounts payable

   $ 157,620   $ 101,324  
 

Accrued liabilities

     526,937     442,114  
 

Acquisition-related contingent consideration

     100,263     —  
 

Income taxes payable

     10,335     9,153  
 

Deferred revenue

     12,783     21,520  
 

Current portion of long-term debt

     111,250     116,900  
 

Liabilities for uncertain tax positions

     646     646  
 

Deferred tax liabilities, net

     4,438     799  
           
 

Total current liabilities

     924,272     692,456  

Deferred revenue

     38,153     50,021  

Acquisition-related contingent consideration

     319,821     20,220  

Long-term debt

     6,539,761     3,478,377  

Liabilities for uncertain tax positions

     91,098     96,102  

Deferred tax liabilities, net

     1,144,914     1,436,743  

Other long-term liabilities

     76,678     110,102  
           
 

Total liabilities

     9,134,697     5,884,021  
           

Shareholders' Equity

              

Common shares, no par value, unlimited shares authorized, 306,371,032 and 302,448,934 issued and outstanding at December 31, 2011 and 2010, respectively

     5,963,621     5,251,730  

Additional paid-in capital

     276,117     495,041  

Accumulated deficit

     (2,030,292 )   (934,511 )

Accumulated other comprehensive (loss) income

     (202,430 )   98,836  
           
 

Total shareholders' equity

     4,007,016     4,911,096  
           
 

Total liabilities and shareholders' equity

   $ 13,141,713   $ 10,795,117  
           

Commitments and contingencies (notes 24, 25 and 27)

              

On behalf of the Board:


/s/ J. MICHAEL PEARSON
 J. Michael Pearson
 
/s/ NORMA A. PROVENCIO
 Norma A. Provencio
Chairman of the Board and Chief Executive Officer   Chairperson, Audit and Risk 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  
 
   2011   2010   2009  

Revenues

                    

Product sales

   $ 2,255,050   $ 1,133,371   $ 789,026  

Alliance and royalty

     172,473     35,109     15,418  

Service and other

     35,927     12,757     15,986  
               

    2,463,450     1,181,237     820,430  
               

Expenses

                    

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

     683,750     395,595     204,309  

Cost of alliance and service revenues

     43,082     10,155     13,849  

Selling, general and administrative

     572,472     276,546     167,633  

Research and development

     65,687     68,311     47,581  

Amortization of intangible assets

     557,814     219,758     104,730  

Restructuring and integration costs

     97,667     140,840     30,033  

Acquired in-process research and development

     109,200     89,245     59,354  

Acquisition-related costs

     32,964     38,262     5,596  

Legal settlements

     11,841     52,610     6,191  

Acquisition-related contingent consideration

     (10,986 )   —     —  
               

    2,163,491     1,291,322     639,276  
               

Operating income (loss)

     299,959     (110,085 )   181,154  

Interest income

     4,084     1,294     1,118  

Interest expense

     (333,041 )   (84,307 )   (24,881 )

Write-down of deferred financing charges

     (1,485 )   (5,774 )   (537 )

Loss on extinguishment of debt

     (36,844 )   (32,413 )   —  

Foreign exchange and other

     26,551     574     507  

Gain (loss) on investments, net

     22,776     (5,552 )   17,594  
               

(Loss) income before recovery of income taxes

     (18,000 )   (236,263 )   174,955  

Recovery of income taxes

     (177,559 )   (28,070 )   (1,500 )
               

Net income (loss)

   $ 159,559   $ (208,193 ) $ 176,455  
               

Basic earnings (loss) per share

   $ 0.52   $ (1.06 ) $ 1.11  
               

Diluted earnings (loss) per share

   $ 0.49   $ (1.06 ) $ 1.11  
               

Weighted-average common shares (000's)

                    

Basic

     304,655     195,808     158,236  

Diluted

     326,119     195,808     158,510  
               

Cash dividends declared per share

   $ —   $ 1.280   $ 0.645  
               

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)

 
   Valeant Pharmaceuticals International, Inc. Shareholders    
    
  
 
   Common Shares    
    
    
   Valeant
Pharmaceuticals
International, Inc.
Shareholders'
equity 		   
    
  
 
    
    
   Accumulated
Other
Comprehensive
(Loss) Income 		   
    
  
 
   Shares
(000s) 		  Amount   Additional
Paid-In
Capital 		  Accumulated
Deficit 		  Noncontrolling
Interest 		  Total Equity  

Balance, January 1, 2009

     158,216   $ 1,463,873   $ 31,966   $ (319,909 ) $ 25,669   $ 1,201,599   $ —   $ 1,201,599  

Equity component of 5.375% Convertible Notes, net of issuance costs

     —     —     53,995     —     —     53,995     —     53,995  

Common shares issued under share-based compensation plans

     95     1,131     (265 )   —     —     866     —     866  

Share-based compensation

     —     —     5,613     —     —     5,613     —     5,613  

Cash dividends declared and dividend equivalents ($0.645 per share)

     —     —     459     (102,520 )   —     (102,061 )   —     (102,061 )
                                   

    158,311     1,465,004     91,768     (422,429 )   25,669     1,160,012     —     1,160,012  
                                   

Comprehensive income:

                                                  
 

Net income

     —     —     —     176,455     —     176,455     —     176,455  
 

Other comprehensive income

     —     —     —     —     17,905     17,905     —     17,905  
                                   

Total comprehensive income

                                   194,360     —     194,360  
                                   

Balance, December 31, 2009

     158,311     1,465,004     91,768     (245,974 )   43,574     1,354,372     —     1,354,372  
                                   

Acquisition of Valeant, equity issued

     139,267     3,710,888     169,413     —     —     3,880,301     —     3,880,301  

Fair value of equity component of Valeant 4.0% Convertible Notes and call options

     —     —     253,971     —     —     253,971     —     253,971  

Equity settlement and reclassification of call options

     145     3,602     (38,224 )   1,928     —     (32,694 )   —     (32,694 )

Repurchase of equity component of 5.375% Convertible Notes

     —     —     (20,444 )   (111,279 )   —     (131,723 )   —     (131,723 )

Common shares issued under share-based compensation plans

     6,959     110,513     (52,088 )   —     —     58,425     —     58,425  

Employee withholding taxes related to share-based awards

     —     —     (14,485 )   —     —     (14,485 )   —     (14,485 )

Repurchase of common shares

     (2,305 )   (40,442 )   —     (19,688 )   —     (60,130 )   —     (60,130 )

Share-based compensation

     —     —     98,033     —     —     98,033     —     98,033  

Cash dividends declared and dividend equivalents ($1.28 per share)

     —     —     7,097     (349,140 )   —     (342,043 )   —     (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     —     5,064,027  
                                   

Comprehensive loss:

                                                  
 

Net loss

     —     —     —     (208,193 )   —     (208,193 )   —     (208,193 )
 

Other comprehensive income

     —     —     —     —     55,262     55,262     —     55,262  
                                   

Total comprehensive loss

                                   (152,931 )   —     (152,931 )
                                   

Balance, December 31, 2010

     302,449     5,251,730     495,041     (934,511 )   98,836     4,911,096     —     4,911,096  
                                   

Settlement of 4% Convertible Notes

     17,783     892,000     (225,971 )   (440,046 )   —     225,983     —     225,983  

Repurchase of equity component of 5.375% Convertible Notes

     —     —     (33,169 )   (380,834 )   —     (414,003 )   —     (414,003 )

Common shares issued under share-based compensation plans

     4,338     121,099     (79,382 )   —     —     41,717     —     41,717  

Settlement of call options

     (2,999 )   (36,343 )   11,072     (41,592 )   —     (66,863 )   —     (66,863 )

Repurchase of common shares

     (15,200 )   (264,865 )   —     (374,377 )   —     (639,242 )   —     (639,242 )

Share-based compensation

     —     —     94,023     —     —     94,023     —     94,023  

Employee withholding taxes related to share-based awards

     —     —     (19,211 )   (18,491 )   —     (37,702 )   —     (37,702 )

Tax benefits from stock options exercised

     —     —     26,414     —     —     26,414     —     26,414  

Reclassification of deferred share units

     —     —     9,271     —     —     9,271     —     9,271  

Noncontrolling interest from business combinations

     —     —     —     —     —     —     58,555     58,555  

Acquisition of noncontrolling interest

     —     —     (1,971 )   —     —     (1,971 )   (56,349 )   (58,320 )
                                   

    306,371     5,963,621     276,117     (2,189,851 )   98,836     4,148,723     2,206     4,150,929  
                                   

Comprehensive loss:

                                                  
 

Net income

     —     —     —     159,559     —     159,559     —     159,559  
 

Other comprehensive loss

     —     —     —     —     (301,266 )   (301,266 )   (2,206 )   (303,472 )
                                   

Total comprehensive loss

                                   (141,707 )   (2,206 )   (143,913 )
                                   

Balance, December 31, 2011

     306,371   $ 5,963,621   $ 276,117   $ (2,030,292 ) $ (202,430 ) $ 4,007,016   $ —   $ 4,007,016  
                                   

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  
 
   2011   2010   2009  

Cash Flows From Operating Activities

                    

Net income (loss)

   $ 159,559   $ (208,193 ) $ 176,455  

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

                    
 

Depreciation and amortization

     612,603     254,504     149,260  
 

Amortization of deferred revenue

     (19,101 )   (19,101 )   (21,201 )
 

Amortization and write-down of discounts on long-term debt

     8,491     11,169     5,986  
 

Amortization and write-down of deferred financing costs

     18,612     10,303     3,620  
 

Acquired in-process research and development

     109,200     89,245     59,354  
 

Acquisition accounting adjustment on inventory sold

     59,256     53,266     —  
 

Acquisition-related contingent consideration

     (10,986 )   —     —  
 

Allowances for losses on accounts receivable and inventories

     5,519     6,887     8,674  
 

Deferred income taxes

     (222,959 )   (55,403 )   (16,000 )
 

Non-cash cost of alliance revenue

     30,686     —     —  
 

Additions to accrued legal settlements

     11,841     52,610     6,191  
 

Payments of accrued legal settlements

     (26,541 )   (44,450 )   (30,806 )
 

Share-based compensation

     94,023     98,033     5,613  
 

Tax benefits from stock options exercised

     (26,533 )   —     —  
 

(Gain) loss on disposal of assets and other charges

     (21,316 )   11,603     24,133  
 

Payment of accreted interest on repurchase of convertible debt

     (9,753 )   (4,934 )   —  
 

Loss on extinguishment of debt

     36,844     30,716     —  
 

Other

     4,147     (1,200 )   (177 )
 

Changes in operating assets and liabilities:

                    
   

Accounts receivable

     (164,581 )   25,187     (26,998 )
   

Inventories

     (11,521 )   7,463     (33,582 )
   

Prepaid expenses and other current assets

     (3,084 )   7,394     (796 )
   

Accounts payable

     (8,980 )   (76,100 )   30,771  
   

Accrued liabilities

     70,175     26,732     32,780  
   

Income taxes payable

     (15,497 )   (9,723 )   726  
   

Deferred revenue

     (3,631 )   (2,817 )   (13,106 )
               

Net cash provided by operating activities

     676,473     263,191     360,897  
               

Cash Flows From Investing Activities

                    

Acquisition of businesses, net of cash acquired

     (2,464,108 )   308,982     —  

Acquisitions of intangible assets

     (327,437 )   (84,532 )   (761,829 )

Purchases of property, plant and equipment

     (58,515 )   (16,823 )   (7,423 )

Proceeds from sale of assets

     —     15,046     28,302  

Proceeds from sales and maturities of marketable securities

     86,639     7,965     1,078  

Purchases of marketable securities

     (81,087 )   —     (3,823 )

Other

     —     (1,699 )   923  
               

Net cash (used in) provided by investing activities

     (2,844,508 )   228,939     (742,772 )
               

Cash Flows From Financing Activities

                    

Issuance of long-term debt, net of discount

     5,388,799     992,400     350,000  

Repayments of long-term debt

     (2,004,641 )   (537,500 )   —  

Cash dividends paid

     —     (356,291 )   (147,146 )

Repurchases of convertible debt

     (613,471 )   (254,316 )   —  

Repurchases of common shares

     (639,242 )   (60,130 )   —  

Proceeds from exercise of stock options

     41,738     58,425     866  

Tax benefits from stock options exercised

     26,533     —     —  

Cash settlement of call options

     (66,863 )   (37,682 )   —  

Acquisition of noncontrolling interest

     (52,499 )   —     —  

Payment of employee withholding tax upon vesting of share-based awards

     (59,718 )   (14,485 )   —  

Payments of contingent consideration

     (31,800 )   —     —  

Payments of debt issuance costs

     (40,671 )   (4,565 )   (26,274 )

Advances under credit facilities

     —     —     130,000  

Repayments under credit facilities

     —     —     (130,000 )

Other

     —     861     (399 )
               

Net cash provided by (used in) financing activities

     1,948,165     (213,283 )   177,047  
               

Effect of exchange rate changes on cash and cash equivalents

     (10,288 )   959     1,744  
               

Net (decrease) increase in cash and cash equivalents

     (230,158 )   279,806     (203,084 )

Cash and cash equivalents, beginning of year

     394,269     114,463     317,547  
               

Cash and cash equivalents, end of year

   $ 164,111   $ 394,269   $ 114,463  
               

Non-Cash Investing and Financing Activities

                    

Acquisition of Valeant, equity issued

   $ —   $ (3,880,301 ) $ —  

Acquisition of Valeant, debt assumed

     —     (2,913,614 )   —  

Acquisition of businesses, contingent consideration at fair value

     (443,481 )   —     —  

Settlement of convertible debt, equity issued

     (892,000 )   —     —  

Long-term debt related to acquisition of business

     —     —     (26,768 )

Cash dividends declared but unpaid

     —     —     (14,246 )

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)

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)

  Buildings   Up to 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
  Product brands   1 - 25 years
  Corporate brands   4 - 20 years
  Product rights   1 - 20 years
  Partner relationships   3 - 8 years
  Out-licensed technology and other   4 - 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)

3.     BUSINESS COMBINATIONS

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.     BUSINESS COMBINATIONS (Continued)

 
(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    
                 

Expected volatility

     32.9%  

Expected life

     3.4 years  

Risk-free interest rate

     1.1%  

Expected dividend yield

     1.5%  

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.     BUSINESS COMBINATIONS (Continued)

   
   Amounts
Recognized as of
Merger Date
(as previously
reported)(a) 		  Measurement
Period
Adjustments(b) 		  Amounts
Recognized
(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)

     30,869     —     30,869  
 

Property, plant and equipment(f)

     184,757     —     184,757  
 

Identifiable intangible assets, excluding acquired IPR&D(g)

     3,844,310     (224,939 )   3,619,371  
 

Acquired IPR&D(h)

     1,404,956     (4,195 )   1,400,761  
 

Other non-current assets

     6,108     —     6,108  
 

Current liabilities(i)

     (385,574 )   874     (384,700 )
 

Long-term debt, including current portion(j)

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

Deferred income taxes, net(k)

     (1,467,791 )   157,816     (1,309,975 )
 

Other non-current liabilities(l)

     (149,307 )   (46,022 )   (195,329 )
                 
 

Total indentifiable net assets

     1,307,155     (116,466 )   1,190,689  
 

Equity component of convertible debt(j)

     (225,971 )   —     (225,971 )
 

Call option agreements(m)

     (28,000 )   —     (28,000 )
 

Goodwill(n)

     2,878,856     116,466     2,995,322  
                 
 

Total fair value of consideration transferred

   $ 3,932,040   $ —   $ 3,932,040  
                 

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.     BUSINESS COMBINATIONS (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
(as previously
reported) 		  Measurement
Period
Adjustments 		  Amounts
Recognized
(as adjusted) 		 
 

Product brands

     16   $ 3,114,689   $ (190,779 ) $ 2,923,910  
 

Corporate brands

     20     168,602     98     168,700  
 

Product rights

     9     360,970     (52,949 )   308,021  
 

Out-licensed technology and other

     7     200,049     18,691     218,740  
                       
 

Total identifiable intangible assets acquired

     15   $ 3,844,310   $ (224,939 ) $ 3,619,371  
                       

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.     BUSINESS COMBINATIONS (Continued)

   
   Amounts
Recognized as of
Merger Date
(as previously
reported) 		  Measurement
Period
Adjustments 		  Amounts
Recognized
(as adjusted) 		 
 

Ezogabine/retigabine(1)

   $ 891,461   $ —   $ 891,461  
 

Dermatology products

     431,323     (3,100 )   428,223  
 

Other

     82,172     (1,095 )   81,077  
                 
 

Total IPR&D assets acquired

   $ 1,404,956   $ (4,195 ) $ 1,400,761  
                 

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.     BUSINESS COMBINATIONS (Continued)

   
   Amounts
Recognized as of
Merger Date 		 
 

Term Loan A Facility(1)

   $ 1,000,000  
 

Term Loan B Facility(1)

     500,000  
 

2017 Notes

     497,500  
 

2020 Notes

     695,625  
 

4.0% Convertible Notes(2)

     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.     BUSINESS COMBINATIONS (Continued)

   
   Amounts
Recognized as of
Acquisition Date 		 
 

Cash and cash equivalents

   $ 8,792  
 

Accounts receivable(a)

     30,525  
 

Inventories

     43,387  
 

Property, plant and equipment

     15,257  
 

Identifiable intangible assets(b)

     423,950  
 

Current liabilities

     (32,500 )
         
 

Total indentifiable net assets

     489,411  
 

Goodwill(c)

     211,770  
         
 

Total fair value of consideration transferred

   $ 701,181  
         

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.     BUSINESS COMBINATIONS (Continued)

   
   Weighted-
Average
Useful Lives
(Years) 		  Amounts
Recognized as of
Acquisition Date 		 
 

Product brands

     8   $ 418,252  
 

Corporate brands

     4     5,698  
               
 

Total identifiable intangible assets acquired

     8   $ 423,950  
               

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)

3.     BUSINESS COMBINATIONS (Continued)

   
   Amounts
Recognized as of
Acquisition Date 		 
 

Inventories

   $ 32,360  
 

Property, plant and equipment

     39,581  
 

Identifiable intangible assets(a)

     341,680  
 

Deferred tax liability

     (1,262 )
         
 

Total indentifiable net assets

     412,359  
 

Goodwill(b)

     8,141  
         
 

Total fair value of consideration transferred

   $ 420,500  
         
   
   Weighted-
Average
Useful Lives
(Years) 		  Amounts
Recognized as of
Acquisition Date 		 
 

Product brands

     9   $ 292,472  
 

Product rights

     5     33,857  
 

Manufacturing agreement

     5     15,351  
               
 

Total identifiable intangible assets acquired

     9   $ 341,680  
               

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)

3.     BUSINESS COMBINATIONS (Continued)

   
   Amounts
Recognized as of
Acquisition Date 		 
 

Inventories

   $ 6,169  
 

Property, plant and equipment

     206  
 

Identifiable intangible assets, excluding acquired IPR&D(a)

     333,599  
 

Acquired IPR&D(b)

     4,318  
 

Deferred tax liability

     (1,690 )
         
 

Total indentifiable net assets

     342,602  
 

Goodwill(c)

     3,507  
         
 

Total fair value of consideration transferred

   $ 346,109  
         

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)

3.     BUSINESS COMBINATIONS (Continued)

   
   Amounts
Recognized as of
Acquisition Date 		 
 

Cash

   $ 1,558  
 

Accounts receivable(a)

     9,436  
 

Inventories

     22,489  
 

Other current assets

     5,406  
 

Property and equipment

     8,766  
 

Identifiable intangible assets(b)

     80,580  
 

Current liabilities

     (18,104 )
 

Deferred income taxes, net

     (20,533 )
 

Other non-current liabilities

     (1,138 )
         
 

Total indentifiable net assets

     88,460  
 

Goodwill(c)

     3,070  
         
 

Total fair value of consideration transferred

   $ 91,530  
         
   
   Weighted-
Average
Useful Lives
(Years) 		  Amounts
Recognized as of
Acquisition Date 		 
 

Product brands

     11   $ 65,194  
 

Patented technology

     7     15,386  
               
 

Total identifiable intangible assets acquired

     10   $ 80,580  
               

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)

3.     BUSINESS COMBINATIONS (Continued)

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)

3.     BUSINESS COMBINATIONS (Continued)

   
   Amounts
Recognized as of
Acquisition
Date(a) 		 
 

Cash and cash equivalents

   $ 5,607  
 

Accounts receivable(b)

     25,645  
 

Inventories

     22,010  
 

Other current assets

     3,166  
 

Property, plant and equipment

     83,288  
 

Identifiable intangible assets, excluding acquired IPR&D(c)

     247,127  
 

Acquired IPR&D

     747  
 

Other non-current assets

     2,662  
 

Current liabilities

     (30,428 )
 

Long-term debt, including current portion(d)

     (67,134 )
 

Deferred income taxes, net

     (43,269 )
 

Other non-current liabilities

     (6,049 )
         
 

Total indentifiable net assets

     243,372  
 

Goodwill(e)

     204,791  
         
 

Total fair value of consideration transferred

   $ 448,163  
         
   
   Weighted-
Average
Useful Lives
(Years) 		  Amounts
Recognized as of
Acquisition Date 		 
 

Product brands

     7   $ 164,823  
 

Product rights

     7     43,027  
 

Corporate brands

     15     25,227  
 

Partner relationships

     7     14,050  
               
 

Total identifiable intangible assets acquired

     8   $ 247,127  
               

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)

3.     BUSINESS COMBINATIONS (Continued)

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)

3.     BUSINESS COMBINATIONS (Continued)

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)

3.     BUSINESS COMBINATIONS (Continued)

   
   Amounts
Recognized as of
Acquisition Date
(as previously
reported)(a) 		  Measurement
Period
Adjustments(b) 		  Amounts
Recognized as of
December 31, 2011
(as adjusted) 		 
 

Cash and cash equivalents

   $ 43,940   $ —   $ 43,940  
 

Accounts receivable(c)

     63,509     (1,880 )   61,629  
 

Inventories(d)

     72,144     (1,825 )   70,319  
 

Other current assets

     14,429     —     14,429  
 

Property, plant and equipment

     9,737     —     9,737  
 

Identifiable intangible assets(e)

     202,071     7,169     209,240  
 

Other non-current assets

     3,122     —     3,122  
 

Current liabilities

     (46,866 )   826     (46,040 )
 

Deferred income taxes, net

     (18,176 )   11,568     (6,608 )
 

Other non-current liabilities

     (720 )   —     (720 )
                 
 

Total indentifiable net assets

     343,190     15,858     359,048  
 

Goodwill(f)

     171,105     (11,445 )   159,660  
                 
 

Total fair value of consideration transferred

   $ 514,295   $ 4,413   $ 518,708  
                 
   
   Weighted-
Average
Useful
Lives
(Years) 		  Amounts
Recognized as of
Acquisition Date
(as previously
reported) 		  Measurement
Period
Adjustments 		  Amounts
Recognized as of
December 31, 2011
(as adjusted) 		 
 

Partner relationships(1)

     7   $ 130,183   $ —   $ 130,183  
 

Product brands

     9     71,888     7,169     79,057  
                       
 

Total identifiable intangible assets acquired

     7   $ 202,071   $ 7,169   $ 209,240  
                       

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)

3.     BUSINESS COMBINATIONS (Continued)

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)

3.     BUSINESS COMBINATIONS (Continued)

   
   2011   2010  
 

Revenues

   $ 2,927,422   $ 2,624,198  
 

Net income (loss)

     154,895     (323,971 )
 

Basic earnings (loss) per share

   $ 0.51   $ (1.08 )
 

Diluted earnings (loss) per share

   $ 0.47   $ (1.08 )

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)

3.     BUSINESS COMBINATIONS (Continued)

4.     ACQUISITIONS AND DISPOSITIONS

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)

4.     ACQUISITIONS AND DISPOSITIONS (Continued)

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)

4.     ACQUISITIONS AND DISPOSITIONS (Continued)

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)

4.     ACQUISITIONS AND DISPOSITIONS (Continued)

5.     COLLABORATION AGREEMENT

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)

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  
 

Balance, January 1, 2010

   $ —   $ —   $ —   $ —   $ —  
 

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  
 

Costs incurred and charged to expense

     14,548     3,455     —     28,938     46,941  
 

Cash payments

     (38,168 )   (2,033 )   —     (15,381 )   (55,582 )
 

Non-cash adjustments

     989     (741 )   —     (4,913 )   (4,665 )
                         
 

Balance, December 31, 2011

   $ 2,158   $ 681   $ —   $ 10,314   $ 13,153  
                         

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)

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-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)

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, 2009

   $ —   $ —   $ —   $ 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  
                                 
 

Costs incurred and charged to expense

     —     —     —     —     —     (356 )   (356 )
 

Cash payments

     —     —     —     —     —     (1,078 )   (1,078 )
 

Non-cash adjustments

     —     —     —     —     —     (2,246 )   (2,246 )
                                 
 

Balance, December 31, 2011

   $ —   $ —   $ —   $ —   $ —   $ —   $ —  
                                 

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)

6.     RESTRUCTURING AND INTEGRATION (Continued)

   
   2010   2009  
 

Service and other revenues

   $ 5,642   $ 12,027  
             
 

Cost of services

     7,211     13,849  
 

Selling, general and administrative expenses

     2,328     3,718  
             
 

Total operating expenses

     9,539     17,567  
             
 

Operating loss

     (3,897 )   (5,540 )
 

Foreign exchange gain (loss)

     (102 )   93  
             
 

Net loss

   $ (3,999 ) $ (5,447 )
             

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)

7.     FAIR VALUE MEASUREMENTS

   
   2011   2010  
   
   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) 		 
 

Assets:

                                                  
   

Money market funds

   $ 27,711   $ 27,711   $ —   $ —   $ 91,448   $ 91,448   $ —   $ —  
   

Available-for-sale equity securities

     3,364     3,364     —     —     —     —     —     —  
   

Available-for-sale debt securities:

                                                  
     

Corporate bonds

     2,974     2,974     —     —     6,340     —     6,340     —  
     

Government-sponsored enterprise securities

     —     —     —     —     1,826     —     1,826     —  
                                     
 

Total financial assets

   $ 34,049   $ 34,049   $ —   $ —   $ 99,614   $ 91,448   $ 8,166   $ —  
                                     
 

Cash equivalents

   $ 27,711   $ 27,711   $ —   $ —   $ 91,448   $ 91,448   $ —   $ —  
 

Marketable securities

     6,338     6,338     —     —     8,166     —     8,166     —  
                                     
 

Total financial assets

   $ 34,049   $ 34,049   $ —   $ —   $ 99,614   $ 91,448   $ 8,166   $ —  
                                     
 

Liabilities:

                                                  
   

Acquisition-related contingent consideration

   $ (420,084 ) $ —   $ —   $ (420,084 ) $ (20,220 ) $ —   $ —   $ (20,220 )

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)

7.     FAIR VALUE MEASUREMENTS (Continued)

   
   2011   2010  
 

Balance, beginning of year

   $ (20,220 ) $ 6,009  
 

Total unrealized gains (losses):

              
   

Included in net income (loss):

              
     

Arising during the year

     11,817 (1)   (5,163 )(2)
     

Reclassification from other comprehensive (loss) income

     —     (389 )
   

Included in other comprehensive income:

              
     

Arising during year

     —     554  
     

Reclassification to net income (loss)

     —     389  
 

Proceeds on disposal

     —     (1,400 )
 

Acquisition-related contingent consideration:

              
   

Issuances

     (443,481 )   (20,220 )
   

Payments

     31,800     —  
             
 

Balance, end of year

   $ (420,084 ) $ (20,220 )
             

8.     FAIR VALUE OF FINANCIAL INSTRUMENTS

   
   2011   2010  
   
   Carrying
Value 		  Fair
Value 		  Carrying
Value 		  Fair
Value 		 
 

Cash equivalents

   $ 27,711   $ 27,711   $ 91,448   $ 91,448  
 

Marketable securities

     6,338     6,338     8,166     8,166  
 

Long-term debt (as described in note 14)

     (6,651,011 )   (6,732,568 )   (3,595,277 )   (4,174,561 )

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)

8.     FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

   
   2011   2010  
   
    
    
   Gross Unrealized    
    
   Gross Unrealized  
   
   Cost
Basis 		  Fair
Value 		  Cost
Basis 		  Fair
Value 		 
   
   Gains   Losses   Gains   Losses  
 

Corporate bonds

   $ 2,983   $ 2,974   $ —   $ (9 ) $ 6,234   $ 6,340   $ 106   $ —  
 

Government-sponsored enterprise securities

     —     —     —     —     1,825     1,826     1     —  
 

Equity securities

     1,730     3,364     1,634     —     —     —     —     —  
                                     
 

  $ 4,713   $ 6,338   $ 1,634   $ (9 ) $ 8,059   $ 8,166   $ 107   $ —  
                                     

9.     ACCOUNTS RECEIVABLE

   
   2011   2010  
 

Trade

   $ 480,867   $ 240,712  
 

Less allowance for doubtful accounts

     (12,328 )   (6,692 )
             
 

    468,539     234,020  
 

Royalties

     21,774     16,424  
 

Other

     78,955     24,375  
             
 

  $ 569,268   $ 274,819  
             

10.   INVENTORIES

   
   2011   2010  
 

Raw materials

   $ 63,368   $ 55,486  
 

Work in process

     64,108     43,587  
 

Finished goods

     250,555     158,574  
             
 

    378,031     257,647  
 

Less allowance for obsolescence

     (22,819 )   (28,065 )
             
 

  $ 355,212   $ 229,582  
             

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)

11.   PROPERTY, PLANT AND EQUIPMENT

   
   2011   2010  
 

Land

   $ 44,110   $ 25,528  
 

Buildings

     216,182     159,712  
 

Machinery and equipment

     207,136     145,292  
 

Other equipment and leasehold improvements

     49,114     65,597  
 

Construction in progress

     23,492     8,334  
             
 

    540,034     404,463  
 

Less accumulated depreciation

     (125,792 )   (122,711 )
             
 

  $ 414,242   $ 281,752  
             

12.   INTANGIBLE ASSETS AND GOODWILL

   
   Weighted-
Average
Useful
Lives
(Years) 		  2011   2010  
   
   Gross
Carrying
Amount 		  Accumulated
Amortization 		  Net
Carrying
Amount 		  Gross
Carrying
Amount 		  Accumulated
Amortization 		  Net
Carrying
Amount 		 
 

Finite-lived intangible assets:

                                            
   

Product brands

     13   $ 6,442,371   $ (737,876 ) $ 5,704,495   $ 4,227,465   $ (404,951 ) $ 3,822,514  
   

Corporate brands

     19     181,349     (10,630 )   170,719     169,675     (2,191 )   167,484  
   

Product rights

     8     1,302,748     (306,936 )   995,812     1,074,611     (279,275 )   795,336  
   

Partner relationships

     7     135,095     (15,633 )   119,462     —     —     —  
   

Out-licensed technology and other

     8     174,873     (38,915 )   135,958     205,332     (17,842 )   187,490  
                                   
     

Total finite-lived intangible assets(1)

     13     8,236,436     (1,109,990 )   7,126,446     5,677,083     (704,259 )   4,972,824  
 

Indefinite-lived intangible assets:

                                            
   

Acquired IPR&D(2)

     NA     531,352     —     531,352     1,399,956     —     1,399,956  
                                   
 

        $ 8,767,788   $ (1,109,990 ) $ 7,657,798   $ 7,077,039   $ (704,259 ) $ 6,372,780  
                                   

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)

12.   INTANGIBLE ASSETS AND GOODWILL (Continued)

   
   2011   2010   2009  
 

Alliance and royalty revenue

   $ 1,072   $ 1,072   $ 1,072  
 

Cost of goods sold

     8,103     8,103     8,103  
 

Amortization expense

     557,814     219,758     104,730  
                 
 

  $ 566,989   $ 228,933   $ 113,905  
                 
   
   2012   2013   2014   2015   2016  
 

Amortization expense

   $ 799,318   $ 801,101   $ 791,634   $ 772,828   $ 772,595  
 
   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(a)

     (24,561 )   (17,097 )   19,667     (2,847 )   47,064     22,226  
                           

Balance, December 31, 2010

     1,354,955     481,441     398,815     352,144     414,021     3,001,376  
                           

Additions(b)

     —     11,648     220,228     364,451     —     596,327  

Adjustments(c)

     187,248     (338 )   (32,963 )   (24,623 )   (12,858 )   116,466  

Foreign exchange and other

     —     (1,100 )   (5,806 )   (66,498 )   (41,979 )   (115,383 )
                           

Balance, December 31, 2011

   $ 1,542,203   $ 491,651   $ 580,274   $ 625,474   $ 359,184   $ 3,598,786  
                           

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)

12.   INTANGIBLE ASSETS AND GOODWILL (Continued)

13.   ACCRUED LIABILITIES

   
   2011   2010  
 

Product returns

   $ 119,064   $ 110,642  
 

Product rebates

     121,106     79,704  
 

Interest

     97,779     41,800  
 

Employee costs

     67,568     49,756  
 

Professional fees

     30,825     15,488  
 

Restructuring costs (as described in note 6)

     13,153     30,139  
 

Royalties

     9,590     14,594  
 

Legal settlements (as described in note 24)

     1,300     16,000  
 

Unpaid cash consideration related to the Merger (as described in note 3)

     —     13,281  
 

DSUs (as described in note 17)

     —     11,495  
 

Other

     66,552     59,215  
             
 

  $ 526,937   $ 442,114  
             

14.   LONG-TERM DEBT

   
   Maturity Date   2011   2010  
 

Revolving Credit Facility

   April 2016   $ 220,000   $ —  
 

New Term Loan A Facility, net of unamortized debt discount of $39,480

   April 2016     2,185,520     —  
 

Term Loan A Facility

         —     975,000  
 

Senior Notes:

                  
 

6.50%

   July 2016     915,500     —  
 

6.75%, net of unamortized debt discount (2011 — $2,051; 2010 — $2,411)

   October 2017     497,949     497,589  
 

6.875%, net of unamortized debt discount (2011 — $6,204; 2010 — $7,502)

   December 2018     938,376     992,498  
 

7.00%, net of unamortized debt discount (2011 — $3,772; 2010 — $4,265)

   October 2020     686,228     695,735  
 

6.75%

   August 2021     650,000     —  
 

7.25%, net of unamortized debt discount of $9,573

   July 2022     540,427     —  
 

Convertible Notes:

                  
 

4.0%, net of unamortized debt discount (2010 — $4,118)

   November 2013     —     220,792  
 

5.375%, net of unamortized debt discount

                  
   

(2011 — $1,697; 2010 — $26,970)

   August 2014     17,011     196,763  
 

Cambridge obligation, net of unamortized debt discount

                  
   

(2010 — $600)

         —     16,900  
                 
 

        6,651,011     3,595,277  
 

Less current portion

         (111,250 )   (116,900 )
                 
 

      $ 6,539,761   $ 3,478,377  
                 

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)

14.   LONG-TERM DEBT (Continued)

 

2012

   $ 111,250  
 

2013

     222,500  
 

2014

     463,708  
 

2015

     445,000  
 

2016

     2,136,750  
 

Thereafter

     3,334,580  
         
 

Total gross maturities

     6,713,788  
 

Unamortized discounts

     (62,777 )
         
 

Total long-term debt

   $ 6,651,011  
         

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)

14.   LONG-TERM DEBT (Continued)

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)

14.   LONG-TERM DEBT (Continued)

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)

14.   LONG-TERM DEBT (Continued)

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)

14.   LONG-TERM DEBT (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)

14.   LONG-TERM DEBT (Continued)

   
   2011   2010  
 

Cash interest per contractual coupon rate

   $ 3,268   $ 2,324  
 

Non-cash amortization of debt discount

     589     304  
             
 

  $ 3,857   $ 2,628  
             

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)

14.   LONG-TERM DEBT (Continued)

   
   2011   2010   2009  
 

Cash interest per contractual coupon rate

   $ 6,265   $ 18,335   $ 10,504  
 

Non-cash amortization of debt discount

     3,433     9,265     4,954  
                 
 

  $ 9,698   $ 27,600   $ 15,458  
                 

15.   PENSION AND POSTRETIREMENT EMPLOYEE BENEFIT PLANS

16.   SECURITIES REPURCHASE PROGRAM

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)

16.   SECURITIES REPURCHASE PROGRAM (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)

16.   SECURITIES REPURCHASE PROGRAM (Continued)

17.   SHARE-BASED COMPENSATION

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)

17.   SHARE-BASED COMPENSATION (Continued)

   
   2011   2010   2009  
 

Stock options(1)

   $ 45,465   $ 56,851   $ 2,613  
 

RSUs

     48,558     41,182     3,000  
                 
 

Stock-based compensation expense

   $ 94,023   $ 98,033   $ 5,613  
                 
 

Cost of goods sold(1)(2)

   $ 1,330   $ 1,258   $ 525  
 

Research and development expenses(1)(2)

     1,329     2,487     726  
 

Selling, general and administrative expenses(1)(2)

     90,379     44,806     4,362  
 

Restructuring and integration costs (as described in note 6)

     985     49,482     —  
                 
 

Stock-based compensation expense

   $ 94,023   $ 98,033   $ 5,613  
                 

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)

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  
   
   2011   2010   2009  
 

Expected stock option life (years)(1)

     4.0     4.0     4.0  
 

Expected volatility(2)

     42.8 %   37.1 %   45.2 %
 

Risk-free interest rate(3)

     1.4 %   1.5 %   1.6 %
 

Expected dividend yield(4)

     0.0 %   1.5 %   14.6 %

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)

17.   SHARE-BASED COMPENSATION (Continued)

   
   Options
(000s) 		  Weighted-
Average
Exercise
Price 		  Weighted-
Average
Remaining
Contractual
Term
(Years) 		  Aggregate
Intrinsic
Value 		 
 

Outstanding, January 1, 2011

     12,203   $ 11.99              
 

Granted

     1,294     47.83              
 

Equitable adjustment

     380     11.00              
 

Exercised

     (2,898 )   13.91              
 

Expired or forfeited

     (499 )   19.82              
                           
 

Outstanding, December 31, 2011

     10,480   $ 15.10     6.0   $ 335,744  
                     
 

Vested and exercisable, December 31, 2011

     4,484   $ 7.42     5.4   $ 176,061  
                     
 
Range of Exercise Prices
  Outstanding
(000s) 		  Weighted-
Average
Remaining
Contractual
Life
(Years) 		  Weighted-
Average
Exercise
Price 		  Exercisable
(000s) 		  Weighted-
Average
Exercise
Price 		 
 

$3.46 - $5.19

     3,321     5.9   $ 4.26     2,560   $ 4.27  
 

$5.33 - $8.00

     971     5.3     6.47     753     6.22  
 

$8.03 - $12.05

     428     2.7     8.85     401     8.78  
 

$12.87 - $19.31

     3,278     8.0     13.20     444     13.48  
 

$20.42 - $30.63

     1,248     4.0     25.01     316     24.66  
 

$39.95 - $54.76

     1,234     4.6     48.23     10     39.35  
                               
 

    10,480     6.0   $ 15.10     4,484   $ 7.42  
                         

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)

17.   SHARE-BASED COMPENSATION (Continued)

   
   Time-Based
RSUs
(000s) 		  Weighted-
Average
Grant-Date
Fair Value 		 
 

Non-vested, January 1, 2011

     2,213   $ 24.61  
 

Granted

     425     44.96  
 

Vested

     (672 )   24.14  
 

Forfeited

     (137 )   25.15  
               
 

Non-vested, December 31, 2011

     1,829   $ 29.47  
             
   
   2010   2009  
 

Contractual term (years)

     5.0     5.0  
 

Expected Company share volatility(1)

     43.2 %   44.0 %
 

Average comparator group share price volatility(1)

     34.7 %   35.9 %
 

Risk-free interest rate(2)

     2.4 %   3.1 %

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)

17.   SHARE-BASED COMPENSATION (Continued)

   
   2011   2010
 

Contractual term (years)

   3.0   4.1-4.6
 

Expected Company share volatility(1)

   34.6% - 60.8%   32.4% - 33.2%
 

Risk-free interest rate(2)

   1.0% - 1.9%   1.2% - 2.3%
   
   Performance-
Based RSUs
(000s) 		  Weighted-
Average
Grant-Date
Fair Value 		 
 

Non-vested, January 1, 2011

     2,496   $ 33.25  
 

Granted

     411     55.10  
 

Vested

     (765 )   52.06  
 

Forfeited

     (82 )   17.82  
               
 

Non-vested, December 31, 2011

     2,060   $ 31.24  
             

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)

17.   SHARE-BASED COMPENSATION (Continued)

   
   DSUs
(000s) 		  Weighted-
Average
Grant-Date
Fair Value 		 
 

Outstanding, January 1, 2011

     382   $ 14.43  
 

Granted

     18     39.79  
 

Settled for cash

     (252 )   14.85  
               
 

Outstanding, December 31, 2011

     148   $ 16.78  
             

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)

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
Equity
Securities 		  Net
Unrealized
Holding
Gain (Loss)
on Available-
For-Sale
Debt
Securities 		  Acquisition of
Noncontrolling
Interest 		  Pension
Adjustment 		  Total  
 

Balance, January 1, 2009

   $ 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(1)

     —     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(1)

     —     389     —     —     —     —     389  
                                 
 

Balance, December 31, 2010

     98,926     —     —     (90 )   —     —     98,836  
                                 
 

Foreign currency translation adjustment

     (304,447 )   —     —     —     —     —     (304,447 )
 

Net unrealized holding gain on available-for-sale equity securities

     —     —     22,780     —     —     —     22,780  
 

Reclassification to net income(1)

     —     —     (21,146 )   —     —     —     (21,146 )
 

Net unrealized holding gain on available-for-sale debt securities

     —     —     —     (114 )   —     —     (114 )
 

Acquisition of noncontrolling interest

     —     —     —     —     2,206     —     2,206  
 

Pension adjustment(2)

     —     —     —     —     —     (545 )   (545 )
                                 
 

Balance, December 31, 2011

   $ (205,521 ) $ —   $ 1,634   $ (204 ) $ 2,206   $ (545 ) $ (202,430 )
                                 

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)

19.   LOSS ON EXTINGUISHMENT OF DEBT

   
   2011   2010  
 

Extinguishment of liability component of 5.375% Convertible Notes (as described in note 14 and note 16)

   $ 31,629   $ 20,652  
 

Extinguishment of liability component of 4.0% Convertible Notes (as described in note 14)

     4,708     —  
 

Cash settlement of written call options (as described in note 3)

     —     10,064  
 

Repayment of Term Loan B Facility

     —     1,697  
 

Redemption of senior notes

     (148 )   —  
 

Repayment of the senior secured term loan facility

     655     —  
             
 

  $ 36,844   $ 32,413  
             

20.   GAIN (LOSS) ON INVESTMENTS, NET

   
   2011   2010   2009  
 

Loss on auction rate securities

   $ —   $ (5,552 ) $ (5,210 )
 

Gain on auction rate securities settlement

     —     —     22,000  
 

Gain on disposal of investments

     22,776     —     804  
                 
 

  $ 22,776   $ (5,552 ) $ 17,594  
                 

21.   INCOME TAXES

   
   2011   2010   2009  
 

Domestic

   $ (41,374 ) $ (127,269 ) $ (81,978 )
 

Foreign

     23,374     (108,994 )   256,933  
                 
 

  $ (18,000 ) $ (236,263 ) $ 174,955  
                 
   
   2011   2010   2009  
 

Current:

                    
   

Domestic

   $ 3,554   $ 5,860   $ —  
   

Foreign

     36,337     21,473     14,500  
                 
 

    39,891     27,333     14,500  
                 
 

Deferred:

                    
   

Domestic

     (21,763 )   (49,820 )   —  
   

Foreign

     (195,687 )   (5,583 )   (16,000 )
                 
 

    (217,450 )   (55,403 )   (16,000 )
                 
 

  $ (177,559 ) $ (28,070 ) $ (1,500 )
                 

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)

21.   INCOME TAXES (Continued)

   
   2011   2010   2009  
 

(Loss) income before recovery of income taxes

   $ (18,000 ) $ (236,263 ) $ 174,955  
 

Expected Canadian statutory rate

     28.3%     30.6%     32.4%  
                 
 

Expected provision for (recovery of) income taxes

     (5,085 )   (72,296 )   56,685  
 

Non-deductible amounts:

                    
   

Amortization

     22,251     18,304     11,962  
   

Share-based compensation

     14,045     8,024     —  
   

Merger costs

     —     7,124     —  
   

Acquired IPR&D

     —     5,661     21,063  
   

Non-taxable gain on disposal of investments

     (15,384 )   (1,679 )   (3,838 )
   

Legal settlement costs

     —     —     2,944  
   

Write-down of investments

     —     —     1,690  
 

Changes in enacted income tax rates

     (18,313 )   880     9,800  
 

Canadian dollar foreign exchange (loss) gain for Canadian tax purposes

     40,667     3,358     2,500  
 

Change in valuation allowance related to U.S. operating losses

     —     45,483     (26,000 )
 

Change in valuation allowance on Canadian deferred tax assets and

                    
   

tax rate changes

     (57,249 )   (46,898 )   (11,000 )
 

Change in uncertain tax positions

     (8,568 )   —     —  
 

Foreign tax rate differences

     (180,301 )   (36,649 )   (99,045 )
 

Loss of U.S. state net operating losses

     —     9,783     —  
 

Unrecognized income tax benefit of losses

     22,187     22,768     25,496  
 

Withholding taxes on foreign income

     5,473     3,177     3,450  
 

Alternative minimum and other taxes

     2,513     —     1,877  
 

Other

     205     4,890     916  
                 
 

  $ (177,559 ) $ (28,070 ) $ (1,500 )
                 

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)

21.   INCOME TAXES (Continued)

 

   
   2011   2010  
 

Deferred tax assets:

              
   

Tax loss carryforwards

   $ 285,003   $ 272,172  
   

Tax credit carryforwards

     37,141     36,160  
   

Scientific Research and Experimental Development pool

     63,893     66,577  
   

Research and development tax credits

     62,766     66,201  
   

Provisions

     121,288     100,320  
   

Plant, equipment and technology

     11,440     33,736  
   

Deferred revenue

     22,414     27,888  
   

Deferred financing and share issue costs

     50,097     65,620  
   

Share-based compensation

     17,808     9,783  
   

Other

     15,599     15,694  
             
   

Total deferred tax assets

     687,449     694,151  
   

Less valuation allowance

     (128,742 )   (186,399 )
             
   

Net deferred tax assets

     558,707     507,752  
             
 

Deferred tax liabilities:

              
   

Intangible assets

     1,502,215     1,779,460  
   

5.375% Convertible Notes(1)

     2,268     8,171  
   

Prepaid expenses

     441     510  
   

Other

     —     —  
             
   

Total deferred tax liabilities

     1,504,924     1,788,141  
             
 

Net deferred income taxes

   $ (946,217 ) $ (1,280,389 )
             

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)

21.   INCOME TAXES (Continued)

F-66

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)

   
   2011   2010   2009  
 

Balance, beginning of year

   $ 110,857   $ 66,200   $ 63,700  
 

Acquisition of Valeant

     —     18,916     —  
 

Additions based on tax positions related to the current year

     2,701     10,133     1,000  
 

Additions for tax positions of prior years

     —     15,608     3,400  
 

Reductions for tax positions of prior years

     (11,268 )   —     (1,900 )
                 
 

Balance, end of year

   $ 102,290   $ 110,857   $ 66,200  
                 

22.   EARNINGS PER SHARE

   
   2011   2010   2009  
 

Net income (loss)

   $ 159,559   $ (208,193 ) $ 176,455  
                 
 

Basic weighted-average number of common shares outstanding (000s)

     304,655     195,808     158,236  
 

Dilutive effect of stock options and RSUs (000s)

     8,484     —     274  
 

Dilutive effect of convertible debt (000s)

     12,980     —     —  
                 
 

Diluted weighted-average number of common shares outstanding (000s)

     326,119     195,808     158,510  
                 
 

Basic earnings (loss) per share

   $ 0.52   $ (1.06 ) $ 1.11  
 

Diluted earnings (loss) per share

   $ 0.49   $ (1.06 ) $ 1.11  
                 
   
   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  
         

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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

   
   2011   2010   2009  
 

Interest paid

   $ 247,879   $ 37,719   $ 4,182  
 

Income taxes paid

     45,399     26,300     12,139  

24.   LEGAL PROCEEDINGS

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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)

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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)

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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

   
   Total   2012   2013   2014   2015   2016   Thereafter  
 

Lease obligations

   $ 70,747   $ 15,847   $ 12,430   $ 7,971   $ 3,559   $ 2,874   $ 28,066  

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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)

26.   SEGMENT INFORMATION

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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)

   
   2011   2010   2009  
 

Revenues(1):

                    
   

U.S. Neurology and Other

   $ 829,289   $ 658,312   $ 575,321  
   

U.S. Dermatology(2):

     568,298     219,008     146,267  
   

Canada and Australia(3):

     340,240     161,568     83,959  
   

Branded Generics — Europe(4):

     470,783     73,312     14,883  
   

Branded Generics — Latin America

     254,840     69,037     —  
                 
     

Total revenues

     2,463,450     1,181,237     820,430  
                 
 

Segment profit (loss)(5):

                    
   

U.S. Neurology and Other

     415,273     251,129     274,548  
   

U.S. Dermatology

     185,129     47,737     87,860  
   

Canada and Australia

     104,083     51,043     35,037  
   

Branded Generics — Europe(6):

     18,331     20,646     9,152  
   

Branded Generics — Latin America

     (2,164 )   (3,889 )   —  
                 
     

Total segment profit

     720,652     366,666     406,597  
                 
 

Corporate(7)

     (180,007 )   (155,794 )   (124,269 )
 

Restructuring and integration costs

     (97,667 )   (140,840 )   (30,033 )
 

Acquired IPR&D

     (109,200 )   (89,245 )   (59,354 )
 

Acquisition-related costs

     (32,964 )   (38,262 )   (5,596 )
 

Legal settlements

     (11,841 )   (52,610 )   (6,191 )
 

Acquisition-related contingent consideration

     10,986     —     —  
                 
 

Operating income (loss)

     299,959     (110,085 )   181,154  
 

Interest income

     4,084     1,294     1,118  
 

Interest expense

     (333,041 )   (84,307 )   (24,881 )
 

Write-down of deferred financing charges

     (1,485 )   (5,774 )   (537 )
 

Loss on extinguishment of debt

     (36,844 )   (32,413 )   —  
 

Foreign exchange and other

     26,551     574     507  
 

Gain (loss) on investments, net

     22,776     (5,552 )   17,594  
                 
 

(Loss) income before recovery of income taxes

   $ (18,000 ) $ (236,263 ) $ 174,955  
                 

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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)

   
   2011   2010   2009  
 

Assets(1):

                    
   

U.S. Neurology and Other

   $ 4,436,835   $ 5,013,016   $ 1,409,243  
   

U.S. Dermatology(2):

     3,076,747     1,905,261     169,164  
   

Canada and Australia(3):

     1,876,529     1,011,722     76,739  
   

Branded Generics — Europe(4):

     1,853,931     920,796     11,560  
   

Branded Generics — Latin America

     1,231,360     1,421,991     —  
                 
 

    12,475,402     10,272,786     1,666,706  
   

Corporate

     666,311     522,331     392,584  
                 
 

Total assets

   $ 13,141,713   $ 10,795,117   $ 2,059,290  
                 

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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)

   
   2011   2010   2009  
 

Capital expenditures:

                    
   

U.S. Neurology and Other

   $ 233   $ 8,080   $ 6,098  
   

U.S. Dermatology

     1,401     652     —  
   

Canada and Australia

     2,066     804     —  
   

Branded Generics — Europe

     9,561     3,083     —  
   

Branded Generics — Latin America

     24,428     3,011     —  
                 
 

    37,689     15,630     6,098  
   

Corporate

     20,826     1,193     1,325  
                 
 

Total capital expenditures

   $ 58,515   $ 16,823   $ 7,423  
                 
 

Depreciation and amortization(1):

                    
   

U.S. Neurology and Other

   $ 217,110   $ 171,817   $ 110,876  
   

U.S. Dermatology

     177,876     35,580     23,981  
   

Canada and Australia

     53,627     14,791     5,707  
   

Branded Generics — Europe

     88,367     10,406     —  
   

Branded Generics — Latin America

     69,479     14,792     —  
                 
 

    606,459     247,386     140,564  
   

Corporate

     6,144     7,118     8,696  
                 
 

Total depreciation and amortization

   $ 612,603   $ 254,504   $ 149,260  
                 

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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)  
   
   2011   2010   2009   2011   2010   2009  
 

U.S. and Puerto Rico

   $ 1,397,636   $ 872,112   $ 710,214   $ 22,619   $ 14,231   $ 11,067  
 

Canada

     256,820     154,200     94,142     129,510     94,435     83,471  
 

Poland

     179,501     30,430     —     106,743     60,390     —  
 

Mexico

     151,948     42,833     —     53,500     51,367     —  
 

Brazil

     87,190     22,595     —     49,231     46,074     —  
 

Serbia

     81,867     —     —     10,039     —     —  
 

Australia

     79,204     17,616     —     16,636     1,724     —  
 

Other

     229,284     41,451     16,074     25,964     13,531     9,310  
                             
 

  $ 2,463,450   $ 1,181,237   $ 820,430   $ 414,242   $ 281,752   $ 103,848  
                             
   
   2011   2010   2009  
 

McKesson Corporation

     23%     28%     25%  
 

Cardinal Health, Inc.

     21%     24%     21%  
 

AmerisourceBergen Corporation

     10%     12%     10%  

27.   SUBSEQUENT EVENTS

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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-77