UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2009

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: 1-11397

Valeant Pharmaceuticals International

Delaware		33-0628076
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
One Enterprise		92656
Aliso Viejo, California		(Zip Code)
(Address of principal executive offices)

(949) 461-6000
(Registrant’s telephone number, including area code)

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

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

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

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

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

     The number of shares outstanding of the registrant’s Common Stock, $0.01 par value, as of May 4, 2009 was 82,187,125

 

 

VALEANT PHARMACEUTICALS INTERNATIONAL

INDEX

		Page
		Number
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)			2
Consolidated Condensed Balance Sheets as of March 31, 2009 and December 31, 2008			2
Consolidated Condensed Statements of Operations for the three months ended March 31, 2009 and 2008			3
Consolidated Condensed Statements of Comprehensive Income for the three months ended March 31, 2009 and 2008			4
Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2009 and 2008			5
Notes to Consolidated Condensed Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3. Quantitative and Qualitative Disclosures About Market Risk			47
Item 4. Controls and Procedures			47
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			49
Item 1A. Risk Factors			49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			49
Item 6. Exhibits			49
SIGNATURES			51
EX-10.2
EX-15.1
EX-15.2
EX-31.1
EX-31.2
EX-32.1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

VALEANT PHARMACEUTICALS INTERNATIONAL

CONSOLIDATED CONDENSED BALANCE SHEETS

		March 31,				December 31,
		2009				2008
		( In thousands, except par value data)
ASSETS
Current Assets:
Cash and cash equivalents		$	139,909			$	199,582
Marketable securities			5,930				19,193
Accounts receivable, net			122,172				144,509
Inventories, net			70,564				72,972
Prepaid expenses and other current assets			14,216				17,605
Current deferred tax assets, net			15,425				16,179
Income taxes			13,145				—
Total current assets			381,361				470,040
Property, plant and equipment, net			84,194				90,228
Deferred tax assets, net			32,431				14,850
Goodwill			98,132				114,634
Intangible assets, net			446,095				467,795
Other assets			26,673				28,385
Total non-current assets			687,525				715,892
		$	1,068,886			$	1,185,932
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Trade payables		$	29,097			$	41,638
Accrued liabilities			196,536				231,451
Notes payable and current portion of long-term debt			318				666
Deferred revenue			16,616				15,415
Income taxes payable			5,198				2,497
Current deferred tax liabilities, net			22				52
Current liabilities for uncertain tax positions			504				478
Total current liabilities			248,291				292,197
Long-term debt, less current portion			340,076				398,136
Deferred revenue			9,286				11,841
Deferred tax liabilities, net			3,350				3,206
Liabilities for uncertain tax positions			53,903				53,425
Other liabilities			154,599				175,379
Total non-current liabilities			561,214				641,987
Total liabilities			809,505				934,184
Commitments and contingencies
Stockholders’ Equity:
Common stock, $0.01 par value; 200,000 shares authorized; 82,185 (March 31, 2009) and 81,753 (December 31, 2008) shares outstanding (after deducting shares in treasury of 18,688 as of March 31, 2009 and December 31, 2008)			822				818
Additional capital			1,144,213				1,138,575
Accumulated deficit			(874,589	)			(905,784	)
Accumulated other comprehensive income			(11,083	)			18,122
Total Valeant stockholders’ equity			259,363				251,732
Noncontrolling interest			18				17
Total stockholders’ equity			259,381				251,748
		$	1,068,886			$	1,185,932

The accompanying notes are an integral part of these consolidated condensed financial statements.

VALEANT PHARMACEUTICALS INTERNATIONAL

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

		Three Months Ended
		March 31,
		2009				2008
		( Unaudited , in thousands, except per share data)
Revenues:
Product sales		$	152,833			$	139,210
Service revenue			6,738				—
Alliances (including ribavirin royalties)			18,352				12,773
Total revenues			177,923				151,983
Costs and expenses:
Cost of goods sold (excluding amortization)			39,697				35,755
Cost of services			4,326				—
Selling, general and administrative			64,216				69,439
Research and development costs, net			8,735				29,294
Restructuring, asset impairments and dispositions			1,211				(13,190	)
Amortization expense			17,004				13,329
Total costs and expenses			135,189				134,627
Income from operations			42,734				17,356
Other income (expense), net including translation and exchange			1,212				(1,531	)
Gain on early extinguishment of debt			4,599				—
Interest income			1,835				4,724
Interest expense			(8,013	)			(13,384	)
Income from continuing operations before income taxes			42,367				7,165
Provision for income taxes			11,569				4,659
Income from continuing operations			30,798				2,506
Income from discontinued operations, net of tax			398				3,293
Net income			31,196				5,799
Less: Net income attributable to noncontrolling interest			1				2
Net income attributable to Valeant		$	31,195			$	5,797
Basic income per share attributable to Valeant:
Income from continuing operations attributable to Valeant		$	0.37			$	0.03
Income from discontinued operations attributable to Valeant			0.01				0.03
Net income per share attributable to Valeant		$	0.38			$	0.06
Diluted income per share attributable to Valeant:
Income from continuing operations attributable to Valeant		$	0.37			$	0.03
Income from discontinued operations attributable to Valeant			—				0.03
Net income per share attributable to Valeant		$	0.37			$	0.06
Shares used in per share computation — Basic			82,548				89,590
Shares used in per share computation — Diluted			83,402				90,212

The accompanying notes are an integral part of these consolidated condensed financial statements.

VALEANT PHARMACEUTICALS INTERNATIONAL

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

		Three Months Ended
		March 31,
		2009				2008
		(Unaudited, in thousands)
Net income		$	31,196			$	5,799
Other comprehensive income (loss):
Foreign currency translation adjustments			(29,485	)			53,569
Unrealized gain (loss) on marketable equity securities			—				(1,874	)
Unrealized gain (loss) on hedges			211				(595	)
Pension liability adjustment			69				14
Comprehensive income		$	1,991			$	56,913

The accompanying notes are an integral part of these consolidated condensed financial statements.

VALEANT PHARMACEUTICALS INTERNATIONAL

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

		Three Months Ended
		March 31,
		2009				2008
		(Unaudited, in thousands)
Cash flows from operating activities:
Net income		$	31,196			$	5,799
Income from discontinued operations			398				3,293
Income from continuing operations			30,798				2,506
Adjustments to reconcile income from continuing operations to net cash provided by operating activities in continuing operations:
Depreciation and amortization			20,764				17,795
Provision for losses on accounts receivable and inventory			536				5,877
Stock compensation expense			4,322				2,372
Translation and exchange (gains) losses, net			(1,181	)			1,532
Impairment charges and other non-cash items			5,508				(18,720	)
Payments of accreted interest on long-term debt and notes payable			(13,277	)			—
Deferred income taxes			(2,201	)			2,001
Gain on extinguishment of debt			(4,599	)			—
Change in assets and liabilities, net of effects of acquisitions:
Accounts receivable			15,093				33,789
Inventories			(2,918	)			(6,050	)
Prepaid expenses and other assets			3,461				(731	)
Trade payables and accrued liabilities			4,431				10,047
Income taxes			(9,960	)			244
Other liabilities			(12,955	)			(236	)
Cash flow from operating activities in continuing operations			37,822				50,426
Cash flow from operating activities in discontinued operations			(2,149	)			(7,457	)
Net cash provided by operating activities			35,673				42,969
Cash flows from investing activities:
Capital expenditures			(7,076	)			(3,631	)
Proceeds from sale of assets			255				289
Proceeds from sale of businesses			—				36,317
Proceeds from investments			13,541				35,037
Purchase of investments			(802	)			(500	)
Acquisition of businesses, license rights and product lines			(32,211	)			(504	)
Cash flow from investing activities in continuing operations			(26,293	)			67,008
Cash flow from investing activities in discontinued operations			(10,273	)			69,497
Net cash provided by (used in) investing activities			(36,566	)			136,505
Cash flows from financing activities:
Payments on long-term debt and notes payable			(52,779	)			(398	)
Proceeds from capitalized lease financing, long-term debt and notes payable			2,006				50
Stock option exercises			7,036				—
Cash flow from financing activities in continuing operations			(43,737	)			(348	)
Cash flow from financing activities in discontinued operations			—				—
Net cash used in financing activities			(43,737	)			(348	)
Effect of exchange rate changes on cash and cash equivalents			(15,043	)			9,606
Net increase (decrease) in cash and cash equivalents			(59,673	)			188,732
Cash and cash equivalents at beginning of period			199,582				309,365
Cash and cash equivalents at end of period			139,909				498,097
Cash and cash equivalents classified as part of discontinued operations			—				(25,992	)
Cash and cash equivalents of continuing operations		$	139,909			$	472,105

The accompanying notes are an integral part of these consolidated condensed financial statements.

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

     In the consolidated condensed financial statements included herein, “we,” “us,” “our,” “Valeant” and the “Company” refer to Valeant Pharmaceuticals International and its subsidiaries. The consolidated condensed financial statements have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared on the basis of accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The results of operations presented herein are not necessarily indicative of the results to be expected for a full year. Although we believe that all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the interim periods presented are included and that the disclosures are adequate to make the information presented not misleading, these consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2008. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

1. Organization and Summary of Significant Accounting Policies

     Organization: We are a multinational specialty pharmaceutical company that develops, manufactures and markets a broad range of pharmaceutical products. Additionally, we generate alliance revenue, including royalties from the sale of ribavirin by Schering-Plough Ltd. (“Schering-Plough”). As a result of our acquisition of Dow Pharmaceutical Sciences, Inc. (“Dow”) in December 2008, beginning in January 2009, we receive royalties from patent protected formulations developed by Dow and licensed to third parties and revenue from contract research services performed by Dow.

     Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Valeant Pharmaceuticals International, its wholly owned subsidiaries and its majority-owned subsidiary in Poland. All significant intercompany account balances and transactions have been eliminated.

     Marketable Securities: Marketable securities include short-term commercial paper, government agency securities and corporate bonds which, at the time of purchase, have maturities of greater than three months. Short-term commercial paper and government agency securities are generally categorized as held-to-maturity and are thus carried at amortized cost, because we have both the intent and the ability to hold these investments until they mature. As of December 31, 2008, corporate bonds are categorized as available for sale and are carried at fair value. As of March 31, 2009 and December 31, 2008, the fair value of these marketable securities approximated cost.

     Accumulated Other Comprehensive Income: The components of accumulated other comprehensive income consists of accumulated foreign currency translation adjustments, unrealized losses on marketable equity securities, pension funded status and changes in the fair value of derivative instruments.

     Discontinued Operations: The results of operations and the related financial position related to our product rights in Infergen and our business operations located in Western and Eastern Europe, Middle East and Africa (the “WEEMEA business”) have been reflected as discontinued operations in our consolidated financial statements in accordance with the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 144 Accounting for the Disposal and Impairment of Long-Lived Assets (“SFAS 144”) and Emerging Issues Task Force (“EITF”) Issue No. 03-13, Applying the Conditions in Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations (“EITF 03-13”). For more details regarding our discontinued operations, see Note 4.

     Stock-Based Compensation: We adopted SFAS No. 123(R), Share-Based Payment (“SFAS 123(R)”) on January 1, 2006. SFAS 123(R) requires companies to recognize compensation expense for the fair value of all share based incentive programs including employee stock options. In order to estimate the fair value of stock options

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

under the provisions of SFAS 123(R) we use the Black-Scholes option valuation model. Option valuation models such as Black-Scholes require the input of subjective assumptions which can vary over time. Additional information about our stock incentive programs and the assumptions used in determining the fair value of stock options are contained in Note 10.

     Income Taxes: Income taxes are calculated in accordance with SFAS No. 109, Accounting for Income Taxes (“SFAS 109”). SFAS 109 requires that we recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. A valuation allowance is established to reduce our deferred tax assets to the amount expected to be realized when, in management’s opinion, it is more likely than not, that some portion of the deferred tax asset will not be realized. In estimating the future tax consequences of any transaction, we consider all expected future events under presently existing tax laws and rates.

     Derivative Financial Instruments: We account for derivative financial instruments based on whether they meet our criteria for designation as hedging transactions, either as cash flow, net investment or fair value hedges. Our derivative instruments are recorded at fair value and are included in other assets or accrued liabilities. Depending on the nature of the hedge, changes in the fair value of a hedged item are either offset against the change in the fair value of the hedged item through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings.

     Per Share Information: We compute basic earnings per share by dividing income or loss available to common stockholders attributable to Valeant by the weighted-average number of common shares outstanding. We compute diluted earnings per share by adjusting the weighted-average number of common shares outstanding to reflect the effect of potentially dilutive securities including options, warrants, and convertible debt or preferred stock. We adjust income available to common stockholders attributable to Valeant in these computations to reflect any changes in income or loss attributable to Valeant that would result from the issuance of the dilutive common shares.

     Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates.

   Recent Accounting Pronouncements:

     We adopted SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51 (“SFAS 160”), effective January 1, 2009. The adoption of SFAS 160 did not have a material impact on our consolidated financial statements. SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as a separate component of equity in the consolidated financial statements. In addition, SFAS 160 changes the way the consolidated statement of operations is presented and requires consolidated net income to be reported at amounts that include the amount attributable to both Valeant and the noncontrolling interest.

     In February 2008, the FASB issued Staff Position FAS 157-2, Effective Date of FASB Statement No. 157 (“FSP FAS 157-2”), which delayed the effective date of the FASB Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), for certain nonfinancial assets and nonfinancial liabilities until interim periods for fiscal years beginning after November 15, 2008. SFAS 157 changed the underlying methodology of determining fair value when fair value measurements are required in accounting principles generally accepted in the United States. SFAS 157 also expanded the disclosure requirements about fair value measurements. The adoption of FSP FAS 157-2 did not have a material impact on our financial position, cash flows or results of operations.

     In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree. SFAS 141(R) also provides guidance for recognizing and measuring goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

nature and financial effects of the business combination. Among other requirements, SFAS 141(R) expands the definition of a business combination, requires acquisitions to be accounted for at fair value, and requires transaction costs and restructuring charges to be expensed. SFAS 141(R) is effective for fiscal years beginning on or after December 15, 2008. SFAS 141(R) requires that any reduction to a tax valuation allowance established in purchase accounting that does not qualify as a measurement period adjustment will be accounted for as a reduction to income tax expense, rather than a reduction of goodwill. We adopted SFAS 141(R) as of January 1, 2009. The adoption did not have a material effect on our consolidated financial statements. SFAS 141(R) is required to be adopted concurrently with SFAS 160.

     In December 2007, the FASB ratified the consensus reached by the EITF in EITF Issue No. 07-1, Accounting for Collaborative Arrangements (“EITF 07-1”). EITF 07-1 defines collaborative arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. EITF 07-1 also establishes the appropriate income statement presentation and classification for joint operating activities and payments between participants, as well as the sufficiency of the disclosures related to these arrangements. EITF 07-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Retrospective application to all prior periods presented is required for all collaborative arrangements existing as of the effective date. We adopted EITF 07-1 on January 1, 2009. The adoption of EITF 07-1 did not have a material impact on our consolidated financial statements.

     In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities, including (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under SFAS 133, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. We adopted SFAS 161 on January 1, 2009. The adoption of SFAS 161 did not have a material impact on our consolidated financial statements.

     In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets, (“SFAS 142”) in order to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R). We adopted FSP FAS 142-3 on January 1, 2009. The adoption of FSP FAS 142-3 did not have a material effect on our consolidated financial statements.

     In May 2008, the FASB issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”). FSP APB 14-1 requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. FSP APB 14-1 requires bifurcation of a component of the debt instruments, classification of that component in equity and the accretion of the resulting discount on the debt to be recognized as interest expense.

     We adopted FSP APB 14-1 on January 1, 2009. The guidance in FSP APB 14-1 was applied retrospectively to all periods presented. FSP APB 14-1 is effective for our 3.0% Convertible Subordinated Notes (the “3.0% Notes”) and our 4.0% Convertible Subordinated Notes (the “4.0% Notes”) issued in 2003, each of which had principal amounts of $240.0 million. See Note 8 for additional information regarding our implementation of FSP APB 14-1.

     Retrospective application is the application of a different accounting principle to prior accounting periods as if that principle had always been used. More specifically, retrospective application involves the following:

	•		Financial statements for each individual prior period presented shall be adjusted to reflect the period-specific effects of applying the new accounting principle.
	•		The cumulative effect of the change on periods prior to those presented shall be reflected in the carrying amount of assets and liabilities as of the beginning of the first period presented.
	•		An offsetting adjustment, if any, shall be made to the opening balance of retained earnings for that period.

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

     The following table sets forth the effect of the retrospective application of FSP APB 14-1 on certain financial statement line items previously reported:

		Three Months Ended
		March 31, 2008
		As
		Originally
		Reported
		And
		Adjusted For
		Discontinued				As
		Operations				Adjusted
Interest expense		$	9,730			$	13,384
Income from continuing operations			6,160				2,506
Net income attributable to Valeant			9,450				5,797
Basic income per share:
Income from continuing operations		$	0.07			$	0.03
Net income attributable to Valeant			0.11				0.06
Diluted income per share:
Income from continuing operations		$	0.07			$	0.03
Net income attributable to Valeant			0.10				0.06

		As of
		December 31, 2008
		Originally				As
		Reported				Adjusted
Other assets		$	29,805			$	28,385
Long-term debt, less current portion			447,862				398,136
Additional capital (1)			1,067,758				1,138,575
Accumulated deficit (1)			(883,273	)			(905,784	)

     In April 2009, the FASB issued Staff Position No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FSP FAS 115-2”), which provides new guidance on the recognition of other-than-temporary impairments of investments in debt securities and provides new presentation and disclosure requirements for other-than-temporary impairments of investments in debt and equity securities. FSP FAS 115-2 is effective for our quarter ending June 30, 2009. We are currently evaluating the requirements of this pronouncement and have not determined the impact, if any, that adoption will have on our consolidated financial statements.

     In April 2009, the FASB issued Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP FAS 107-1”). FSP FAS 107-1 amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments (“SFAS 107”) to require disclosures about fair value of financial instruments in interim reporting periods. Such disclosures were previously required only in annual financial statements. FSP FAS 107-1 is effective for our quarter ending June 30, 2009. Because FSP FAS 107-1 applies only to financial statement disclosures, the adoption will not have a material effect on our consolidated financial statements.

2. Restructuring

     Our restructuring charges include severance costs, contract cancellation costs, the abandonment of capitalized assets, the impairment of manufacturing facilities, and other associated costs, including legal and professional fees.

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

We have accounted for statutory and contractual severance obligations when they are estimable and probable, pursuant to SFAS No. 112, Employers’ Accounting for Postemployment Benefits. For one-time severance arrangements, we have applied the methodology defined in SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS 146”). Pursuant to these requirements, these benefits are detailed in an approved severance plan, which is specific as to number, position, location and timing. In addition, the benefits are communicated in specific detail to affected employees and it is unlikely that the plan will change when the costs are recorded. If service requirements exceed a minimum retention period, the costs are spread over the service period; otherwise they are recognized when they are communicated to the employees. Contract cancellation costs are recorded in accordance with SFAS 146. We have followed the requirements of SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (“SFAS 144”), in recognizing the abandonment of capitalized assets and the impairment of manufacturing facilities. For a further description of the accounting for impairment of long-lived assets under SFAS 144, see Note 1, Organization and Summary of Significant Accounting Policies, in our annual report on Form 10-K for the year ended December 31, 2008. Other associated costs, such as legal and professional fees, have been expensed as incurred, pursuant to SFAS 146.

   2008 Restructuring

     In October 2007, our board of directors initiated a strategic review of our business direction, geographic operations, product portfolio, growth opportunities and acquisition strategy. In March 2008, we completed this strategic review and announced a strategic plan designed to streamline our business, align our infrastructure to the scale of our operations, maximize our pipeline assets and deploy our cash assets to maximize shareholder value. The strategic plan included a restructuring program (the “2008 Restructuring”), which reduced our geographic footprint and product focus by restructuring our business in order to focus on the pharmaceutical markets in our core geographies of the United States, Canada and Australia and on the branded generics markets in Europe (Poland, Hungary, the Czech Republic and Slovakia) and Latin America (Mexico and Brazil). The 2008 Restructuring plan included actions to divest our operations in markets outside of these core geographic areas through sales of subsidiaries or assets and other strategic alternatives.

     In December 2007, we signed an agreement with Invida Pharmaceutical Holdings Pte. Ltd. (“Invida”) to sell to Invida certain assets in Asia in a transaction that included certain of our subsidiaries, branch offices and commercial rights in Singapore, the Philippines, Thailand, Indonesia, Vietnam, Taiwan, Korea, China, Hong Kong, Malaysia and Macau. This transaction also included the sale of certain product rights in Japan. We closed this transaction in March 2008. During the three months ended March 31, 2008, we received initial proceeds of $37.9 million and recorded a gain of $36.9 million in this transaction. During the nine months ended December 31, 2008, we recorded $2.4 million of net asset adjustments and additional closing costs resulting in a reduced gain of $34.5 million on the transaction. During the three months ended March 31, 2009, we received substantially all of the remaining additional proceeds of $3.4 million from the sale.

     As of March 31, 2008, we classified our subsidiaries in Argentina and Uruguay as “held for sale” in accordance with SFAS 144. In the three months ended March 31, 2008, we recorded an impairment charge of $7.9 million related to this anticipated sale. We sold these subsidiaries in June 2008 and recorded a loss on the sale of $2.6 million, in addition to the $7.9 million impairment charge.

     In December 2008, as part of our efforts to align our infrastructure to the scale of our operations, we exercised our option to terminate the lease of our Aliso Viejo, California corporate headquarters as of December 2011 and, as a result, recorded a restructuring charge of $3.8 million for the year ended December 31, 2008. The charge consisted of a lease termination penalty of $3.2 million, which will be payable in October 2011, and $0.6 million for certain fixed assets.

     The net restructuring, asset impairments and dispositions charge of $1.2 million in the three months ended March 31, 2009 included $0.9 million of severance charges for a total of 22 affected employees (414 employees cumulatively). The charge also included $0.3 million of contract termination costs and other cash costs.

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

     The following table summarizes the restructuring costs recorded in the three months ended March 31, 2009:

2008 Restructuring

		Three Months
		Ended
		March 31,
		2009
Severance costs (22 employees)		$	928
Contract cancellation costs, legal and professional fees and other associated costs			255
Subtotal: cash charges			1,183
Non-cash charges			28
Restructurings, asset impairments and dispositions		$	1,211

     The net restructuring, asset impairments and dispositions gain of $13.2 million in the three months ended March 31, 2008 included $6.2 million of severance charges for a total of 15 affected employees (18 employees cumulatively). The severance charges were primarily for our former chief executive officer and six other executives. The charge also included $4.8 million stock compensation charges for the accelerated vesting of the stock options and restricted stock units of our former chief executive officer. The charge included $4.9 million of professional services, contract cancellation and other costs. We also recorded an impairment charge of $7.9 million related to our planned sale of our subsidiaries in Argentina and Uruguay and a gain of $36.9 million on our transaction with Invida.

     The following table summarizes the restructuring costs and gains recorded in the three months ended March 31, 2008:

		Three Months
		Ended
		March 31,
		2008
Severance costs (15 employees)		$	6,215
Contract cancellation costs, legal and professional fees and other associated costs			4,886
Subtotal: cash charges			11,101
Stock compensation			4,778
Impairment of long-lived assets			7,853
Subtotal: restructuring expenses			23,732
Gain on Invida transaction			(36,922	)
Restructurings, asset impairments and dispositions		$	(13,190	)

   Reconciliation of Cash Restructuring Payments with Restructuring Accrual

     As of March 31, 2009, the restructuring accrual of $8.4 million includes $8.2 million related to the 2008 restructuring plan for severance costs, lease termination penalty costs, contract cancellation costs, legal and professional fees and other associated costs expected to be paid primarily during the remainder of 2009, except for the lease termination penalty which will be paid in 2011. The restructuring accrual also includes $0.2 million related to the 2006 restructuring plan for ongoing contractual payments to Legacy Pharmaceuticals International relating to the sale of our former site in Puerto Rico which will be paid by June 2009. A summary of accruals and expenditures of restructuring costs which will be paid in cash is as follows:

2008 and 2006 Restructuring: Reconciliation of Cash Payments and Accruals

Restructuring accrual, December 31, 2008		$	10,926
Charges to earnings			1,183
Cash paid			(3,705	)
Restructuring accrual, March 31, 2009		$	8,404

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

3. Acquisitions and Collaboration Agreement

   Dow Acquisition

     On December 31, 2008, we completed the purchase of all of the outstanding common stock of Dow, a privately held healthcare company that provides biopharmaceutical development services primarily in the United States.

     We acquired Dow for an agreed price of $285.0 million, subject to certain closing adjustments, plus transaction costs. Pursuant to the terms of the acquisition, by June 30, 2009, we are required to pay $35.0 million into an escrow account for the benefit of the Dow common stockholders, subject to any indemnification claims made by us for a period of eighteen months following the acquisition closing. We have granted a security interest to the Dow common stockholders in certain royalties to be paid to us until we satisfy our obligation to fund the $35.0 million escrow account. During the three months March 31, 2009, we paid $21.0 million into the escrow account.

     The accounting treatment for the Dow acquisition requires the recognition of an additional $86.6 million of conditional purchase consideration because the fair value of the net assets acquired exceeded the total amount of the acquisition price. Contingent consideration of up to $235.0 million may be incurred for future milestones related to certain pipeline products still in development. Over 85% of this contingent consideration is dependent upon the achievement of approval and commercial targets. Future contingent consideration paid in excess of the $86.6 million will be treated as an additional cost of the acquisition and result in the recognition of goodwill.

     During the three months ended March 31, 2009, we completed our evaluation of the fair value of assets acquired or liabilities assumed. The conditional purchase consideration was reduced from $95.9 million recorded as of December 31, 2008 to $86.6 million as of March 31, 2009, due to the reduction in the fair value of the intangible assets acquired from the preliminary appraisal, reduction in deferred tax assets and other closing adjustments.

     The acquired intangible assets consisted of outlicensed technology, customer relationships and developed formulations. Developed formulations include Dow’s U.S. Food and Drug Administration (“FDA”) approved product, Acanya, a topical treatment for acne which was launched in the first quarter of 2009. Outlicensed technology has been licensed to third parties and will generate future royalty revenue. Customer relationships are from Dow’s contract research services. The weighted-average amortization period for such intangible assets acquired is outlined in the table below:

		Value of
		Intangible				Weighted-Average
		Assets				Amortization
		Acquired				Period
Developed formulations		$	104,500			6.1 years
Outlicensed technology			70,000			9.5 years
Customer relationships			6,600			7.0 years
Total identifiable intangible assets		$	181,100

     Coria Acquisition

     In October 2008, we completed our purchase of all of the common stock of Coria Laboratories, Ltd. (“Coria”) for a purchase price of $96.9 million. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill. The goodwill is not deductible for tax purposes. In conjunction with the acquisition, we acquired intangible assets for developed technology of $74.9 million, including $42.7 million for CeraVe. During the three months ended March 31, 2009, we revised the estimated useful life for the acquired intangible asset for CeraVe from an indefinite life to 30 years. We recorded amortization of $0.7 million for the CeraVe intangible asset in the three months ended March 31, 2009, as a result of the change in estimate. In conjunction with the change in the useful life of the intangible asset for CeraVe, we recorded a reduction of $16.7 million to the acquired goodwill and deferred tax liabilities, net.

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

     The weighted-average amortization period for the acquired intangible assets, including the change in estimated life for CeraVe, is presented below:

		Value of
		Intangible				Weighted-Average
		Assets				Amortization
		Acquired				Period
Developed technology		$	74,900			19.8 years

     Collaboration Agreement with GSK: In October 2008, we closed the worldwide License and Collaboration Agreement (the “Collaboration Agreement”) with Glaxo Group Limited, a wholly owned subsidiary of GlaxoSmithKline plc (“GSK”) to develop and commercialize retigabine and its backup compounds and received $125.0 million in upfront fees from GSK upon the closing.

     We agreed to share equally with GSK the development and pre-commercialization expenses of retigabine in the United States, Australia, New Zealand, Canada and Puerto Rico (the “Collaboration Territory”) and GSK will develop and commercialize retigabine in the rest of the world. To the extent that our expected development and pre-commercialization expenses under the Collaboration Agreement are less than $100.0 million, the difference will be recognized as alliance revenue over the period prior to the launch of a retigabine product (the “Pre-Launch Period”). We will recognize alliance revenue during the Pre-Launch Period as we complete our performance obligations using the proportional performance model, which requires us to determine and measure the completion of our expected development and pre-commercialization costs during the Pre-Launch Period, in addition to our participation in the joint steering committee. We expect to complete our research and development and pre-commercialization obligations in effect during the Pre-Launch Period by mid to late 2010.

     GSK has the right to terminate the Collaboration Agreement at any time prior to the receipt of the approval by the FDA of a new drug application (“NDA”) for a retigabine product, which right may be irrevocably waived at any time by GSK. The period of time prior to such termination or waiver is referred to as the “Review Period”. In February 2009, the Collaboration Agreement was amended to, among other matters, reduce the maximum amount that we would be required to refund to GSK to $40.0 million through March 31, 2010, with additional reductions in the amount of the required refund over the time the Collaboration Agreement is in effect. During the three months ended March 31, 2009, the combined research and development expenses and pre-commercialization expenses incurred under the Collaboration Agreement by us and GSK were $13.4 million as outlined in the table below. We recorded a credit of $1.4 million against our share of the expenses to equalize our expenses with GSK, pursuant to the terms of the Collaboration Agreement.

		Three Months
		Ended
		March 31,
		2009
Valeant research and development costs		$	7,947
Valeant selling, general and administrative			149
			8,096
GSK expenses			5,303
Total spending for Collaboration Agreement		$	13,399
Equalization (difference between individual partner costs and 50% of total)		$	1,397

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

     The table below outlines the alliance revenue, expenses incurred, associated credits against the expenses incurred, and remaining upfront payment for the Collaboration Agreement during the following period:

		Three Months Ended March 31, 2009
										Selling,				Research
		Balance				Alliance				General and				and
Collaboration Accounting Impact		Sheet				Revenue				Administrative				Development
Upfront payment from GSK		$	125,000			$	—			$	—			$	—
Release from upfront payment in prior quarter			(10,909	)			—				—				—
Incurred cost in current quarter			—				—				149				7,947
Incurred cost offset			(6,699	)			—				(387	)			(6,312	)
Recognize alliance revenue			(3,318	)			(3,318	)			—				—
Release from upfront payment			(10,017	)			—				—				—
Remaining upfront payment from GSK		$	104,074				—				—				—
Equalization receivable from GSK			1,397				—				238				(1,635	)
Total equalization receivable from GSK		$	1,397				—				—				—
Total expense and revenue						$	(3,318	)		$	—			$	—
Accrued liabilities		$	40,481
Other liabilities			40,698
Deferred revenue short-term			13,624
Deferred revenue long-term			9,271
Remaining upfront payment from GSK		$	104,074

     Total combined expenses by us and GSK for the Collaboration Agreement to date through March 31, 2009 were $26.5 million.

4. Discontinued Operations

     In September 2008, we sold our business operations located in WEEMEA to Meda, AB, an international specialty pharmaceutical company located in Stockholm, Sweden (“Meda”). Meda acquired our operating subsidiaries in those markets, and the rights to all products and licenses marketed by us in those divested regions as of the divestiture date. Excluded from this transaction are our Central European operations, defined as the business in Poland, Hungary, the Czech Republic and Slovakia. Under the terms of the agreement, we received initial cash proceeds of $428.4 million, which was reduced by $11.8 million and paid to Meda in January 2009, based upon the estimated levels of cash, indebtedness and working capital as of the closing date. We recorded a net gain on this sale of $158.9 million after deducting the carrying value of the net assets sold, transaction-related expenses and income taxes. During the three months ended March 31, 2009, we recorded an additional gain on this sale of $0.5 million.

     In January 2008, we sold our Infergen product rights to Three Rivers Pharmaceuticals, LLC. We received $70.8 million as the initial payment for our Infergen product rights, with additional payments due of up to $20.5 million. We recorded a net gain in this transaction of $39.4 million after deducting the carrying value of the net assets sold from the proceeds received.

     As a result of these dispositions, the results of the WEEMEA business and the Infergen operations have been reflected as discontinued operations in our consolidated condensed statement of operations for the three months ended March 31, 2008, in accordance with SFAS 144 and EITF 03-13.

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

     Summarized selected financial information for discontinued operations for the three months ended March 31, 2009 and 2008 is as follows:

		Three Months Ended
		March 31,
		2009				2008
WEEMEA Business:
Product sales		$	—			$	42,703
Costs and expenses:
Cost of goods sold (excluding amortization)			—				19,135
Selling, general and administrative			—				20,457
Research and development costs, net			—				98
Restructuring, asset impairments and dispositions			—				526
Amortization expense			—				4,736
Total costs and expenses			—				44,952
Other expense			—				(1,488	)
Loss from discontinued operations before income taxes, WEEMEA			—				(3,737	)
Infergen:
Product sales			—				1,050
Costs and expenses:
Cost of goods sold (excluding amortization)			—				2,076
Selling, general and administrative			—				1,365
Research and development costs, net			—				9,684
Amortization expense			—				—
Total costs and expenses			—				13,125
Loss from discontinued operations, Infergen			—				(12,075	)
Other discontinued operations:
Other expense			(120	)			—
Consolidated discontinued operations:
Loss from discontinued operations before income taxes			(120	)			(15,812	)
Provision for income taxes			—				4,291
Loss from discontinued operations			(120	)			(20,103	)
Disposal of discontinued operations, net			518				23,396
Income from discontinued operations, net		$	398			$	3,293

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

5. Fair Value Measurements

     SFAS 157 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. SFAS 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. SFAS 157 requires us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:

          Level 1 — Quoted market prices in active markets for identical assets or liabilities.

          Level 2 — Inputs, other than quoted prices in active markets, that are observable, either directly or indirectly.

          Level 3 — Unobservable inputs that are not corroborated by market data.

     The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2009 and December 31, 2008:

		Assets (Liabilities)												Assets (Liabilities)
		March 31, 2009												December 31, 2008
		Level 1				Level 2				Level 3				Level 1				Level 2				Level 3
Available-for-sale securities		$	1,445			$	—			$	—			$	6,646			$	—			$	—
Undesignated hedges			—				10				—				—				157				—
Net investment derivative contracts			—				(121	)			—				—				13				—
Cash flow derivative contracts			—				211				—				—				—				—

     Available-for-sale securities are measured at fair value using quoted market prices and are classified within Level 1 of the valuation hierarchy and consist of an investment in a publicly traded investment fund, which is included in other assets, which is carried at fair value. During the three months ended March 31, 2009, we recorded in selling, general and administrative expenses an other than temporary impairment charge of $1.5 million due to sustained declines in the value of the publicly traded investment fund. Available-for-sale securities as of December 31, 2008, consist of corporate bonds classified as marketable securities and an investment in a publicly traded investment fund, which is included in other assets, carried at fair value of $3.3 million and $3.3 million, respectively.

     Derivative contracts used as hedges are valued based on observable inputs such as changes in interest rates and currency fluctuations and are classified within Level 2 of the valuation hierarchy. For a derivative instrument in an asset position, we analyze the credit standing of the counterparty and factor it into the fair value measurement. SFAS 157 states that the fair value measurement of a liability must reflect the nonperformance risk of the reporting entity. Therefore, the impact of our creditworthiness has also been factored into the fair value measurement of the derivative instruments in a liability position.

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

6. Earnings Per Share

     The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2009 and 2008:

		2009				2008
Income:
Numerator for basic and diluted earnings per share attributable to Valeant:
Income from continuing operations attributable to Valeant		$	30,797			$	2,504
Income from discontinued operations			398				3,293
Net income attributable to Valeant		$	31,195			$	5,797
Shares:
Denominator for basic earnings per share attributable to Valeant:
Weighted shares outstanding			82,104				89,286
Vested stock equivalents (not issued)			444				304
Denominator for basic earnings per share attributable to Valeant			82,548				89,590
Denominator for diluted earnings per share attributable to Valeant:
Employee stock options			546				480
Other dilutive securities			308				142
Dilutive potential common shares			854				622
Denominator for diluted earnings per share attributable to Valeant			83,402				90,212
Basic income per share attributable to Valeant:
Income from continuing operations attributable to Valeant		$	0.37			$	0.03
Income from discontinued operations			0.01				0.03
Net income per share attributable to Valeant		$	0.38			$	0.06
Diluted income per share attributable to Valeant:
Income from continuing operations attributable to Valeant		$	0.37			$	0.03
Income from discontinued operations			—				0.03
Net income per share attributable to Valeant		$	0.37			$	0.06

     The 3.0% Convertible Subordinated Notes due 2010 and the 4.0% Convertible Subordinated Notes due 2013, discussed in Note 8, allow us to settle any conversion by remitting to the note holder the principal amount of the note in cash, while settling the conversion spread (the excess conversion value over the accreted value) in shares of our common stock. Only the conversion spread, which will be settled in stock, results in potential dilution in our earnings-per-share computations as the accreted value of the notes will be settled for cash upon the conversion. The calculation of diluted earnings per share was not affected by the conversion spread in the three months ended March 31, 2009 and 2008.

     For the three months ended March 31, 2009 and 2008, options to purchase 2,059,564 and 9,181,797 weighted average shares of common stock, respectively, were also not included in the computation of earnings per share because the option exercise prices were greater than the average market price of our common stock and, therefore, the effect would have been anti-dilutive.

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

7. Detail of Certain Accounts

     The following tables present the details of certain amounts included in our consolidated balance sheet as of March 31, 2009 and December 31, 2008:

		March 31,				December 31,
		2009				2008
Accounts receivable, net:
Trade accounts receivable		$	90,094			$	93,796
Royalties receivable			15,004				21,774
Other receivables			20,280				33,038
			125,378				148,608
Allowance for doubtful accounts			(3,206	)			(4,099	)
		$	122,172			$	144,509
Inventories, net:
Raw materials and supplies		$	18,645			$	16,742
Work-in-process			10,303				8,506
Finished goods			53,046				61,641
			81,994				86,889
Allowance for inventory obsolescence			(11,430	)			(13,917	)
		$	70,564			$	72,972
Property, plant and equipment, net:
Property, plant and equipment, at cost		$	166,853			$	178,156
Accumulated depreciation and amortization			(82,659	)			(87,928	)
		$	84,194			$	90,228

     Intangible assets: As of March 31, 2009 and December 31, 2008, the components of intangible assets were as follows:

		Weighted				March 31, 2009												December 31, 2008
		Average				Gross				Accumulated				Net				Gross				Accumulated				Net
		Lives (years)				Amount				Amortization				Amount				Amount				Amortization				Amount
Product rights
Neurology			12			$	276,015			$	(153,677	)		$	122,338			$	276,229			$	(147,745	)		$	128,484
Dermatology			13				275,025				(62,337	)			212,688				275,032				(54,906	)			220,126
Other			15				69,962				(41,215	)			28,747				72,956				(41,970	)			30,986
Total product rights			13				621,002				(257,229	)			363,773				624,217				(244,621	)			379,596
Outlicensed technology			10				70,000				(1,907	)			68,093				74,000				—				74,000
Customer relationships			8				8,832				(494	)			8,338				8,242				(30	)			8,212
Trade names		Indefinite					5,891				—				5,891				5,987				—				5,987
License agreement			5				67,376				(67,376	)			—				67,376				(67,376	)			—
Total intangible assets						$	773,101			$	(327,006	)		$	446,095			$	779,822			$	(312,027	)		$	467,795

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

     Future amortization of intangible assets at March 31, 2009 is as follows:

		Scheduled Future Amortization Expense
		2009				2010				2011				2012				2013				Thereafter				Total
Product rights
Neurology		$	18,650			$	24,276			$	18,947			$	17,859			$	16,818			$	25,787			$	122,337
Dermatology			21,397				28,525				28,525				28,525				26,902				76,016				209,890
Other			3,047				4,170				4,417				4,345				4,245				8,522				28,746
Outlicensed technology			5,720				7,626				7,626				7,081				7,081				29,918				65,052
Customer relationships			1,404				1,634				1,399				1,163				927				1,810				8,337
Total		$	50,218			$	66,231			$	60,914			$	58,973			$	55,973			$	142,053			$	434,362

     Amortization expense for the three months ended March 31, 2009 and 2008 was $17.0 million and $13.3 million, respectively, of which $14.7 million and $11.0 million, respectively, related to amortization of acquired product rights.

     In the three months ended March 31, 2009, we acquired product rights in Poland for $0.4 million in cash and $0.6 million in other consideration.

8. Long-term Debt

     3.0% and 4.0% Convertible Subordinated Notes

     FSP APB 14-1 requires the issuer of convertible debt instruments with cash settlement features to separately account for the liability and equity components of the convertible debt instruments in a manner that reflects the issuers borrowing rate at the date of issuance for a similar debt instrument without the conversion feature. FSP APB 14-1 requires bifurcation of a component of the convertible debt instruments, classification of that component in equity and the accretion of the resulting discount on the debt to be recognized as interest expense. Upon adoption of FSP APB 14-1, we were required to separately account for the debt and equity components of our 3.0% Notes and our 4.0% Notes, both of which were issued in 2003 for an aggregate principal amount of $480.0 million.

     The equity component associated with the 3.0% Notes and the 4.0% Notes was $58.0 million and $62.2 million, respectively, at the time of issuance and was applied as debt discount and as additional capital. Transaction costs related to the issuance of the 3.0% Notes and the 4.0% Notes were allocated to the liability component and equity component in proportion to the allocation of proceeds and were accounted for as debt issuance costs and equity issuance costs, respectively.

     The unamortized discount for the 3.0% Notes will be amortized through the debt maturity date of August 16, 2010. Interest expense for the amortization of the discount on the 3.0% Notes for the three months ended March 31, 2009 and 2008 was $2.0 million and $2.3 million, respectively. Interest expense for the contractual coupon rate for the 3.0% Notes for the three months ended March 31, 2009 and 2008 was $1.4 million and $1.8 million, respectively.

     The unamortized discount for the 4.0% Notes will be amortized through the debt maturity date of November 15, 2013. Interest expense for the amortization of the discount on the 4.0% Notes for the three months ended March 31, 2009 and 2008 was $1.5 million and $1.4 million, respectively. Interest expense for the contractual coupon rate for the 4.0% Notes was $2.4 million for the three months ended March 31, 2009 and for the three months ended March 31, 2008.

     During the three months ended March 31, 2009, we purchased an aggregate of $65.7 million principal amount of the 3.0% Notes at a purchase price of $64.3 million. The carrying amount of the 3.0% Notes purchased was $61.6 million and the estimated fair value of the Notes exclusive of the conversion feature was $57.0 million. The difference between the carrying amount of $61.6 million and the estimated fair value of $57.0 million was recognized as a gain of $4.6 million upon early extinguishment of debt. The difference between the estimated fair value of $57.0 million and the purchase price of $64.3 million was $7.3 million and was charged to additional capital. Upon adoption of FSP APB 14-1, $13.3 million of the purchase price was attributable to accreted interest on the debt discount and is presented in the statement of cash flows for the three months ended March 31, 2009 as payments of accreted interest on long-term debt and notes payable in cash flow from operating activities in continuing operations.

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

     The liability component and the equity component of the 3.0% Notes and the 4.0% Notes as of March 31, 2009 and December 31, 2008 are as follows:

		March 31,				December 31,
		2009				2008
3.0% Notes		$	141,639			$	207,360
Unamortized discount			(7,754	)			(13,548	)
Net carrying value of 3.0% Notes		$	133,885			$	193,812
4.0% Notes		$	240,000			$	240,000
Unamortized discount			(34,631	)			(36,179	)
Net carrying value of 4.0% Notes		$	205,369			$	203,821
Equity component for 3.0% Notes		$	49,917			$	57,190
Equity component for 4.0% Notes		$	62,167			$	62,167

     The conversion price was 31.6336 shares per $1,000 principal amount for the 3.0% Notes and the 4.0% Notes. The number of shares used to determine the aggregate consideration that will be delivered upon conversion was 4,480,551 shares for the 3.0% Notes and 7,592,064 shares for the 4.0% Notes as of March 31, 2009. The if-converted value of the 3.0% Notes and the 4.0% Notes did not exceed the principal amount as of March 31, 2009.

     In connection with the offering of the 3.0% Notes and the 4.0% Notes, we entered into convertible note hedge and written call option transactions with respect to our common stock (the “Convertible Note Hedge”). The Convertible Note Hedge consisted of Valeant purchasing a call option on 12,653,440 shares of our common stock at a strike price of $31.61 and selling a written call option on the identical number of shares at $39.52. The number of shares covered by the Convertible Note Hedge is the same number of shares underlying the conversion of $200.0 million principal amount of the 3.0% Notes and $200.0 million principal amount of the 4.0% Notes. The Convertible Note Hedge is expected to reduce the potential dilution from conversion of the 3.0% Notes and the 4.0% Notes. The written call option sold offset, to some extent, the cost of the written call purchased. The net cost of the Convertible Note Hedge of $42.9 million was recorded as the sale of a permanent equity instrument pursuant to EITF No. 00-19 Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. As a result of the cessation of Valeant’s common dividend, the strike price on the Convertible Note Hedge was adjusted during 2007, with the new strike prices becoming $34.61 and $35.36 for the 3.0% Notes and the 4.0% Notes, respectively.

     During the three months ended March 31, 2009, corresponding to the partial redemption of the 3.0% Notes, we also effected a proportionate partial termination of the Convertible Note Hedge, reducing the number of shares covered by the Convertible Note Hedge by 1,846,169 shares. As of March 31, 2009, the number of shares covered by the Convertible Note Hedge is 10,807,271, the same number of shares underlying the conversion of the remaining balance of $141.6 million principal amount of the 3.0% Notes and $200.0 million principal amount of the 4.0% Notes.

     7.0% Senior Notes

     In July 2008, we redeemed the 7.0% Senior Notes at an aggregate redemption price of $310.5 million. In connection with this redemption, we recorded a $14.9 million loss on early extinguishment of debt in 2008, including a redemption premium of $10.5 million, unamortized loan costs of $2.9 million and an interest rate swap agreement termination fee of $1.5 million. The interest rate swap was terminated in July 2008 in connection with the redemption of the 7.0% Senior Notes.

9. Income Taxes

     We have historically incurred losses in the United States, where our research and development activities are conducted and our corporate offices are located. As of March 31, 2009, there is insufficient objective evidence as to the timing and amount of future U.S. taxable income to allow for the release of the remaining U.S. valuation allowance which is primarily offsetting future benefits of foreign tax and research and development credits. The valuation allowance was recorded because it is more likely than not that such benefits will not be utilized. Ultimate realization of these tax benefits is dependent upon generating sufficient taxable income in the United States.

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

     The income tax provision for the three months ended March 31, 2009 consists of $9.2 million related to the expected taxes on earnings in tax jurisdictions outside the U.S. and $2.3 million related to current U.S. tax deductions of which $1.5 million of the benefit is required to be credited to additional paid in capital.

     Due to ownership changes in the stock of the company as well as our acquisitions of Dow and Coria in 2008, the benefit of U.S. losses and research credits are subject to a yearly limitation. However, the limitation is sufficient to allow for utilization of all losses and research credits during the carryforward period, assuming sufficient taxable income is sustainable.

     As of March 31, 2009, we had $49.1 million of unrecognized tax benefits (FASB interpretation No. 48, Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109), of which $9.7 million would reduce our effective tax rate, if recognized. Of the total unrecognized tax benefits, $5.4 million was recorded as an offset against a valuation allowance. To the extent such portion of unrecognized tax benefits is recognized at a time when a valuation allowance no longer exists, the recognition would affect our tax rate.

     Our continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. As of March 31, 2009, we had accrued $4.0 million for interest and $1.0 million for penalties. We accrued additional interest of $0.2 million during the three months ended March 31, 2009. It is reasonably possible that the total amount of unrecognized tax benefits may be reduced within the next 12 months as a result of ongoing discussions we are having with the IRS. We are currently under audit by the IRS for the 2005 and 2006 tax years. One of our Mexican subsidiaries is under audit for the 2004 and 2005 tax years. Our significant subsidiaries are open to tax examinations for years ending in 2001 and later.

     As of December 31, 2008, we classified the intangible asset for CeraVe as an indefinite life intangible and recorded approximately $16.7 million as a deferred tax liability with no offsetting reduction to the valuation allowance. As of March 31, 2009, we revised the estimated useful life for the CeraVe intangible asset to 30 years. As a result, the Company reduced the valuation allowance and decreased goodwill. See Note 3 for additional information related to the change in estimated useful life for this intangible asset.

10. Stock and Stock Incentive Programs

     Stock and Securities Repurchase Programs: In June 2007, our board of directors authorized a stock repurchase program. This program authorized us to repurchase up to $200.0 million of our outstanding common stock in a 24-month period. In June 2008, our board of directors increased the authorization to $300.0 million, over the original 24-month period. This program was completed in November 2008. The total number of shares repurchased pursuant to this program was 17,618,920 at an average price of $17.03 per share, including transaction costs.

     In October 2008, our board of directors authorized us to repurchase up to $200.0 million of our outstanding common stock or convertible subordinated notes in a 24-month period ending October 2010, unless earlier terminated or completed. Under the program, purchases may be made from time to time on the open market, in privately negotiated transactions, and in amounts as we see appropriate. The number of securities to be purchased and the timing of such purchases are subject to various factors, which may include the price of our common stock, general market conditions, corporate requirements and alternate investment opportunities. The securities repurchase program may be modified or discontinued at any time. During the three months ended March 31, 2009, we purchased $65.7 million aggregate principal amount of our 3.0% Notes due 2010 for $64.3 million in cash (see Note 8). In total, we have purchased $98.4 million aggregate principal amount of our 3.0% Notes at a purchase price of $93.2 million as of March 31, 2009. As of March 31, 2009, we have repurchased an aggregate 298,961 shares of our common stock for $6.1 million under this program.

     Stock-based compensation: The variables used in our share-based compensation expense calculations include our estimation of the forfeiture rate related to share-based payments. In 2006, 2007 and continuing into 2008, we experienced significant turnover at both the executive and management levels, which affected our actual forfeiture rate. We increased the estimated forfeiture rate in the three months ended December 31, 2007 from 5% to 35%.

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

     A summary of stock compensation expense in continuing operations for our stock incentive plans for the three months ended March 31, 2009 and 2008 is presented below:

		Three Months
		Ended
		March 31,
		2009				2008
Employee stock options		$	1,494			$	1,239
Restricted stock units			2,828				1,067
Employee stock purchase plan			—				66
Total stock-based compensation		$	4,322			$	2,372

     In addition to the above amounts, we recorded stock compensation expense in discontinued operations related to employee stock options of $0.1 million in the three months ended March 31, 2008.

     Future stock compensation expense for restricted stock units, performance stock units and stock option incentive awards outstanding as of March 31, 2009 is as follows:

Remainder of 2009		$	8,743
2010			7,864
2011			2,486
2012			589
		$	19,682

11. Derivative Financial Instruments

     Our business and financial results are affected by fluctuations in world financial markets. We evaluate our exposure to such risks on an ongoing basis, and seek ways to manage these risks to an acceptable level, based on management’s judgment of the appropriate trade-off between risk, opportunity and cost. We do not hold any significant amount of market risk sensitive instruments whose value is subject to market price risk. We use derivative financial instruments to hedge foreign currency and interest rate exposures. We do not speculate in derivative instruments in order to profit from foreign currency exchange or interest rate fluctuations; nor do we enter into trades for which there is no underlying exposure.

     Our significant foreign currency exposure relates to the Polish Zloty, the Mexican Peso, and the Canadian Dollar in 2009. We utilize cash flow and net investment hedges to reduce our exposure to foreign currency risk. We have chosen not to seek hedge accounting treatment for certain undesignated cash flow hedges as these contracts are short term (typically less than 30 days in duration) and offset matching intercompany exposures in selected Valeant subsidiaries. In 2008, we used an interest rate swap to lower our interest expense by exchanging fixed rate payments for floating rate payments. The interest rate swap was terminated in July 2008 in connection with the redemption of our 7.0% Senior Notes.

     The table below summarizes the fair value and balance sheet location of our outstanding derivatives at March 31, 2009 and December 31, 2008.

		As of March 31, 2009
						Asset Derivatives								Liability Derivatives
						Balance								Balance
		Notional				Sheet				Fair				Sheet				Fair
Description		Amount				Location				Value				Location				Value
Undesignated hedges		$	3,935			Other assets				$	10				—			$	—
Net investment derivative contracts			20,000				—				—			Accrued liabilities					(121	)
Cash flow derivative contracts			2,231			Other assets					211				—				—

As of December 31, 2008

Asset Derivatives

Liability Derivatives

Balance

Balance

Notional

Sheet

Fair

Sheet

Fair

Description

Amount

Location

Value

Location

Value

Undesignated hedges

$

3,916

Other assets

$

192

Accrued liabilities

$

(35

)

Net investment derivative contracts

18,779

Other assets

13

—

—

     A summary is set out below of the accounting treatment for our undesignated, net investment, cash flow and fair value hedges and interest rate swaps:

	•		Changes in the fair value of undesignated hedges are recorded in earnings in the period of the change.
	•		Changes in the fair value of a derivative that is designated and qualifies as a net investment hedge are recorded as translation adjustment in accumulated other comprehensive income.
	•		Changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge are recorded in accumulated other comprehensive income and then recognized in earnings when the hedged items affect earnings.
	•		Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge are recorded in exchange gains or loss in the period of the change.
	•		Changes in the fair value of the interest rate swap are recorded as interest expense in the period of the change.

     The table below summarizes the information related the changes in the fair value of our derivatives instruments for the three months ended March 31, 2009 and 2008.

		Three Months Ended March 31, 2009
						Net				Cash
						Investment				Flow				Fair				Interest
		Undesignated				Derivative				Derivative				Value				Rate
Description		Hedges				Contracts				Contracts				Hedges				Swap
Gain recognized in currency translation adjustment in other comprehensive income		$	—			$	2,807			$	—			$	—			$	—
Loss recognized in exchange gain / loss			(9	)			—				—				—				—

		Three Months Ended March 31, 2008
						Net				Cash
						Investment				Flow				Fair				Interest
		Undesignated				Derivative				Derivative				Value				Rate
Description		Hedges				Contracts				Contracts				Hedges				Swap
Gain recognized in interest expense		$	—			$	—			$	—			$	—			$	319
Loss recognized in royalty income			—				—				(438	)			—				—
Gain (Loss) recognized in exchange gain / loss			(152	)			—				—				656				—

     Refer to Note 5 for additional information about the fair value of our derivatives.

12. Commitments and Contingencies

     We are involved in several legal proceedings, including the following matters:

     SEC Investigation: We are the subject of a Formal Order of Investigation with respect to events and circumstances surrounding trading in our common stock, the public release of data from our first pivotal Phase III trial for taribavirin in March 2006, statements made in connection with the public release of data and matters regarding our stock option grants since January 1, 2000 and our restatement of certain historical financial statements announced in March 2008. In September 2006, our board of directors established a Special Committee to review our historical stock option practices and related accounting, and informed the SEC of these efforts. We have cooperated fully and will continue to cooperate with the SEC in its investigation. We cannot predict the outcome of the investigation.

     Derivative Actions Related to Stock Options: We are a nominal defendant in two shareholder derivative lawsuits pending in state court in Orange County, California, styled (i) Michael Pronko v. Timothy C. Tyson et al., and (ii) Kenneth Lawson v. Timothy C. Tyson et al. These lawsuits, which were filed on October 27, 2006 and November 16, 2006, respectively, purported to assert derivative claims on our behalf against certain of our current and/or former officers and directors. The lawsuits asserted claims for breach of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, and violations of the California Corporations Code related to the purported backdating of employee stock options. The plaintiffs sought, among other things, damages, an accounting, the rescission of stock options, and a constructive trust over amounts acquired by the defendants who have exercised Valeant stock options. On January 16, 2007, the court issued an order consolidating the two cases. On February 6, 2007, the court issued a further order abating the Lawson action due to a procedural defect while the Pronko action proceeded. On March 25, 2009, the court approved a settlement that resolved the claims raised in the Pronko and Lawson actions. The settlement and final judgment required us to adopt certain corporate governance reforms aimed at improving our process for granting stock options. It also provided for an award of fees to counsel for the plaintiffs of $1.2 million and reimbursement of expenses of approximately $33 thousand, which amounts were covered by insurance.

     We are also a nominal defendant in a shareholder derivative action pending in the Court of Chancery of the state of Delaware, styled Sherwood v. Tyson, et. al., filed on March 20, 2007. This complaint also purports to assert derivative claims on the Company’s behalf for breach of fiduciary duties, gross mismanagement and waste, constructive fraud and unjust enrichment related to the alleged backdating of employee stock options. The plaintiff seeks, among other things, damages, an accounting, disgorgement, rescission and/or repricing of stock options, and imposition of a constructive trust for the benefit of the Company on amounts by which the defendants were unjustly enriched. The plaintiff has agreed to a stay pending resolution of the Pronko action in California. The Company intends to seek the dismissal of this action, whether by agreement of the plaintiff or by motion, based on the final judgment entered in the Pronko and Lawson actions.

     Permax Product Liability Cases: On April 23, 2008, we were served a complaint in a case captioned Barbara M. Shows v. Eli Lilly and Company, Elan Corporation, PLC, Amarin Corporation, PLC, and Valeant Pharmaceuticals International in the Circuit Court of Jefferson Davis County, Mississippi, which was removed to federal court in the Southern District of Mississippi, Hattiesburg Division. On December 24, 2008, the parties agreed to settle the matter in full and executed the settlement agreement in January 2009. On August 27, 2008, we were served complaints in six separate cases by plaintiffs Prentiss and Carol Harvey; Robert and Barbara Branson; Dan and Mary Ellen Leach; Eugene and Bertha Nelson; Beverly Polin; and Ira and Michael Price v. Eli Lilly and Company and Valeant Pharmaceuticals International in Superior Court, Orange County, California (the “California Actions”). The California Actions were consolidated under the heading of Branson v. Eli Lilly and Company, et al. On September 15, 2008, we were served a complaint in a case captioned Linda R. O’Brien v. Eli Lilly and Company, Valeant Pharmaceuticals International, Amarin Corporation, plc, Amarin Pharmaceuticals, Inc., Elan Pharmaceuticals, Inc., Athena Neurosciences, Inc., Teva Pharmaceutical Industries, Ltd., Par Pharmaceutical Companies, Inc., and Ivax Corporation in the Circuit Court of the 11th Judicial Circuit, Miami- Dade County, Florida. On March 24, 2009, we were named as a defendant in the following cases: Richard Andrew Baker v. Eli Lilly and Company, Valeant Pharmaceuticals International, Amarin Corporation, plc, Amarin Pharmaceuticals, Inc., Elan Pharmaceuticals, Inc., Athena Neurosciences, Inc., Par Pharmaceutical Companies, Inc., Pfizer, Inc. and Pharmacia Corporation in the United States District Court for the Northern District of Ohio, Eastern Division; Edwin Elling v. Eli Lilly and Company, Valeant Pharmaceuticals International, Amarin Corporation, plc, Amarin Pharmaceuticals, Inc., Elan Pharmaceuticals, Inc. and Athena Neurosciences, Inc. in the United Stated District Court for the Northern District of Texas, Ft. Worth Division;

Judith LaVois v. Eli Lilly and Company, Valeant Pharmaceuticals International, Amarin Corporation, plc, Amarin Pharmaceuticals, Inc., Elan Pharmaceuticals, Inc., Athena Neurosciences, Inc. and Teva Pharmaceuticals USA, Inc. in the United States District Court for the Southern District of Texas, Houston Division. On March 25, 2009, we were named as a defendant in a case captioned Penny M. Hagerman v. Eli Lilly and Company, Valeant Pharmaceuticals International, Amarin Corporation, plc, Amarin Pharmaceuticals, Inc., Elan Pharmaceuticals, Inc., and Athena Neurosciences, Inc. in the United States District Court for the District of Colorado. We are in the process of defending these matters. Eli Lilly, holder of the right granted by the FDA to market and sell Permax in the United States, which right was licensed to Amarin and the source of the manufactured product, has also been named in the suits. In addition to the lawsuits described above, we have received, and from time to time receive, communications from third parties relating to potential claims that may be asserted with respect to Permax.

     Eli Lilly: On January 12, 2009, we were served a complaint in an action captioned Eli Lilly and Company v. Valeant Pharmaceuticals International, Case No. 1:08-cv-1720DFH-TAB in the U.S. District Court for the Southern District of Indiana, Indianapolis Division (the “Lilly Action”). In the Lilly Action, Lilly brings a claim for breach of contract and seeks a declaratory judgment arising out of a February 25, 2004 letter agreement between and among Lilly, Valeant and Amarin Corporation, plc related to cost-sharing for product liability claims related to the pharmaceutical Permax.

     Spear Pharmaceuticals, Inc.: On December 17, 2007, Spear Pharmaceuticals, Inc. and Spear Dermatology Products, Inc. filed a complaint in federal court for the District of Delaware, Case No. 07-821, against Valeant and investment firm William Blair & Company, LLC. Plaintiffs allege that while William Blair was engaged in connection with the possible sale of plaintiffs’ generic tretinoin business, plaintiffs disclosed to William Blair the development of generic Efudex in their product pipeline. Plaintiffs further allege that William Blair, while under confidentiality obligations to plaintiffs, shared such information with Valeant and that Valeant then filed a Citizen Petition with the FDA requesting that any abbreviated new drug application for generic Efudex include a study on superficial basal cell carcinoma. Arguing that Valeant’s Citizen Petition caused the FDA to delay approval of their generic Efudex, plaintiffs seek damages for Valeant’s alleged breach of contract, trade secret misappropriation and unjust enrichment, in addition to other causes of action against William Blair. We believe this case is without merit and are vigorously defending ourselves in this matter.

     On April 11, 2008, the FDA approved an Abbreviated New Drug Application (“ANDA”) for a 5% fluorouracil cream sponsored by Spear Pharmaceuticals. On April 11, 2008, the FDA also responded to our Citizen Petition that was filed on December 21, 2004 and denied our request that the FDA refrain from approving any ANDA for a generic version of Efudex unless the application contains data from an adequately designed comparative clinical study conducted in patients with superficial basal cell carcinoma. On April 25, 2008, Valeant filed an application for a temporary restraining order (“TRO”) against Michael O. Leavitt and Andrew C. Von Eschenbach, in their official capacities at the FDA, in the United States District Court for the Central District of California, seeking to suspend the FDA’s approval of Spear’s ANDA. On May 1, 2008, the Court granted the FDA’s request to stay proceedings on Valeant’s application for a TRO until May 14, 2008. On May 14, 2008, the FDA entered an administrative order staying the approval of the Spear ANDA and initiating a process for reconsidering the approval of the Spear ANDA. Spear Pharmaceuticals agreed to the stay and to the prohibition on marketing, sale and shipment of its product until May 30, 2008. On May 31, 2008, the Court granted our application for a TRO suspending approval of the Spear ANDA. On June 18, 2008 the Court denied our request for a preliminary injunction to continue the suspension of the Spear ANDA and extinguished the TRO. The stay on the Spear ANDA has been removed and the Spear product may be marketed, sold and shipped. On September 23, 2008, we filed an Amended Complaint under the Administrative Procedure Act challenging the FDA’s initial decision to approve Spear’s ANDA, the FDA’s re-affirmance of Spear’s ANDA and the FDA’s denial of Valeant’s Citizen’s Petition.

     Paddock Litigation: By way of letter dated November 24, 2008, Paddock Laboratories, Inc. (“Paddock”) notified Galderma Laboratories L.P. (“Galderma”), Dermalogix Partners, Inc. (“Dermalogix”), Panda Pharmaceuticals, L.L.C. (“Panda”), and The University of Tennessee Research Foundation (“UT”) that it had submitted ANDA No. 90-898 with the FDA seeking approval for a generic version of Clobex^® (a clobetasol propionate spray, .05%) prior to expiration of U.S. Patent Nos. 5,972,920 (“the ‘920 patent”) and 5,990,100 (“the

‘100 patent”). The Paddock ANDA contains a Paragraph IV certification by Paddock that the claims of the ‘920 and ‘100 patents will not be infringed by Paddock’s proposed formulation and that the ‘920 and ‘100 patents are invalid and/or unenforceable. On January 7, 2009, Galderma, Galderma S.A., and Dermalogix (collectively, “Plaintiffs”) filed a complaint against Paddock for the infringement of the ‘920 patent — Civil Case No. 4-09CV-002-Y pending in the United States District Court for the Northern District of Texas, Fort Worth Division. Plaintiff’s complaint alleges that Paddock’s filing of ANDA No. 90-898 is an act of infringement of the ‘920 patent under 35 U.S.C. § 271(e)(2). On January 29, 2009, Paddock filed an answer and counterclaims against not only Plaintiffs, but also Panda, UT, and Dow for a declaratory judgment of non-infringement, invalidity and unenforceability of the ‘920 patent and of the ‘100 patent. The ‘920 patent is owned by Dermalogix. The ‘100 patent is owned by Panda and The University of Tennessee Research Corporation (now known as The University of Tennessee Research Foundation, which we have abbreviated “UT”). Dow is a party to licenses involving the ‘920 patent and the ‘100 patent. On April 6, 2009, Paddock voluntarily dismissed its counterclaims involving the ‘100 patent, resulting in the dismissal of Panda and UT from the lawsuit. On April 23, 2009, Dow filed a Motion to Dismiss as we believe that Dow is improperly joined to the case. At the same time, Dow also filed a Motion to Stay Discovery to place any Dow discovery obligations on hold. Paddock will have an opportunity to respond to these motions.

     Plaintiffs filed this suit within forty-five days of Paddock’s Paragraph IV certification. As a result, The Drug Price Competition and Patent Restoration Act of 1984 (the “Hatch-Waxman Act”) provides an automatic stay on the FDA’s final approval of Paddock’s ANDA for thirty months, which will expire in May 2011.

     Tolmar Matter: By way of letter dated January 19, 2009, Tolmar, Inc. (“Tolmar”) notified Galderma Laboratories, L.P. and us that it had submitted an ANDA, No. 090-903, with the FDA seeking approval for the commercial manufacture, use and sale of its Metronidazole Topical Gel, 1% (the “Tolmar Product”) prior to the expiration of U.S. Patent Nos. 6,881,726 (“the ‘726 patent”) and 7,348,317 (“the ‘317 patent). The ‘726 and ‘317 patents are owned by Dow. The ANDA contains a Paragraph IV certification that the claims of the ‘726 and ‘317 patents will not be infringed by the manufacture, use, importation, sale or offer for sale of the Tolmar Product.

     On March 3, 2009, Galderma Laboratories, L.P., Galderma S.A., and Dow filed a complaint against Tolmar for the patent infringement of the ‘726 and ‘317 patents, pending in the United States District Court for the Northern District of Texas, Dallas Division. On April 20, 2009, Tolmar filed and answer and counterclaims that included declaratory judgment actions for non-infringement and invalidity. No trial date has been set.

     This lawsuit was filed within forty-five days of Tolmar’s Paragraph IV certification. As a result, The Hatch-Waxman Act provides an automatic stay on the FDA’s final approval of Tolmar’s ANDA for thirty months, which will expire in July 2011.

     There can be no assurance that defending against any of the above claims or any future similar claims and any resulting settlements or judgments will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position, results of operation or liquidity.

     Other: We are a party to other pending lawsuits and subject to a number of threatened lawsuits. While the ultimate outcome of pending and threatened lawsuits or pending violations cannot be predicted with certainty, and an unfavorable outcome could have a negative impact on us, at this time in the opinion of management, the ultimate resolution of these matters will not have a material effect on our consolidated financial position, results of operations or liquidity.

13. Business Segments

     Our products are sold through three segments comprising Specialty Pharmaceuticals, Branded Generics — Europe and Branded Generics — Latin America. The Specialty Pharmaceuticals segment revenues include product revenues primarily from the U.S., Canada, Australia and New Zealand and divested businesses located in Argentina, Uruguay and Asia. The Branded Generics — Europe segment revenues include product revenues from branded generic pharmaceutical products primarily in Poland, Hungary, the Czech Republic and Slovakia. The Branded Generics — Latin America segment revenues include product revenues from branded generic pharmaceutical products primarily in Mexico and Brazil.

     Additionally, we generate alliance revenue, including royalties from the sale of ribavirin by Schering-Plough and revenues associated with the Collaboration Agreement with GSK. We also generate alliance revenue and service revenue from the development of dermatological products resulting from the acquisition of Dow.

     The following table sets forth the amounts of our segment revenues and operating income for the three months ended March 31, 2009 and 2008:

		Three Months Ended
		March 31,
		2009				2008
Revenues
Specialty pharmaceuticals product sales		$	86,313			$	80,014
Specialty pharmaceuticals services and alliance revenue (1)			11,905				—
Branded generics — Europe product sales			35,338				37,953
Branded generics — Latin America product sales			31,182				21,243
Alliances (ribavirin royalties)			13,185				12,773
Consolidated revenues		$	177,923			$	151,983
Operating Income (Loss)
Specialty pharmaceuticals		$	28,250			$	(3,688	)
Branded generics — Europe			8,864				12,741
Branded generics — Latin America			12,208				(2,375	)
			49,322				6,678
Alliances			13,185				12,773
Corporate (2)			(18,562	)			(15,285	)
Subtotal			43,945				4,166
Restructuring, asset impairments and dispositions			(1,211	)			13,190
Consolidated segment operating income			42,734				17,356
Interest income			1,835				4,724
Interest expense			(8,013	)			(13,384	)
Gain on early extinguishment of debt			4,599				—
Other, net			1,212				(1,531	)
Income from continuing operations before income taxes		$	42,367			$	7,165

     The following table sets forth our total assets by segment as of March 31, 2009 and December 31, 2008:

		March 31,				December 31,
		2009				2008
Total Assets
Specialty pharmaceuticals		$	613,279			$	692,734
Branded generics — Europe			175,177				219,234
Branded generics — Latin America			107,235				103,573
Alliances			12,875				16,436
Corporate			160,320				153,955
Total		$	1,068,886			$	1,185,932