Valeant Pharmaceuticals Reports Second Quarter Financial Results

Monday, August 11, 2008 8:25 AM

Valeant Pharmaceuticals International (NYSE:VRX) today announced second quarter financial results for 2008.

Total revenue was $206.8 million in the second quarter of 2008 as compared to $220.5 million in the second quarter of 2007. The second quarter of 2008 included planned reductions of shipments to wholesaler customers in the United States, Canada and Mexico of approximately $20.0 million.

North America product sales were $54.7 million in second quarter of 2008, as compared to $68.6 million in second quarter of 2007. This decrease was due to a planned reduction in shipments to wholesaler customers in the United States and Canada of approximately $17.0 million.

Sales in the International region in the 2008 second quarter were $45.7 million as compared to $55.8 million in the same period last year. The second quarter of 2008 included planned wholesaler inventory reductions in Mexico of approximately $3.0 million. The second quarter of 2007 included $9.6 million in revenue from certain subsidiaries and business operations in Asia and Argentina, which were divested in the first half of 2008, compared to $2.3 million in revenue from the same operations in the second quarter of 2008.

Sales in the Europe, Middle East and Africa (EMEA) region were $91.6 million in the 2008 second quarter as compared to $77.1 million in the same period last year, an increase primarily due to favorable currency fluctuations of $12.6 million. Valeant recently announced an agreement to sell a large geographic part of this region in Western and Eastern Europe, Middle East and Africa. The retained area of Central Europe, including Poland, comprised $41.1 million of the $91.6 million sales in the EMEA region. Central Europe sales increased 32% in second quarter 2008 from $31.2 million in the second quarter of 2007.

Alliance revenue was $14.8 million in the 2008 second quarter as compared to $19.0 million in the same period in 2007, due to reduced ribavirin royalties.

The company’s gross margin on product sales, including amortization costs, was 56% for the 2008 second quarter as compared to 64% in the second quarter of 2007. This decrease is fully due to the impact of $15 million of increased inventory obsolescence charges required by strategic changes in our commercial focus away from some products and discontinuation of others. Beginning in the second quarter of 2008, the financial presentation of gross margins has been changed to include amortization expenses.

Selling expense was 31% of product sales in the second quarter of 2008 as compared to 34% in the same period a year earlier. General and administrative expenses were 22% of product sales in the 2008 second quarter, as compared to 14% in the same period in 2007. Second quarter G&A charges included a legal settlement of $9.0 million and a $3.2 million write-down of an investment in a Swiss biotech fund.

Research and development costs remained flat at $22.7 million in the 2008 second quarter as compared to $22.7 million reported in the same period in 2007. This continued spending reflects the final completion of the retigabine Phase III trial and the preparation of the New Drug Application and Marketing Authorisation Application submissions for retigabine.

Provision for income taxes in the 2008 second quarter was $46.9 million as compared to a benefit of $7.5 million reported in the same period in 2007. Based on a change in Valeant’s tax accounting elections for the repatriation of foreign earnings (APB 23), during the second quarter of 2008, Valeant recorded a net tax charge of $57.1 million.

Net loss from continuing operations was $73.5 million for the second quarter of 2008, or a loss of $0.82 per diluted share as compared to net income from continuing operations of $21.9 million, or $0.23 per diluted share for the second quarter of 2007. Adjusted for non-GAAP items, notably income taxes, net loss from continuing operations was $5.7 million or a loss of $0.06 per diluted share in the second quarter of 2008 as compared to net income of $14.2 million, or $0.15 per diluted share in the second quarter of 2007. Net cash flow from continuing operations in the second quarter was $11.6 million.

“Our financial results from this quarter, in aggregate, are poor. However, they are largely a reflection of many of the key components of the turnaround program, including planned reductions in wholesaler inventory in Canada, the U.S., and Mexico; changed commercial focus in our product portfolio; resolution of certain litigation; restructuring costs such as severance and the sales of operations in non-core countries,” said J. Michael Pearson, chairman and chief executive officer. “More importantly, we continue to make significant progress toward achieving our 6-point action plan as demonstrated by the recent agreement for the sale of part of our European operations, the retirement of $300 million in senior debt, the expansion of our share repurchase program, and headcount reduction and other cost savings initiatives begun in the quarter.”

Conference Call and Webcast Information:

Valeant will host a conference call today at 11:00 a.m. EDT (8:00 a.m. PDT) to discuss its 2008 second quarter results. The dial-in number to participate on this call is (877) 295-5743, confirmation code 56788630. International callers should dial (706) 679-0845, confirmation code 56788630. A replay will be available approximately two hours following the conclusion of the conference call through August 18, 2008 and can be accessed by dialing (800) 642-1687, or (706) 645-9291, confirmation code 56788630. The company will also webcast the conference call live over the Internet. The webcast may be accessed through the investor relations section of Valeant’s corporate Web site at www.valeant.com.

About Valeant:

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

FORWARD-LOOKING STATEMENTS:

This press release contains forward-looking statements, including, but not limited to, statements regarding the submission of applications for regulatory approval and carrying out the company’s previously announced strategic restructuring plan. 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 related to the company’s ability to consummate the sale of certain of its territories in Western and Eastern Europe, Middle East and Africa and to realize the benefits of its strategic restructuring plan, and other risks and uncertainties discussed in the company’s annual report or Form 10-K for the years ended December 31, 2007 and other filings with the SEC. Valeant wishes to caution the reader that these factors are among the factors that could cause actual results to differ materially from the expectations described in the forward-looking statements. Valeant also cautions the reader that undue reliance should not be placed on any of the forward-looking statements, which speak only as of the date of this release. The company undertakes no obligation to update any of these forward-looking statements to reflect events or circumstances after the date of this release or to reflect actual outcomes.

NON-GAAP INFORMATION:

To supplement the consolidated financial results prepared in accordance with generally accepted accounting principles (GAAP), the company uses non-GAAP financial measures that exclude certain items, such as special charges and credits, and the tax effect of such charges. Management does not consider the excluded items part of day-to-day business or reflective of the core operational activities of the company as they result from transactions outside the ordinary course of business. 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.

Financial Tables, including a reconciliation of GAAP to non-GAAP financial measures, follow.

Table 1
Valeant Pharmaceuticals International
Consolidated Condensed Statement of Income
For the Three and Six Months Ended June 30, 2008 and 2007

	Three Months Ended								Six Months Ended
	June 30,								June 30,
(In thousands, except per share data)	2008			2007			% Change		2008			2007			% Change

Product sales	$	191,958		$	201,587		-5	%	$	373,871		$	369,520		1	%
Alliance revenue (including ribavirin royalties) (a)		14,805			18,955		-22	%		27,578			55,425		-50	%
Total revenues		206,763			220,542		-6	%		401,449			424,945		-6	%

Cost of goods sold		69,479			57,614		21	%		124,369			104,515		19	%
Selling expenses		59,606			67,645		-12	%		123,396			126,085		-2	%
General and administrative expenses		41,482			28,743		44	%		67,588			54,858		23	%
Research and development costs		22,692			22,737		0	%		52,084			43,727		19	%
Restructuring, asset impairments and dispositions		17,583			6,337		NM			4,919			13,575		NM
Amortization expense		18,112			18,666		-3	%		36,178			36,147		0	%
		228,954			201,742		13	%		408,534			378,907		8	%
Income (loss) from operations		(22,191	)		18,800					(7,085	)		46,038

Interest expense, net		(4,275	)		(6,113	)				(9,048	)		(12,554	)
Other income (expense), net including translation and exchange		(137	)		1,682					(3,389	)		2,818

Income (loss) from continuing operations before income taxes and minority interest		(26,603	)		14,369					(19,522	)		36,302

Provision (benefit) for income taxes		46,850			(7,511	)				54,501			899
Minority interest		2			-					4			-
Income (loss) from continuing operations		(73,455	)		21,880					(74,027	)		35,403

Income (loss) from discontinued operations, net		(1,149	)		(4,966	)				8,873			(9,166	)


Net income (loss)	$	(74,604	)	$	16,914				$	(65,154	)	$	26,237


Basic earnings (loss) per common share
Income (loss) from continuing operations	$	(0.82	)	$	0.23				$	(0.83	)	$	0.37
Discontinued operations, net		(0.01	)		(0.05	)				0.10			(0.09	)
Net income (loss)	$	(0.83	)	$	0.18				$	(0.73	)	$	0.28
Shares used in per share computation		89,802			95,049					89,696			94,911

Diluted earnings (loss) per common share
Income (loss) from continuing operations	$	(0.82	)	$	0.23				$	(0.83	)	$	0.37
Discontinued operations, net		(0.01	)		(0.05	)				0.10			(0.10	)
Net income (loss)	$	(0.83	)	$	0.18				$	(0.73	)	$	0.27
Shares used in per share computation		89,802			96,154					89,696			96,090

(a) Alliance revenue for the three and six months ended June 30, 2008 relates to ribavirin royalty of $14.8 million and $27.5 million respectively. Alliance revenue for the six months ended June 30, 2008 also includes a $0.1 million payment from an unrelated third party for a license to certain intellectual property assets. Alliance revenue for the three and six months ended June 30, 2007 includes ribavirin royalties of $19.0 million and $36.2 million respectively and a $19.2 million milestone payment received from Schering-Plough related to the out-licensing of pradefovir in the six months ended June 30, 2007.

Table 2
Valeant Pharmaceuticals International
GAAP Reconciliation of Basic and Diluted Earnings Per Share
For the Three and Six Months Ended June 30, 2008 and 2007


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In thousands, except per share data)	2008			2007			2008			2007

Income (loss) from continuing operations	$	(73,455	)	$	21,880		$	(74,027	)	$	35,403

Non-GAAP adjustments:
Professional fees related to Special Committee option investigation (a)		-			-			-			630
Restructuring, asset impairments and dispositions (b)		17,583			6,337			4,919			13,575
Product impairment (c)		85			310			85			310
Tax (d)		50,066			(14,026	)		59,727			(14,854	)



Adjusted income (loss) from continuing operations before the above charges	$	(5,721	)	$	14,501		$	(9,296	)	$	35,064

Adjusted basic EPS from continuing operations	$	(0.06	)	$	0.15		$	(0.10	)	$	0.37

Adjusted diluted EPS from continuing operations	$	(0.06	)	$	0.15		$	(0.10	)	$	0.36

Shares used in adjusted basic per share calculation		89,802			95,049			89,696			94,911

Shares used in adjusted diluted per share calculation		89,802			96,154			89,696			96,090

(a) Non-recurring professional fees relating to the investigation by the Special Committee into stock option practices and the related restatement of financial statements.

(b) Net restructuring, asset impairments and dispositions for the three months ended June 30, 2008 of $17.6 million includes $6.5 million in employee related costs, $6.6 million of professional service fees and other cash expenses, $3.8 million relating to the divestitures of our operations in Asia and Argentina and asset impairments of $0.7 million. The six months ended June 30, 2008, includes a net gain on the sale of our operations in Asia of $35.9 million, offset by a loss on the sale of our operations in Argentina of $2.7 million, employee related costs of $18.0 million, professional service fees and other cash expenses of $11.5 million and asset impairments of $8.6 million. Restructuring for the three and six months ended June 30, 2007 relates to the restructuring announced in April 2006.

(c) Impairment on a certain product sold in Portugal.

(d) Tax effect for non-GAAP adjustments, including tax effects of the APB 23 revocation.


To supplement the consolidated financial results prepared in accordance with Generally Accepted Accounting Principles (GAAP), the company uses non-GAAP financial measures that exclude certain items, such as special charges and credits. Management does not consider the excluded items part of the day-to-day business or reflective of the core operational activities of the company as they result from transactions outside the ordinary course of business. Management uses non-GAAP financial measures internally for strategic decision making, forecasting future results and evaluating current performance. Guidance is provided only on a non-GAAP basis due to the inherent difficulty in forecasting such items.

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.

Table 3
Valeant Pharmaceuticals International
Reconciliation of Consolidated Income From Operations to Non-GAAP Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")
For the Three and Six Months Ended June 30, 2008 and 2007
(In thousands)
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2008			2007		2008			2007

Consolidated income (loss) from operations (GAAP)	$	(22,191	)	$	18,800	$	(7,085	)	$	46,038
Depreciation and amortization		23,606			22,740		46,495			44,136
EBITDA (non-GAAP) (a)		1,415			41,540		39,410			90,174
Other non-GAAP adjustments (b)		17,668			6,647		5,004			14,515

Adjusted EBITDA (non-GAAP) (a)	$	19,083		$	48,187	$	44,414		$	104,689


(a) We believe that EBITDA and Adjusted EBITDA are meaningful non-GAAP financial measures as earnings-derived indicators of the cash flow generation ability of the company. We calculate EBITDA by adding depreciation and amortization back to consolidated income from operations. Adjusted EBITDA excludes the additional costs set forth in note (b) below. EBITDA and Adjusted EBITDA, as defined and presented by us, may not be comparable to similar measures reported by other companies.

(b) See Table 2 for explanation of non-GAAP adjustments.

Table 4
Valeant Pharmaceuticals International
Supplemental Sales Information
For the Three and Six Months Ended June 30, 2008 and 2007
(In thousands)

	Three Months Ended				%		Six Months Ended				%
	June 30,				Increase/		June 30,				Increase/
	2008		2007		(Decrease)		2008		2007		(Decrease)
Neurology
Mestinon®	$	12,754	$	14,014	-9	%	$	24,285	$	24,552	-1	%
Diastat® AcuDial™		8,833		12,386	-29	%		21,012		23,458	-10	%
Cesamet®		9,678		6,859	41	%		19,674		12,770	54	%
Librax®		3,832		4,455	-14	%		7,414		8,122	-9	%
Other Neurology		30,797		28,670	7	%		53,792		53,446	1	%

Dermatology
Efudix/Efudex®		11,972		17,515	-32	%		35,166		29,992	17	%
Kinerase®		5,849		8,133	-28	%		11,459		16,511	-31	%
Other Dermatology		15,068		16,977	-11	%		28,304		31,644	-11	%

Other Therapeutic Classes
Bisocard		7,258		5,575	30	%		14,083		10,269	37	%
Bedoyecta™		9,604		12,237	-22	%		13,591		16,798	-19	%
Solcoseryl		6,754		8,448	-20	%		13,039		13,795	-5	%
Virazole®		3,361		3,045	10	%		8,857		8,564	3	%
Other Pharmaceutical Products		66,198		63,273	5	%		123,195		119,599	3	%

Total product sales (a)	$	191,958	$	201,587	-5	%	$	373,871	$	369,520	1	%



	Three Months Ended				%		Six Months Ended				%
	June 30,				Increase/		June 30,				Increase/
	2008		2007		(Decrease)		2008		2007		(Decrease)

United States	$	40,795	$	56,622	-28	%	$	99,358	$	107,393	-7	%
Mexico		29,917		34,818	-14	%		47,264		55,923	-15	%
Canada		13,911		11,988	16	%		27,624		23,816	16	%
Australia		7,426		6,377	16	%		11,660		9,391	24	%
Brazil		5,922		4,992	19	%		9,817		9,029	9	%

		97,971		114,797	-15	%		195,723		205,552	-5	%

WEEMEA (b)		50,473		45,918	10	%		91,152		85,396	7	%
Central Europe (c)		41,117		31,230	32	%		80,924		61,811	31	%
Other (a)		2,397		9,642	-75	%		6,072		16,761	-64	%

Total	$	191,958	$	201,587	-5	%	$	373,871	$	369,520	1	%

(a) Product sales for the three and six months ended June 30, 2008 include $2.3 million and $5.7 million for products which were divested in 2008, compared to $9.6 million and $16.8 million for the same periods in 2007. For the three and six months ended June 30, 2008, "Other" also includes $0.1 million and $0.4 million respectively for sales made in connection with our obligation to Invida.

(b)"WEEMEA" includes Western Europe, Eastern Europe, Middle East and Africa.

(c)"Central Europe" includes Poland, Hungary, Slovakia and Czech Republic.

Table 5
Valeant Pharmaceuticals International
Consolidated Condensed Statement of Revenue and Operating Income - Regional
For the Three and Six Months Ended June 30, 2008 and 2007
(In thousands)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
Revenues		2008			2007			% Change		2008			2007			% Change

North America		$	54,706		$	68,610		-20	%	$	126,982		$	131,209		-3	%
International			45,662			55,829		-18	%		74,813			91,104		-18	%
EMEA			91,590			77,148		19	%		172,076			147,207		17	%
	Total specialty pharmaceuticals		191,958			201,587		-5	%		373,871			369,520		1	%

Alliance revenue (including ribavirin royalties) (a)			14,805			18,955		-22	%		27,578			55,425		-50	%

Consolidated revenues		$	206,763		$	220,542		-6	%	$	401,449		$	424,945		-6	%

Cost of goods sold		$	69,479		$	57,614		21	%	$	124,369		$	104,515		19	%

Gross profit margin on pharmaceutical sales			64	%		71	%				67	%		72	%


		Three Months Ended								Six Months Ended
		June 30,								June 30,
Income (Loss) From Operations		2008			2007			% Change		2008			2007			% Change


North America		$	8,035		$	26,464		-70	%	$	35,448		$	43,795		-19	%
International			7,357			8,341		-12	%		4,704			8,614		-45	%
EMEA			(1,247	)		15,902		--			9,840			34,611		-72	%
			14,145			50,707		-72	%		49,992			87,020		-43	%

Corporate expenses		$	(8,272	)	$	(19,948	)	-59	%	$	(23,699	)	$	(35,908	)	-34	%

	Total specialty pharmaceuticals		5,873			30,759		-81	%		26,293			51,112		-49	%

Restructuring, asset impairments and dispositions			(17,583	)		(6,337	)	177	%		(4,919	)		(13,575	)	-64	%
Research and development costs			(10,481	)		(5,622	)	86	%		(28,459	)		8,501		--

Total consolidated income (loss) from operations		$	(22,191	)	$	18,800				$	(7,085	)	$	46,038

		Three Months Ended								Six Months Ended
		June 30,								June 30,
Gross Profit (net of amortization)		2008		%		2007		%		2008		%		2007		%


North America		$	34,263	63	%	$	51,819	76	%	$	86,808	68	%	$	96,618	74	%
International			26,331	58	%		32,438	58	%		41,829	56	%		53,331	59	%
EMEA			46,136	50	%		44,136	57	%		89,414	52	%		85,080	58	%

	Total specialty pharmaceuticals	$	106,730	56	%	$	128,393	64	%	$	218,051	58	%	$	235,029	64	%

(a) Alliance revenue for the three and six months ended June 30, 2008 relates to ribavirin royalty of $14.8 million and $27.5 million respectively. Alliance revenue for the six months ended June 30, 2008 also includes a $0.1 million payment from an unrelated third party for a license to certain intellectual property assets. Alliance revenue for the three and six months ended June 30, 2007 includes ribavirin royalties of $19.0 million and $36.2 million respectively and a $19.2 million milestone payment received from Schering-Plough related to the out-licensing of pradefovir in the six months ended June 30, 2007.

(b) The specialty pharmaceutical product amortization included in this calculation of gross profit (net of amortization) excludes the amortization of the ribavirin intangible of $2.4 million and $4.7 million for the three and six months ended June 30, 2008 and $3.1 million and $6.2 million for the three and six months ended June 30, 2007.

Table 6
Valeant Pharmaceuticals International
Consolidated Balance Sheet and Other Data
(In thousands)

	As of		As of
	June 30,		December 31,
Balance Sheet Data	2008		2007

Cash and cash equivalents	$	466,300	$	309,365
Marketable securities		83,684		52,122
Total cash and marketable securities	$	549,984	$	361,487

Accounts receivable, net	$	169,143	$	191,796
Inventory, net		119,185		115,177
Long-term debt		780,963		782,552


Other Data	Six Months Ended
	June 30,
	2008		2007
Cash flow provided by (used in):

Operating activities	$	65,169	$	62,072
Investing activities		16,917		14,171
Financing activities and discontinued operations		57,888		(32,398	)
Effect of exchange rate changes on cash and cash equivalents		16,961		7,547

Net increase in cash and cash equivalents		156,935		51,392
Net increase (decrease) in marketable securities		31,562		(488	)

Net increase in cash and marketable securities	$	188,497	$	50,904

Table 7
Valeant Pharmaceuticals International
Supplemental Non-GAAP Information on Currency Effect
(In thousands)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2008			2007		2008			2007
Consolidated

Product sales	$	191,958		$	201,587	$	373,871		$	369,520
Currency effect		(16,756	)				(30,739	)
Product sales, excluding currency impact	$	175,202				$	343,132

Operating income (loss)	$	(22,191	)	$	18,800	$	(7,085	)	$	46,038
Currency effect		754					(2,906	)
Operating loss, excluding currency impact	$	(21,437	)			$	(9,991	)

Geographic Product Sales

North America pharmaceuticals	$	54,706		$	68,610	$	126,982		$	131,209
Currency effect		(1,168	)				(3,117	)
North America pharmaceuticals, excluding currency impact	$	53,538				$	123,865

International pharmaceuticals	$	45,662		$	55,829	$	74,813		$	91,104
Currency effect		(3,019	)				(4,711	)
International pharmaceuticals, excluding currency impact	$	42,643				$	70,102

EMEA pharmaceuticals	$	91,590		$	77,148	$	172,076		$	147,207
Currency effect		(12,569	)				(22,911	)
EMEA pharmaceuticals, excluding currency impact	$	79,021				$	149,165

Note: Currency effect is determined by comparing adjusted 2008 reported amounts, calculated using 2007 monthly average exchange rates, to the actual 2007 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.

Valeant Pharmaceuticals
Laurie W. Little, 949-461-6002
laurie.little@valeant.com

(Source: Business Wire )

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Valeant Pharmaceuticals Reports Second Quarter Financial Results

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