Valeant Pharmaceuticals Reports 2010 Fourth Quarter Financial Results

February 24, 2011

-- 2010 Fourth Quarter Total Revenue $515 million
-- 2010 Fourth Quarter GAAP EPS ($0.10); Cash EPS $0.51
-- 2010 Fourth Quarter GAAP Operating Cash Flow ($1) million; Adjusted Operating Cash Flow $209 million
-- 2011 Guidance increased to $2.45 - $2.70 Cash EPS
-- Valeant agrees to repurchase common shares from ValueAct Capital for $275 million

MISSISSAUGA, Ontario, Feb. 24, 2011 /PRNewswire via COMTEX/ -- Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) announces fourth quarter financial results for 2010.

"Our results for the fourth quarter were ahead of our expectations, and reflect the successful integration work we have completed thus far," said J. Michael Pearson, chief executive officer. "We are particularly pleased with the performance of our Canadian operations, especially as this business was principally impacted by the integration process. Our combined company has been building momentum since September 2010 and we believe we are on track to deliver strong 2011 financial results."

Revenue

Total reported revenue was $514.6 million in the fourth quarter of 2010 as compared to $241.1 million in the fourth quarter of 2009. Product sales were $488.7 million in the fourth quarter of 2010, as compared to $231.6 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 in September 2010. In connection with the acquisition, Biovail was renamed Valeant Pharmaceuticals International, Inc. Results for the fourth quarter of 2009 only reflect Legacy Biovail revenues and do not include any revenues from Legacy Valeant. Pro forma organic growth for the combined company was approximately six percent for 2010.

Operating Expenses

The Company's cost of goods sold were $210.6 million in the fourth quarter of 2010 and represented 43% of product sales. This number in the fourth quarter of 2010 included a $53.3 million fair value adjustment to inventory and a $7.4 million amortization expense adjustment related to the acquisition of Legacy Valeant by Legacy Biovail. Excluding the adjustments, cost of goods for the fourth quarter of 2010 were 31% of product sales. This rise in cost of goods sold from historical levels is primarily due to contractual changes in the first quarter of 2010 that doubled the cost of goods for Zovirax, to greater than 45% of the product's sales in 2010. As a result of the purchase of Zovirax rights in the U.S., which was completed on February 22, 2011, and the purchase of rights in Canada, which is expected to close by the end of the first quarter of 2011, total cost of goods sold is expected to be back to historical Legacy Valeant levels in the second half of 2011.

Selling, General and Administrative expenses were $127.8 million in the fourth quarter of 2010, which included a $16.4 million step-up in stock based compensation expenses related to the acquisition of Legacy Valeant. Research and Development expenses were $18.3 million in the fourth quarter of 2010 and reflect the termination of the majority of Legacy Biovail's pipeline. These expenses reflect the achievement of approximately $50 million in cost synergies in the fourth quarter of 2010 from the acquisition.

Merger Related Costs & Expenses

We recorded restructuring and acquisition-related costs of $44.1 million in the quarter, virtually all of which arise from the acquisition and are primarily employee termination costs and research and development cancelation costs.

Net Loss and Cash Flow from Operating Activities

The Company reported a net loss of $31.1 million for the fourth quarter of 2010, or a loss of $0.10 per diluted share. On an adjusted Cash EPS basis, adjusted income was $167.6 million, or $0.51 per diluted share, as compared to guidance of $0.44 to $0.48 per diluted share.

GAAP cash flow from operating activities, which includes acquisition transaction fees, was negative $1.4 million in the quarter. Adjusted cash flow from operations was $209.1 million in the fourth quarter of 2010. Excluding working capital changes, adjusted cash flow from operations was $187.6 million, as compared to guidance of $170 to $190 million.

2011 Guidance

The Company is updating its previous Cash EPS guidance and is now targeting Cash EPS between $2.45 - $2.70 in 2011, up from prior guidance of $2.25 to $2.50. This guidance assumes the completion of the acquisitions of PharmaSwiss S.A. and the Canadian rights to Zovirax (U.S. acquisition closed February 22, 2011) in the next several months.

Share Repurchase Transaction

Valeant has agreed to repurchase common shares of the Company's common stock held by ValueAct Capital for $275 million, negotiated at a 5.77% discount over a 20-day trading day average, which was calculated in a similar manner to Legacy Valeant's privately negotiated share repurchase completed in May 2010.

In connection with the pending $275 million share repurchase from ValueAct, the Company is evaluating debt financing alternatives.

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), February 24, 2011 to discuss its fourth quarter financial results for 2010. The dial-in number to participate on this call is (877) 295-5743, confirmation code 41335702. International callers should dial (973) 200-3961, confirmation code 41335702. A replay will be available approximately two hours following the conclusion of the conference call through March 3, 2011 and can be accessed by dialing (800) 642-1687, or (706) 645-9291, confirmation code 41335702. The live webcast of the conference call may be accessed through the investor relations section of the Company's corporate website at http://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 http://www.valeant.com/.

Forward-looking Statements

This press release may contain forward-looking statements, including, but not limited to, statements regarding our performance, growth, achievement of long-term goals, anticipated Cash EPS and adjusted cash flows from operations for 2011, anticipated closing of pending acquisitions and share repurchases and financing alternatives. 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, 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 relating to the proposed merger, 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, February 24, 2011, and will not be updated or confirmed 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 that exclude certain items, such as amortization of inventory step-up, stock-based compensation step-up, restructuring 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, and (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

Financial Tables follow.

Valeant Pharmaceuticals International, Inc.

Table 1

Condensed Consolidated Statement of Income (Loss)

For the Three and Twelve Months Ended December 31, 2010 and 2009














Three Months Ended




Twelve Months Ended




December 31,




December 31,



(In thousands, except per share data)

2010


2009


% Change


2010


2009


% Change













Product sales

$ 488,721


$ 231,626


NM


$ 1,133,371


$ 789,026


NM

Alliance and royalty

19,963


5,172


NM


35,109


15,418


NM

Service and other

5,880


4,255


NM


12,757


15,986


NM

Total revenues

514,564


241,053


NM


1,181,237


820,430


NM













Cost of goods sold

210,648


58,743


NM


395,595


204,309


NM

Cost of services

2,944


3,339


NM


10,155


13,849


NM

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

127,752


30,117


NM


276,546


167,633


NM

Research and development

18,324


14,209


NM


68,311


47,581


NM

Acquired in-process research and development

28,000


20,814


NM


89,245


59,354


NM

Legal settlements

14,110


5,950


NM


52,610


6,191


NM

Restructuring and acquisition-related costs

44,078


14,905


NM


179,102


35,629


NM

Amortization of intangible assets

117,660


34,328


NM


219,758


104,730


NM


563,516


182,405




1,291,322


639,276



Operating income (loss)

(48,952)


58,648




(110,085)


181,154















Interest expense, net

(52,564)


(9,736)




(83,013)


(23,763)



Loss on extinguishment of debt

(32,413)


-




(32,413)


-



Gain (loss) on investments, net

-


(501)




(5,552)


17,594



Other income (expense), net including translation and exchange

229


(411)




(5,200)


(30)















Income (loss) before recovery of income taxes

(133,700)


48,000




(236,263)


174,955















Recovery of income taxes

(102,570)


(25,000)




(28,070)


(1,500)















Net income (loss)

$ (31,130)


$ 73,000




$ (208,193)


$ 176,455















Earnings per share:
























Basic:












Net income (loss)

$ (0.10)


$ 0.46




$ (1.06)


$ 1.11



Shares used in per share computation

302,005


158,271




195,808


158,236















Diluted:












Net income (loss)

$ (0.10)


$ 0.46




$ (1.06)


$ 1.11



Shares used in per share computation

302,005


158,785




195,808


158,510



Valeant Pharmaceuticals International, Inc.

Table 2

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

For the Three and Twelve Months Ended December 31, 2010 and 2009 (a)





















Three Months Ended


Twelve Months Ended



December 31,


December 31,

(In thousands, except per share data)


2010


2009 (a)


2010


2009 (a)










Net income (loss)


$ (31,130)


$ 73,000


$ (208,193)


$ 176,455










Non-GAAP adjustments (b)(c):









Inventory step-up (d)


53,266


-


53,266


-

Stock-based compensation step-up (e)


17,040


-


17,040


-

Restructuring and acquisition-related costs (f)


44,078


14,905


179,102


35,629

Acquired in-process research and development


28,000


20,814


89,245


59,354

Legal settlements


14,110


5,950


52,610


6,191

Amortization and other non-cash charges


122,729


42,868


232,954


130,496



279,223


84,537


624,217


231,670

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


3,624


4,034


15,698


9,069

Loss on extinguishment of debt


32,413


-


32,413


-

(Gain) loss on investments, net


-


501


5,552


(17,594)

Write-down of deferred financing costs


-


-


5,774


537

Tax


(116,570)


(28,500)


(54,370)


(13,500)

Total adjustments


198,690


60,572


629,284


210,182










Adjusted income


$ 167,560


$ 133,572


$ 421,091


$ 386,637










GAAP earnings per share - diluted


$ (0.10)


$ 0.46


$ (1.06)


$ 1.11










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


$ 0.51


$ 0.84


$ 2.05


$ 2.44










Shares used in diluted per share calculation - GAAP earnings per share


302,005


158,785


195,808


158,510










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


330,452


158,785


205,529


158,510



















(a) Prior year non-GAAP adjustments have been modified to conform to the 2010 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, stock-based compensation step-up, restructuring 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, 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 more 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) ThistableincludesAdjusted Non-GAAP (Cash) Earnings Per Share, which is a non-GAAP financial measure that representsearnings per share, excluding amortization of inventory step-up, stock-based compensation step-up, restructuring 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, 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 twelve months ended December 31, 2010 the impact is $53.3 million for the merger with Valeant Pharmaceutical International.

(e) Total stock-based compensation for the three and twelve months ended December 31, 2010 was $26.2 million and $98.0 million, respectively, of which $17.0 million reflects the amortization of the fair value increment resulting from the merger.

(f) Restructuring and acquisition-related costs for the three and twelve months ended December 31, 2010 relate to costs related to the merger with Valeant Pharmaceuticals International and include $13.8 million of expenses related to R&D program cancelation costs, $11.2 million and $58.6 million related to employee severance, $5.2 million related to R&D wind down costs, $3.9 million and $49.5 million related to accelerated equity compensation, $4.9 million related to facility closure costs, and $2.5 million and $8.8 million of other miscellaneous costs related to the merger. Acquisition-related costs of $2.6 million and $38.3 million for the three and twelve months ended December 31, 2010, respectively, relate to the merger with Valeant Pharmaceuticals International.

Valeant Pharmaceuticals International, Inc.

Table 3

Statement of Revenue - by Segment

For the Three Months Ended December 31, 2010 and 2009

(In thousands)



Three Months Ended



December 31,

Revenue (a)(b)


2010
GAAP


2009
GAAP


% Change (c)


2010 currency impact


2010 excluding currency impact
non-GAAP


% Change (c)

U.S. Neurology & Other


$ 212,899


$ 161,441


32%


$ -


$ 212,899


32%

U.S. Dermatology


103,896


46,254


125%


121


104,017


125%

Total U.S.


316,795


207,695


53%


121


316,916


53%

Canada/Australia


80,421


28,205


185%


(4,319)


76,102


170%

Specialty Pharmaceuticals


397,216


235,900


68%


(4,198)


393,018


67%

Branded Generics - Europe


48,310


5,153


838%


2,643


50,953


889%

Branded Generics - Latin America


69,038


-


NM


(2,772)


66,266


NM

Branded Generics


117,348


5,153


NM


(129)


117,219


NM

Total revenue


$ 514,564


$ 241,053


113%


$ (4,327)


$ 510,237


112%



























(a) Note: Currency effect for constant currency sales is determined by comparing 2010 reported amounts adjusted to exclude currency impact, calculated using 2009 monthly average exchange rates, to the actual 2009 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 months ended December 31, 2010 as compared to Legacy Biovail alone for the three months ended December 31, 2009.

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 December 31, 2010

(In thousands)



Three Months Ended

Cost of goods sold (a)


December 31,



2010
as reported
GAAP


%
of product sales


2010
fair value adjustment to inventory and amortization (b)


2010 excluding fair value adjustment to inventory and amortization
non-GAAP


%
of product sales

U.S. Neurology & Other


$ 70,924


35%


$ 22,436


$ 48,488


24%

U.S. Dermatology


42,775


47%


11,300


31,475


35%

Canada/Australia


33,693


42%


11,409


22,284


28%

Branded Generics - Europe


24,320


50%


5,975


18,345


38%

Branded Generics - Latin America


38,475


56%


9,534


28,941


42%












Corporate


461




-


461
















$ 210,648


43%


$ 60,654


$ 149,994


31%












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

(b) U.S. Neurology and Other and U.S. Dermatology include $15.1 million and $11.2 million of fair value adjustment to inventory and $7.3 million and $0.1 million of amortization, respectively.

Valeant Pharmaceuticals International, Inc.



Table 5


Consolidated Balance Sheet and Other Data





(In thousands)






As of


As of



December 31,


December 31,


5.1 Cash

2010


2009







Cash and cash equivalents

$ 394,269


$ 114,463


Marketable securities

6,083


9,566


Total cash and marketable securities

$ 400,352


$ 124,029









5.2 Summary of Cash Flow Statement

Three Months Ended



December 31,



2010


2009


Cash flow provided by (used in):










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

$ 209,052


$ 142,552


Restructuring and acquisition-related costs

(44,078)


(14,905)


Payment of accrued legal settlements

(38,500)


-


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

(4,934)


-


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

(122,939)


-


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

$ (1,399)


$ 127,647







(a) See footnote (b) to Table 2. 2010 includes $21.5 million reduction in working capital unrelated to merger/restructuring activities and 2009 includes $1.0 million increase in working capital.

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