Valeant Pharmaceuticals Reports 2011 Third Quarter Financial Results

Nov 03, 2011, 08:05 ET from Valeant Pharmaceuticals International, Inc.

MISSISSAUGA, Ontario, Nov. 3, 2011 /PRNewswire/ --

  • 2011 Third Quarter Total Revenue $601 million
    • Total pro forma revenue growth for the combined company was approximately 40%
  • Pro forma organic growth, excluding the impact of foreign exchange and acquired sales, was 15%,
    • This organic growth rate has not been adjusted for the effect of the wholesaler inventory drawdown in the U.S. which would have had a positive impact
    • YTD pro forma organic growth was over 8%
  • 2011 Third Quarter GAAP EPS $0.13; Cash EPS $0.66
  • 2011 Third Quarter GAAP Cash Flow from Operations was $174 million; Adjusted Cash Flow from Operations was $208 million  
  • 2011 Cash EPS Guidance updated to $2.80 - $2.95, which does not include the potential $45 million milestone for the U.S. launch of Potiga (now 1Q 2012 Event)
  • Board Approves New $1.5 Billion Securities Repurchase Program

Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) announces third quarter financial results for 2011.

"Our operations delivered strong double-digit organic revenue growth in the third quarter and we remain on track to deliver 8% plus pro forma organic growth for the year," stated J. Michael Pearson, chairman and chief executive officer.  "We are especially pleased with the performance of our U.S. Dermatology division, which is outpacing our expectations, as well as both of our branded generic divisions that continue to outperform their respective markets.  With strong third quarter performance, we are raising our fourth quarter Cash EPS guidance to $0.80 to $0.95, which does not include the potential milestone of $45 million from GlaxoSmithKline that is now scheduled to occur in the first quarter of 2012."

Revenue

Total revenue was $600.6 million in the third quarter of 2011 as compared to $208.3 million in the third quarter of 2010.  Product sales were $570.4 million in the third quarter of 2011, as compared to $201.4 million in the year-ago quarter.  These increases are primarily due to the acquisition of Valeant Pharmaceuticals International (Legacy Valeant) by Biovail Corporation (Legacy Biovail) which was completed on September 27, 2010. In connection with the acquisition, Biovail was renamed Valeant Pharmaceuticals International, Inc.  GAAP results for the third quarter of 2010 only reflect Legacy Biovail revenues and do not include any revenues from Legacy Valeant.  

Total pro forma revenue growth for the combined company (Legacy Biovail and Legacy Valeant) was approximately 40% for the third quarter of 2011. Pro forma organic revenue growth for the combined company, excluding the impact of foreign exchange and acquired sales, was 15% for the third quarter of 2011. No adjustment as made for the third quarter wholesaler inventory impact.

Operating Expenses and Gain on Investments

The Company's cost of goods sold, excluding amortization of intangibles, was $162.6 million in the third quarter of 2011 and represented 28% of product sales.  This number in the third quarter of 2011 included $5.0 million in acquisition step-up and amortization primarily related to the acquisition of Sanitas AB.

Selling, General and Administrative expenses were $134.8 million in the third quarter of 2011, which includes a $11.1 million step-up in stock based compensation expenses related to the acquisition of Legacy Valeant.  Excluding the step-up in stock based compensation, SG&A was approximately 21% of product sales and service and other revenue. Research and Development expenses were $17.5 million in the third quarter of 2011, or approximately 3% of revenue.

Net Income and Cash Flow from Operations

The Company reported net income of $40.9 million for the third quarter of 2011, or $0.13 per diluted share.  On a Cash EPS basis, income was $212.1 million, or $0.66 per diluted share.

GAAP cash flow from operations was $174 million in the third quarter of 2011, and adjusted cash flow from operations was $208 million in the third quarter of 2011.  

Securities Repurchase Program

Since June 30, 2011, under the Company's existing securities repurchase program, which expires on November 7, 2011, the Company repurchased 1.8 million shares and $95 million principal amount of the 5.375% senior convertible notes due 2014, for an aggregate purchase price of $275 million, bringing the aggregate repurchases to $328 million of the $350 million face value of the 5.375% convertible notes.

The Company's Board of Directors approved a new $1.5 billion securities repurchase program effective November 8, 2011.

2011 Guidance

The Company is revising its previous Cash EPS guidance to $2.80 to $2.95 in 2011, as compared to prior guidance of $2.70 to $3.00.  The prior guidance included a potential $45 million milestone payment from GlaxoSmithKline in the fourth quarter for the U.S. launch of Potiga.  The launch and subsequent milestone payment is now expected to occur in the first quarter of 2012.

Conference Call and Webcast Information

The Company will host a conference call and a live Internet webcast along with a slide presentation today at 10:00 a.m. ET (7:00 a.m. PT), November 3, 2011 to discuss its third quarter financial results for 2011. The dial-in number to participate on this call is (877) 295-5743, confirmation code 18668216. International callers should dial (973) 200-3961, confirmation code 18668216. A replay will be available approximately two hours following the conclusion of the conference call through November 10, 2011 and can be accessed by dialing (855) 859-2056, or (404) 537-3406, confirmation code 18668216. The live webcast of the conference call may be accessed through the investor relations section of the Company's corporate website at www.valeant.com.

About Valeant

Valeant Pharmaceuticals International, Inc. (NYSE/TSX:VRX) is a multinational specialty pharmaceutical company that develops and markets a broad range of pharmaceutical products primarily in the areas of neurology, dermatology and branded generics. More information about Valeant can be found at www.valeant.com.

Forward-looking Statements

This press release may contain forward-looking statements, including, but not limited to, statements regarding our expected growth and Cash EPS guidance for 2011 and our securities repurchase program.  Forward-looking statements may be identified by the use of the words "anticipates," "expects," "intends," "plans," "should," "could," "would," "may," "will," "believes," "estimates," "potential," or "continue" and variations or similar expressions. These statements are based upon the current expectations and beliefs of management and are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to, factors that could affect our operating results, market conditions and the price of our securities, risks and uncertainties discussed in the Company's most recent annual or quarterly report filed with the Securities and Exchange Commission ("SEC") and risks and uncertainties as detailed from time to time in Valeant's filings with the SEC and the Canadian Securities Administrators ("CSA"), which factors are incorporated herein by reference. Readers are cautioned not to place undue reliance on any of these forward-looking statements. Valeant undertakes no obligation to update any of these forward-looking statements to reflect events or circumstances after the date of this press release or to reflect actual outcomes.

Note on Guidance

The guidance contained in this press release is only effective as of the date given, November 3, 2011, and will not be updated or affirmed until the Company publicly announces updated or affirmed guidance.

Non-GAAP Information

To supplement the financial measures prepared in accordance with generally accepted accounting principles (GAAP), the company uses non-GAAP financial measures such as Cash EPS measures, organic growth, and adjusted cash flow from operations. Non-GAAP financial measures exclude certain items, such as amortization of inventory step-up, amortization of alliance product assets & property, plant and equipment step up, stock-based compensation step-up, contingent consideration fair value adjustments, restructuring, integration and acquisition-related costs, acquired in-process research and development ("IPR&D"), legal settlements outside the ordinary course of business, amortization and other non-cash charges, amortization of deferred financing costs, debt discounts and ASC 470-20 (FSP APB 14-1) interest, loss on extinguishment of debt, (gain) loss on investments, net, and adjusts tax expense to cash taxes. Management uses non-GAAP financial measures internally for strategic decision making, forecasting future results and evaluating current performance. By disclosing non-GAAP financial measures, management intends to provide investors with a meaningful, consistent comparison of the company's core operating results and trends for the periods presented. Non-GAAP financial measures are not prepared in accordance with GAAP.  Therefore, the information is not necessarily comparable to other companies and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.

Contact Information: Laurie W. Little 949-461-6002   laurie.little@valeant.com

(Logo: http://photos.prnewswire.com/prnh/20101025/LA87217LOGO)

Financial Tables follow.

Valeant Pharmaceuticals International, Inc.

Table 1

Condensed Consolidated Statement of Income

For the Three and Nine Months Ended September 30, 2011 and 2010

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In thousands, except per share data)

2011

2010

(a)

% Change

2011

2010

(a)

% Change

Product sales

$ 570,423

$  201,372

NM

$ 1,600,879

$  644,650

NM

Alliance and royalty

22,471

6,150

NM

146,873

15,146

NM

Service and other

7,690

745

NM

27,245

6,877

NM

Total revenues

600,584

208,267

NM

1,774,997

666,673

NM

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

162,568

62,142

NM

501,767

184,947

NM

Cost of services

3,078

532

NM

9,683

7,211

NM

Cost of alliances

-

-

NM

30,735

-

NM

Selling, general and administrative ("SG&A")

134,801

60,187

NM

423,964

148,794

NM

Research and development

17,476

13,766

NM

48,910

49,987

NM

Contingent consideration fair value adjustments

6,904

-

NM

9,042

-

NM

Acquired in-process research and development

-

-

NM

4,000

61,245

NM

Legal settlements

-

38,500

NM

2,400

38,500

NM

Restructuring and acquisition-related costs

25,372

123,953

NM

73,913

135,024

NM

Amortization of intangible assets

138,027

35,499

NM

365,016

102,098

NM

488,226

334,579

1,469,430

727,806

Operating income (loss)

112,358

(126,312)

305,567

(61,133)

Interest expense, net

(86,452)

(11,092)

(236,387)

(30,449)

Loss on extinguishment of debt

(10,315)

-

(33,325)

-

Gain (loss) on investments, net

(140)

(5,005)

22,787

(5,552)

Other income (expense), net including translation and exchange

(3,590)

(5,473)

64

(5,429)

Income (loss) before (recovery) provision for income taxes

11,861

(147,882)

58,706

(102,563)

(Recovery of) provision for income taxes

(29,001)

60,000

(44,998)

74,500

Net income (loss)

$   40,862

$ (207,882)

$    103,704

$ (177,063)

Earnings per share:

Basic:

Net income (loss)

$       0.13

$       (1.27)

$          0.34

$       (1.11)

Shares used in per share computation

302,702

163,295

303,285

160,082

Diluted:

Net income (loss)

$       0.13

$       (1.27)

$          0.32

$       (1.11)

Shares used in per share computation

322,783

163,295

329,010

160,082

(a) Prior year amounts have been modified to conform to the 2011 disclosure.

Valeant Pharmaceuticals International, Inc. 

Table 2

Reconciliation of GAAP EPS to Adjusted Non-GAAP (Cash) EPS

For the Three and Nine Months Ended September 30, 2011 and 2010

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In thousands, except per share data)

2011

2010

2011

2010

(a)

Net income (loss)

$   40,862

$ (207,882)

$ 103,704

$ (177,063)

Non-GAAP adjustments (b)(c):

Inventory step-up (d)

2,768

-

48,939

-

Alliance product assets & pp&e step-up (e)

138

-

19,478

-

Stock-based compensation step-up (f)

11,149

-

50,556

-

Contingent consideration fair value adjustment

6,904

-

9,042

-

Restructuring, integration and acquisition-related costs (g)

25,372

123,953

73,913

135,024

Acquired in-process research and development (IPR&D)

-

-

4,000

61,245

Legal settlements

-

38,500

2,400

38,500

Amortization and other non-cash charges

140,500

38,147

371,897

110,225

186,831

200,600

580,225

344,994

Amortization of deferred financing costs, debt discounts and ASC 470-20 (FSP APB 14-1) interest

12,686

15,340

19,034

23,622

Loss on extinguishment of debt

10,315

-

33,325

-

(Gain) loss on investments, net

-

5,005

(1,769)

5,552

Tax

(38,601)

59,500

(77,098)

64,500

Total adjustments

171,231

280,445

553,717

438,668

Adjusted income

$ 212,093

$    72,563

$ 657,421

$  261,605

GAAP earnings  per share - diluted

$       0.13

$       (1.27)

$       0.32

$       (1.11)

Adjusted Non-GAAP (Cash) earnings per share - diluted

$       0.66

$        0.42

$       2.00

$        1.58

Shares used in diluted per share calculation - Adjusted Non-GAAP (Cash) earnings per share

322,783

173,247

329,010

165,145

(a) Prior year non-GAAP adjustments have been modified to conform to the 2011 disclosure.

(b) To supplement the financial measures prepared in accordance with generally accepted accounting principles (GAAP), the company uses non-GAAP financial measures that exclude certain items, such as amortization of inventory step-up, amortization of alliance product assets & pp&e step up, stock-based compensation step-up, contingent consideration fair value adjustments, restructuring, integration and acquisition-related costs, acquired in-process research and development ("IPR&D"), legal settlements outside the ordinary course of business, amortization and other non-cash charges, amortization of deferred financing costs, debt discounts and ASC 470-20 (FSP APB 14-1) interest, loss on extinguishment of debt, (gain) loss on investments, net, and adjusts tax expense to cash taxes. Management uses non-GAAP financial measures internally for strategic decision making, forecasting future results and evaluating current performance. By disclosing non-GAAP financial measures, management intends to provide investors with a meaningful, consistent comparison of the company's core operating results and trends for the periods presented. Non-GAAP financial measures are not prepared in accordance with GAAP.   Therefore, the information is not necessarily comparable to other companies and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.

(c) This table includes Adjusted Non-GAAP (Cash) Earnings Per Share, which is a non-GAAP financial measure that represents earnings per share, excluding amortization of inventory step-up, alliance product assets & pp&e step up, stock-based compensation step-up, contingent consideration fair value adjustments, restructuring, integration and acquisition-related costs, acquired in-process research and development ("IPR&D"), legal settlements outside the ordinary course of business, amortization and other non-cash charges, amortization of deferred financing costs, debt discounts and ASC 470-20 (FSP APB 14-1) interest, loss on extinguishment of debt, (gain) loss on investments, net, and adjusts tax expense to cash taxes.

(d) ASC 805, accounting for business combinations requires an inventory fair value step-up. The impact of the amortization of this step-up is included in cost of goods sold. For the three and nine months ended September 30, 2011 the total impact is $2.8 million and $48.9 million, respectively. For the three and nine months ended September 30, 2011 a total of  $0.4 million and $27.7 million related to the merger with Valeant Pharmaceutical International, $0.0 million and $18.8 million related to the acquisition of Pharma Swiss SA on March 10, 2011, and $2.4 million and $2.4 million related to the acquisition of Sanitas on August 19th, 2011, respectively.

(e) Alliance product assets & pp&e step-up represents the step up to fair market value from Legacy Valeant's original cost resulting from the merger of Legacy Valeant into Legacy Biovail. The impact of the amortization of this step-up is included in cost of alliance and royalty & SG&A. For the three and nine months ended September 30, 2011 the total impact is $0.1 million and $19.5 million, respectively.

(f) Total stock-based compensation for the three and nine months ended September 30, 2011 was $17.1 million and $72.4 million, of which $11.1 million and $50.6 million reflect the amortization of the fair value step-up increment resulting from the merger, respectively.

(g) Restructuring, integration and acquisition-related costs for the three and nine months ended September 30, 2011 represent costs related to the merger of Legacy Valeant and Legacy Biovail, the acquisition of Pharma Swiss SA, and the acquisition of Sanitas. These include $0.9 million and $18.0 million related to facility related costs, $6.7 million and $16.9 million related to contract cancellation fees, consulting, legal and other, $5.0 million and $14.3 million related to employee severance costs, $(0.7) million and $2.9 million related to (decreases)/increases in deferred stock unit values related to directors retired as a result of the merger between Legacy Valeant and Legacy Biovail, $9.5 million and $12.9 million related to acquisition costs, $1.1 million and $4.4 million related to manufacturing integration, and $2.9 million and $4.5 million related to wind down costs, respectively.

Valeant Pharmaceuticals International, Inc.

Table 2 (a)

Reconciliation of Non-GAAP Adjustments

For the Three Months Ended September 30, 2011 and 2010

Three Months Ended

September 30, 2011

Inventory step-

up

Alliance

product

assets &

pp&e step-up

Stock-based

compensation

step-up

Contingent

consideration

fair value

adjustment

Restructuring,

integration and

acquisition-

related costs

Amortization

and other non-

cash charges

Amortization

of deferred

financing

costs, debt

discounts

and ASC 470-

20 (FSP APB

14-1) interest

Loss on

extinguishment

of debt

Tax

Product Sales

- -

- -

- -

- -

- -

268

- -

- -

- -

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

2,768

138

209

- -

- -

2,205

- -

- -

- -

Selling, general and administrative ("SG&A")

- -

- -

10,579

- -

- -

- -

- -

- -

- -

Research and development

- -

- -

361

- -

- -

- -

- -

- -

- -

Contingent consideration fair value adjustments

- -

- -

- -

6,904

- -

- -

- -

- -

- -

Restructuring and acquisition-related costs

- -

- -

- -

- -

25,372

- -

- -

- -

- -

Amortization of intangible assets

- -

- -

- -

- -

- -

138,027

- -

- -

- -

Interest expense, net

- -

- -

- -

- -

- -

- -

12,686

- -

- -

Loss on extinguishment of debt

- -

- -

- -

- -

- -

- -

- -

10,315

- -

Tax

- -

- -

- -

- -

- -

- -

- -

- -

(38,601)

Total Adjustments

$                2,768

$               138

$            11,149

$                 6,904

$             25,372

$          140,500

$           12,686

$               10,315

$     (38,601)

Three Months Ended

September 30, 2010

Restructuring,

integration and

acquisition-

related costs

Legal

settlements

Amortization

and other non-

cash charges

Amortization of

deferred

financing costs,

debt discounts

and ASC 470-20

(FSP APB 14-1)

interest

Gain (loss) on

investments,

net

Tax

Product Sales

- -

- -

268

- -

- -

- -

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

- -

- -

2,118

- -

- -

- -

Legal settlements

- -

38,500

- -

- -

- -

- -

Restructuring and acquisition-related costs

123,953

- -

- -

- -

- -

- -

Amortization of intangible assets

- -

- -

35,499

- -

- -

- -

Interest expense, net

- -

- -

- -

15,340

- -

- -

Gain (loss) on investments, net

- -

- -

- -

- -

5,005

- -

Tax

- -

- -

262

- -

- -

59,500

Total Adjustments

$            123,953

$          38,500

$            38,147

$               15,340

$               5,005

$            59,500

Valeant Pharmaceuticals International, Inc.

Table 2 (b)

Reconciliation of Non-GAAP Adjustments

For the Nine Months Ended September 30, 2011 and 2010

Nine Months Ended

September 30, 2011

Inventory step-

up

Alliance

product assets

& pp&e step-up

Stock-based

compensation

step-up

Contingent

consideration

fair value

adjustment

Restructuring,

integration and

acquisition-

related costs

Acquired in-

process

research and

development

(IPR&D)

Legal

settlements

Amortization

and other non-

cash charges

Amortization of

deferred

financing costs,

debt discounts

and ASC 470-20

(FSP APB 14-1)

interest

Loss on

extinguishment

of debt

Gain (loss) on

investments,

net

Tax

Product Sales

- -

- -

- -

- -

- -

- -

- -

804

- -

- -

- -

- -

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

48,939

643

529

- -

- -

- -

- -

6,077

- -

- -

- -

- -

Cost of alliances

- -

18,835

- -

- -

- -

- -

- -

- -

- -

- -

- -

- -

Selling, general and administrative ("SG&A")

- -

- -

49,401

- -

- -

- -

- -

- -

- -

- -

- -

- -

Research and development

- -

- -

626

- -

- -

- -

- -

- -

- -

- -

- -

- -

Contingent consideration fair value adjustments

- -

- -

- -

9,042

- -

- -

- -

- -

- -

- -

- -

- -

Acquired in-process research and development

- -

- -

- -

- -

- -

4,000

- -

- -

- -

- -

- -

- -

Legal settlements

- -

- -

- -

- -

- -

- -

2,400

- -

- -

- -

- -

- -

Restructuring and acquisition-related costs

- -

- -

- -

- -

73,913

- -

- -

- -

- -

- -

- -

- -

Amortization of intangible assets

- -

- -

- -

- -

- -

- -

- -

365,016

- -

- -

- -

- -

Interest expense, net

- -

- -

- -

- -

- -

- -

- -

- -

19,034

- -

- -

- -

Loss on extinguishment of debt

- -

- -

- -

- -

- -

- -

- -

- -

- -

33,325

- -

- -

Gain (loss) on investments, net

- -

- -

- -

- -

- -

- -

- -

- -

- -

- -

(1,769)

- -

Tax

- -

- -

- -

- -

- -

- -

- -

- -

- -

- -

- -

(77,098)

Total Adjustments

$              48,939

$              19,478

$            50,556

$              9,042

$               73,913

$             4,000

$          2,400

$          371,897

$               19,034

$               33,325

$           (1,769)

$     (77,098)

Nine Months Ended

September 30, 2010

Restructuring,

integration and

acquisition-

related costs

Acquired in-

process

research and

development

(IPR&D)

Legal

settlements

Amortization

and other non-

cash charges

Amortization of

deferred

financing costs,

debt discounts

and ASC 470-20

(FSP APB 14-1)

interest

Gain (loss) on

investments, net

Tax

Product Sales

- -

- -

- -

804

- -

- -

- -

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

- -

- -

- -

6,536

- -

- -

- -

Legal settlements

- -

- -

38,500

- -

- -

- -

- -

Restructuring and acquisition-related costs

135,024

- -

- -

- -

- -

- -

- -

Acquired in-process research and development

- -

61,245

Amortization of intangible assets

- -

- -

- -

102,098

- -

- -

- -

Interest expense, net

- -

- -

- -

- -

23,622

- -

- -

Gain (loss) on investments, net

- -

- -

- -

- -

- -

5,552

- -

Tax

- -

- -

- -

787

- -

- -

64,500

Total Adjustments

$            135,024

$              61,245

$            38,500

$          110,225

$               23,622

$             5,552

$        64,500

Valeant Pharmaceuticals International, Inc.

Table 3

Statement of Revenue - by Segment

For the Three and Nine Months Ended September 30, 2011 and 2010

(In thousands)

Three Months Ended

September 30,

Revenue (a)(b)

2011 GAAP

2010 GAAP

%   Change (c)

2011 currency impact

2011 excluding currency impact non-GAAP

%   Change (c)

 U.S. Neurology & Other

$    182,288

$ 138,035

32%

$          -

$          182,288

32%

 U.S. Dermatology

131,642

34,720

279%

(136)

131,506

279%

 Total U.S.

313,930

172,755

82%

(136)

313,794

82%

Canada/Australia

84,644

27,750

205%

(7,268)

77,376

179%

Specialty Pharmaceuticals

398,574

200,505

99%

(7,404)

391,170

95%

Branded Generics - Europe

134,055

7,762

1627%

(7,054)

127,001

1536%

Branded Generics - Latin America

67,955

-

NM

(2,706)

65,249

NM

Branded Generics

202,010

7,762

NM

(9,760)

192,250

NM

Total Revenue

$    600,584

$ 208,267

188%

$ (17,164)

$          583,420

180%

Nine Months Ended

September 30,

Revenue (a)(b)

2011 GAAP

2010 GAAP

%   Change (c)

2011 currency impact

2011 excluding currency impact non-GAAP

%   Change (c)

 U.S. Neurology & Other

$    626,390

$ 445,413

41%

$          -

$          626,390

41%

 U.S. Dermatology

394,202

115,112

242%

(354)

393,848

242%

 Total U.S.

1,020,592

560,525

82%

(354)

1,020,238

82%

Canada/Australia

238,888

81,146

194%

(18,861)

220,027

171%

Specialty Pharmaceuticals

1,259,480

641,671

96%

(19,215)

1,240,265

93%

Branded generics - Europe

326,448

25,002

1206%

(21,412)

305,036

1120%

Branded generics - Latin America

189,069

-

NM

(11,314)

177,755

NM

Branded Generics

515,517

25,002

NM

(32,726)

482,791

NM

Total Revenue

$ 1,774,997

$ 666,673

166%

$ (51,941)

$       1,723,056

158%

(a) Note: Currency effect for constant currency sales is determined by comparing 2011 reported amounts adjusted to exclude currency impact, calculated using 2010 monthly average exchange rates, to the actual 2010 reported amounts. Constant currency sales is not a GAAP-defined measure of revenue growth. Constant currency sales as defined and presented by us may not be comparable to similar measures reported by other companies.

(b) See footnote (b) to Table 2.

(c) The % change reflects revenue for the combined company for the three and nine months ended September 30, 2011 as compared to Legacy Biovail alone for the three and nine months ended September 30, 2010.

Valeant Pharmaceuticals International, Inc.

Table 4

Reconciliation of GAAP Statement of Cost of Goods Sold to Non-GAAP Statement Cost of Goods Sold - by Segment

For the Three Months Ended September 30, 2011

(In thousands)

Three Months Ended

Nine Months Ended

Cost of goods sold (a)           

September 30,

September 30,

2011 as reported GAAP

% of product sales

2011 fair value step- up adjustment to inventory and amortization (b)

2011 excluding fair value step-up adjustment to inventory and amortization non-GAAP

% of product sales

2011 as reported GAAP

% of product sales

2011 fair value step- up adjustment to inventory and amortization (b)

2011 excluding fair value step-up adjustment to inventory and amortization non-GAAP

% of product sales

U.S. Neurology & Other

$       32,826

19%

$                2,205

$             30,621

17%

$     114,601

20%

$              15,525

$             99,076

17%

U.S. Dermatology

10,140

9%

-

10,140

9%

57,134

20%

7,696

49,438

17%

Canada/Australia

26,365

31%

419

25,946

31%

71,292

30%

3,885

67,407

28%

Branded Generics - Europe

64,331

49%

2,349

61,982

47%

176,553

54%

22,928

153,625

48%

Branded Generics - Latin America

28,640

42%

-

28,640

42%

81,186

43%

4,981

76,205

40%

Corporate

266

-

266

1,001

-

1,001

$     162,568

28%

$                4,973

$           157,595

28%

$     501,767

31%

$              55,015

$           446,752

28%

(a) See footnote (b) to Table 2.

(b) For the three and nine months ended September 30, 2011 U.S. Neurology and Other and U.S. Dermatology include $0 and $9.4 million and $0 and $7.7 million of fair value step-up adjustment to inventory, respectively and in the three and nine months ended September 30, 2011 U.S. Neurology and Other includes $2.2 million and $6.1 million of amortization, respectively.

Valeant Pharmaceuticals International, Inc.

Table 5

Consolidated  Balance Sheet and Other Data

(In thousands)

As of

As of

September 30,

December 31,

5.1

Cash

2011

2010

Cash and cash equivalents

$          254,559

$        394,269

Marketable securities

2,967

6,083

Total cash and marketable securities

$          257,526

$        400,352

Debt

Convertible notes

$            41,798

$        417,555

Senior notes

4,327,336

2,185,822

Senior Secured Term Loan facility

590,000

-

Term loan A facility

-

975,000

Revolving credit facility

200,000

-

Sanitas Term Loan Facility

45,312

-

Sanitas Revolving Credit Lines

4,943

-

Other

17,522

16,900

5,226,911

3,595,277

Less: Current portion

(38,943)

(116,900)

$       5,187,968

$     3,478,377

5.2

Summary of Cash Flow Statement

Three Months Ended

September 30,

2011

2010

Cash flow provided by (used in):

Net cash provided by (used in) operating activities (GAAP)

$          173,708

$        110,924

Restructuring and acquisition-related costs

25,372

123,953

Effect of ASC 470-20 (FSP APB 14-1)

3,362

-

Tax benefits from stock options exercised (a)

2,042

-

Changes in working capital related to restructuring and acquisition-related costs

3,918

(127,860)

Adjusted cash flow from operations (Non-GAAP) (b)

$          208,402

$        107,017

(a) Includes stock option tax benefit which will reduce taxes in future periods.

(b) See footnote (b) to Table 2.

Valeant Pharmaceuticals International

Pro Forma Organic Growth - by Segment

For the Three and Nine Months Ended September 30, 2011

(In thousands)

Three Month Ending

September 30,

(b) (f)

(b) (c)

(g)

(a)

September 2011

September 2010

Total Proforma Acquisitions

Total Proforma QTD 2010

Divestitures/ Discontinuations

%   Change

September 2011 currency impact

September 2011 excluding currency impact

%   Change

 U.S. Dermatology

$    110,546

$      65,820

$                6,000

$             70,122

$                  1,698

58%

$                     -

$                   110,546

58%

 U.S. Neurology & Other (d)

177,780

186,224

-

186,224

-

-5%

(301)

177,479

-5%

    Total U.S.

288,326

252,044

6,000

256,346

1,698

12%

(301)

288,025

12%

Canada/Australia                               

83,144

64,120

-

64,120

-

30%

(6,464)

76,680

20%

    Specialty Pharmaceuticals

371,470

316,164

6,000

320,466

1,698

16%

(6,765)

364,705

14%

Branded generics - Latin America

67,955

51,539

-

51,539

-

32%

(2,708)

65,247

27%

Branded generics - Europe

130,998

50,098

62,533

112,631

-

16%

(6,395)

124,603

11%

    Branded Generics

198,953

101,637

62,533

164,170

-

21%

(9,103)

189,850

16%

Total product sales

$    570,423

$    417,801

$              68,533

$           484,636

$                  1,698

18%

$         (15,868)

$                   554,555

14%

Add:  JV Revenue (e)

1,093

417

-

417

-

-

1,093

Total

$    571,516

$    418,218

$              68,533

$           485,053

$                  1,698

18%

$         (15,868)

$                   555,648

15%

Nine Months Ended

September 30,

(b) (f)

(b) (c)

(g)

(a)

September 2011

September 2010

Total Proforma Acquisitions

Total Proforma QTD 2010

Divestitures/ Discontinuations

%   Change

September 2011 currency impact

September 2011 excluding currency impact

%   Change

 U.S. Dermatology

$    286,303

$    216,334

$              15,531

$           228,210

$                  3,655

27%

$                    -

$                   286,303

27%

 U.S. Neurology & Other (d)

571,342

579,190

20,625

599,815

-

-5%

-

571,342

-5%

    Total U.S.

857,646

795,524

36,156

828,025

3,655

4%

-

857,645

4%

Canada/Australia

234,777

188,460

5,034

193,494

-

21%

(17,908)

216,869

12%

    Specialty Pharmaceuticals

1,092,423

983,984

41,190

1,021,519

3,655

7%

(17,908)

1,074,515

6%

Branded generics - Latin America

189,069

145,368

6,471

151,839

-

25%

(11,314)

177,755

17%

Branded generics - Europe

319,388

149,828

117,931

267,759

-

19%

(20,314)

299,074

12%

    Branded Generics

508,456

295,196

124,402

419,598

-

21%

(31,628)

476,829

14%

Total product sales

$ 1,600,879

$ 1,279,180

$            165,592

$        1,441,117

$                  3,655

11%

$         (49,536)

$                1,551,343

8%

Add:  JV Revenue (e)

2,313

481

-

481

-

-

2,313

Total

$ 1,603,192

$ 1,279,661

$            165,592

$        1,441,598

$                  3,655

11%

$         (49,536)

$                1,553,656

8%

(a) See footnote (a) to Table 3.

(b) See footnote (b) to Table 2.

(c) Combined Q3 Legacy Biovail and Legacy Valeant product sales of $201.4 million and $210.4 million, respectively (see note (d)).  Total proforma revenue of $467.5 million also includes $7.0 million and $48.7 million of Service, Alliance and Royalty revenue recorded by Legacy Biovail and Legacy Valeant, respectively.  Total proforma revenue includes $37.2 million of discontinued revenues relating to Ribavirin and GSK Alliance revenues.  Combined YTD Legacy Biovail and Legacy Valeant product sales of $655.1 million and $953.9 million, respectively.  Total proforma revenue of $1,609.0 million also includes $19.8 million and $146.2 million of Service, Alliance and Royalty revenue recorded by Legacy Biovail and legacy Valeant, respectively.  Total proforma revenue includes $70.9 million of discontinued revenues relating to Ribavirin and GSK Alliance revenues.

(d)  2010 data includes adjustments for timing of revenues on certain partnered products of $5.8M in Sept QTD and $0.0M in Sept YTD.

(e) Represents Valeant's attributable portion of revenue from joint ventures (JV) not included in Consolidated Valeant revenues.

(f)  Includes all acquisitions.

(g)  Includes proforma historical revenue for acquisitions with a purchase price > $20 million.

SOURCE Valeant Pharmaceuticals International, Inc.



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