Valeant Pharmaceuticals Reports Fourth Quarter and Full Year 2007 Results

Valeant Pharmaceuticals International (NYSE:VRX) today announced fourth quarter and full-year results for 2007. Financial Highlights: Revenues from continuing operations for the fourth quarter of 2007 decreased five percent to $236.7 million, while revenue for 2007 was essentially flat at $871.4 million. Product sales from continuing operations for the fourth quarter decreased four percent to $219.8 million, while products sales for 2007 increased slightly to $785.0 million. Loss from continuing operations for the fourth quarter was $6.9 million, or a loss of $0.08 per diluted share, as compared to a loss from continuing operations of $14.9 million, or a loss of $0.16 per diluted share for the fourth quarter of 2006. Income from continuing operations for 2007 was $25.1 million, or $0.27 per diluted share as compared to a loss from continuing operations of $55.8 million, or a loss of $0.60 per diluted share for 2006. Adjusted for non-GAAP items, income from continuing operations for the fourth quarter of 2007 was $13.6 million, or $0.15 per diluted share, as compared to income from continuing operations of $27.5 million, or $0.29 per diluted share for the fourth quarter of 2006. Income from continuing operations for 2007, adjusted for non-GAAP items, was $51.3 million, or $0.55 per diluted share, as compared to income from continuing operations of $48.0 million, or $0.50 per diluted share for 2006. A reconciliation of GAAP to non-GAAP results is provided in Table 2. "Valeant’s financial performance in the fourth quarter and the full year is not acceptable either to me or to our investors,” said J. Michael Pearson, chief executive officer and chairman. "These results are the direct impact from trying to operate in too many geographies, with too many businesses and too many products. We are completing a comprehensive strategic review of the Company and expect to be in a position to talk more about our plan during the last week of March.” Revenues: Product sales decreased four percent in the fourth quarter of 2007 compared to the same period last year. Since the 2006 fourth quarter, the company has divested Reptilase product rights, Solcoseryl product rights in Japan and the ophthalmic business in the Netherlands. North America product sales increased one percent in the 2007 fourth quarter, primarily due to increased sales of Cesamet®, Zelapar® and Kinerase®, offset by declines in sales of Efudex®, which largely reflects the impact of stocking for the product’s authorized generic launch in the fourth quarter of 2006. Sales in the International region declined twenty-three percent in the 2007 fourth quarter compared to the same period last year, due to continuing challenges in Mexico. This included increased accounting reserves for future product returns and credit memos, which impacted sales as contra revenue. Sales in the Europe, Middle East and Africa (EMEA) region increased nine percent in the 2007 fourth quarter compared to the same period last year, primarily due to the effects of foreign currency translation. The EMEA region also benefited from increased sales of promoted products in Central and Eastern Europe and new products acquired or launched in 2007. Alliance revenue decreased eighteen percent in the 2007 fourth quarter compared to the same period last year. The decline reflects competitive dynamics in the ribavirin market in Europe and Japan and the cessation of ribavirin royalties from Roche as a result of a loss of patent coverage in Europe. Continuing Operations: The company’s gross margin on product sales was 70 percent in the 2007 fourth quarter as compared to 72 percent reported in the 2006 fourth quarter. Selling expense was 31 percent of product sales in the 2007 fourth quarter as compared to 27 percent recorded in the comparable period last year. This increase was due to bad debt provisions in the EMEA and International regions and increased promotional activities relating to the newly launched products in Central Europe. General and administrative expenses were 13 percent of product sales in the 2007 fourth quarter, the same percentage as in 2006. Research and development costs remained essentially flat as a percentage of sales and were $29.4 million in the 2007 fourth quarter, compared to $31.4 million in the same period in 2006. Discontinued Operations: Valeant announced an agreement to sell Infergen® on December 20, 2007. The financial results for Infergen are reflected as discontinued operations and prior periods were restated accordingly. Valeant closed the sale in January 2008. Divestitures: Valeant has signed a definitive agreement to sell certain subsidiaries and product rights in certain Asian markets including Singapore, the Philippines, Taiwan, Korea, and China. The transaction is expected to close in March 2008. Share Repurchase Update: Under the company’s repurchase program, Valeant repurchased 1.8 million shares of its common stock in the 2007 fourth quarter for approximately $20 million. The fourth quarter activity brings the total shares repurchased in 2007 to 6.5 million shares for approximately $100 million. Conference Call and Webcast Information: Valeant will host a conference call today at 10:00 a.m. EST (7:00 a.m. PST) to discuss its 2007 fourth quarter and full year results. The dial-in number to participate on this call is (877) 295-5743, confirmation code 31116699. International callers should dial (706) 679-0845, confirmation code 31116699. A replay will be available approximately two hours following the conclusion of the conference call through March 6, 2008 and can be accessed by dialing (800) 642-1687, or (706) 645-9291, confirmation code 31116699. 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 global specialty pharmaceutical company that develops, manufactures and markets a broad range of pharmaceutical products primarily in the areas of neurology, infectious disease and dermatology. More information about Valeant can be found at www.valeant.com. Efudex, Diastat AcuDial, Kinerase, Mestinon, Zelapar, Migranal, Bedoyecta, Dermatix and Bisocard are trademarks or registered trademarks of Valeant Pharmaceuticals International or its related companies. All other trademarks are the trademarks or the registered trademarks of their respective owners. FORWARD-LOOKING STATEMENTS: This press release contains forward-looking statements, including, but not limited to, statements regarding completion of a strategic review of the company and the anticipated closing of the sale of certain subsidiaries and product rights in Asia. 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 other risks and uncertainties discussed in the company’s 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. 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. Valeant Pharmaceuticals International Table 1 Consolidated Condensed Statement of Income For the Three and Twelve Months Ended December 31, 2007 and 2006               Three Months Ended Twelve Months Ended December 31, December 31, (In thousands, except per share data) 2007 2006 % Change   2007 2006 % Change   Product sales $ 219,792 $ 228,264 -4% $ 784,958 $ 783,279 0% Alliance revenue (including ribavirin royalties)(a) 16,949 20,548 -18% 86,452 81,242 6% Total revenues 236,741 248,812 -5% 871,410 864,521 1%   Cost of goods sold 65,804 64,337 2% 232,893 238,141 -2% Selling expenses 68,421 61,503 11% 258,903 244,757 6% General and administrative expenses 28,801 30,773 -6% 112,539 115,857 -3% Research and development costs 29,413 31,443 -6% 98,025 105,442 -7% Gain on litigation settlement(b) - - - (51,550) -100% Restructuring charges 9,601 41,494 -77% 23,176 138,181 -83% Amortization expense 17,290 16,765 3% 71,567 65,276 10% 219,330 246,315 -11% 797,103 856,104 -7% Income from operations 17,411 2,497 74,307 8,417   Interest expense, net (5,768) (7,439) (25,086) (31,116) Other income (expense), net including translation and exchange (1,497) (88) 1,059 1,152 Income (loss) from continuing operations before income taxes and minority interest 10,146 (5,030) 50,280 (21,547)   Provision for income taxes 17,032 9,904 25,186 34,264 Minority interest - 1 2 3 Income (loss) from continuing operations (6,886) (14,935) 25,092 (55,814)   Loss from discontinued operations, net (13,383) (6,848) (32,362) (751)     Net loss $ (20,269) $ (21,783) $ (7,270) $ (56,565)     Basic earnings per common share Income (loss) from continuing operations $ (0.08) $ (0.16) $ 0.27 $ (0.60) Discontinued operations, net (0.14) (0.07) (0.35) (0.01) Net loss $ (0.22) $ (0.23) $ (0.08) $ (0.61) Shares used in per share computation 90,459 94,429 93,029 93,387   Diluted earnings per common share Income (loss) from continuing operations $ (0.08) $ (0.16) $ 0.27 $ (0.60) Discontinued operations, net (0.14) (0.07) (0.35) (0.01) Net loss $ (0.22) $ (0.23) $ (0.08) $ (0.61) Shares used in per share computation 90,459 94,429 93,976 93,387 (a) Alliance revenue for the three months ended December 31, 2007 relates to ribavirin royalty of $16.9 million. Alliance revenue for the twelve months ended December 31, 2007 includes ribavirin royalties of $67.3 million and a $19.2 million milestone payment received from Schering-Plough related to the out-licensing of pradefovir.   (b) Gain on litigation settlement in the twelve months ended December 31, 2006 relates to the settlement of disclosed litigation with Milan Panic, $17.6 million and the Republic of Serbia, $34.0 million. Valeant Pharmaceuticals International Table 2 GAAP Reconciliation of Basic and Diluted Earnings Per Share For the Three and Twelve Months Ended December 31, 2007 and 2006       Three Months Ended Twelve Months Ended December 31, December 31, (In thousands, except per share data) 2007 2006 2007 2006   Income (loss) from continuing operations $ (6,886 ) $ (14,935 ) $ 25,092 $ (55,814 )   Non-GAAP adjustments: Gain on litigation settlement(a) - - - (51,550 ) Professional fees related to Special Committee option investigation(b) - 2,382 630 2,382 Restructuring charges(c) 9,601 41,494 23,176 138,181 Product impairment(d) - 392 310 1,075 Tax(e)   10,910     (1,867 )   2,123   13,702         Adjusted income from continuing operations before the above charges $ 13,625   $ 27,466   $ 51,331 $ 47,976     Adjusted basic EPS from continuing operations $ 0.15   $ 0.29   $ 0.55 $ 0.51     Adjusted diluted EPS from continuing operations $ 0.15   $ 0.29   $ 0.55 $ 0.50     Shares used in basic per share calculation   90,459     94,429     93,029   93,387     Shares used in diluted per share calculation   90,978     95,879     93,976   95,114   (a) Gain on litigation settlement in the twelve months ended December 31, 2006 relates to the settlement of disclosed litigation with Milan Panic, $17.6 million and the Republic of Serbia, $34.0 million.   (b) Non-recurring professional fees relating to the investigation by the Special Committee into stock option practices and the related restatement of financial statements.   (c) Charges in the three months ended December 31, 2007 relate to the restructuring announced on February 28, 2008. Charges in all periods up June 30, 2006 relate to the restructuring announced in April 2006.   (d) Product impairment.   (e) Tax effect for non-GAAP adjustments, including tax benefits from U.S. net operating losses not recognized for GAAP purposes, and reversal of the tax benefit of resolving the 1997-2001 IRS examination. Valeant Pharmaceuticals International Table 3 Reconciliation of Consolidated Income From Operations to Non-GAAP Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") For the Three and Twelve Months Ended December 31, 2007 and 2006 (In thousands)     Three Months Ended   Twelve Months Ended December 31, December 31, 2007   2006 2007 2006   Consolidated income from operations (GAAP) $ 17,411 $ 2,497 $ 74,307 $ 8,417 Depreciation and amortization   21,798   20,996   88,278   86,667 EBITDA (non-GAAP)(a) 39,209 23,493 162,585 95,084 Other non-GAAP adjustments(b)   9,601   43,876   23,806   89,013   Adjusted EBITDA (non-GAAP)(a) $ 48,810 $ 67,369 $ 186,391 $ 184,097 (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.   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. Valeant Pharmaceuticals International Table 4 Supplemental Sales Information For the Three and Twelve Months Ended December 31, 2007 and 2006 (In thousands)         Three Months Ended % Twelve Months Ended % December 31, Increase/ December 31, Increase/ 2007 2006 (Decrease) 2007 2006 (Decrease) Neurology Mestinon®(P) $ 14,630 $ 14,057 4 % $ 53,032 $ 47,649 11 % Diastat® AcuDial™(P) 12,130 12,145 0 % 51,264 50,678 1 % Cesamet®(P) 10,127 5,153 97 % 30,178 18,985 59 % Librax® 4,749 3,909 21 % 17,172 14,835 16 % Migranal®(P) 4,139 4,643 (11 %) 13,534 11,592 17 % Dalmane®/Dalmadorm®(P) 3,287 3,417 (4 %) 11,425 10,965 4 % Tasmar®(P) 3,192 2,047 56 % 10,259 6,534 57 % Melleril(P) 2,890 2,123 36 % 8,216 6,463 27 % Zelapar®(P) 2,346 157 1394 % 5,747 3,981 44 % Other Neurology 19,267 16,740 15 % 66,524 63,051 6 %   Dermatology Efudix/Efudex®(P) 24,580 32,296 (24 %) 71,571 78,357 (9 %) Kinerase®(P) 7,889 6,431 23 % 30,144 28,937 4 % Dermatix™(P) 3,651 2,782 31 % 14,045 10,146 38 % Oxsoralen-Ultra®(P) 3,406 2,814 21 % 12,374 10,528 18 % Other Dermatology 12,122 11,547 5 % 38,808 42,441 (9 %)   Infectious Disease Virazole®(P) 3,285 4,878 (33 %) 14,349 16,601 (14 %) Other Infectious Disease 4,105 6,091 (33 %) 20,415 20,160 1 %   Other Therapeutic Classes Bedoyecta™(P) 10,921 13,396 (18 %) 42,399 50,366 (16 %) Solcoseryl(P)(a) 4,961 6,034 (18 %) 23,749 18,916 26 % Bisocard(P) 6,426 4,405 46 % 22,559 15,927 42 % MVI (multi-vitamin infusion)(P) 3,210 4,072 (21 %) 11,635 13,468 (14 %) Nyal(P) 1,966 1,525 29 % 11,060 10,216 8 % Espaven(P) 2,411 3,610 (33 %) 8,366 11,235 (26 %) Protamin(P) 1,973 1,664 19 % 6,929 6,386 9 % Other Pharmaceutical Products(a)   52,129   62,328 (16 %)   189,204   214,862 (12 %)   Total product sales $ 219,792 $ 228,264 (4 %) $ 784,958 $ 783,279 0 %   Total promoted product sales(P) $ 127,420 $ 127,649 (0 %) $ 452,835 $ 427,930 6 %   (P) Promoted products represent promoted products with annual sales greater than $5 million.   (a) Product sales for the three and twelve months ended December 31, 2007 include $0 and $4.1 million respectively, for products (Reptilase, Solcoseryl in Japan and opthalmic business in Netherlands) which have been divested in 2007, compared to $5.3 million and $15.4 million for the same periods in 2006. Valeant Pharmaceuticals International   Table 5 Consolidated Condensed Statement of Revenue and Operating Income - Regional For the Three and Twelve Months Ended December 31, 2007 and 2006 (In thousands)             Three Months Ended     Twelve Months Ended December 31, December 31, Revenues   2007       2006   % Change     2007       2006   % Change     North America $ 79,916 $ 79,156 1 % $ 276,420 $ 264,393 5 % International 54,523 70,833 -23 % 201,037 241,024 -17 % EMEA   85,353     78,275   9 %   307,501     277,862   11 % Total specialty pharmaceuticals 219,792 228,264 -4 % 784,958 783,279 0 %   Alliance revenue (including ribavirin royalties)(a)   16,949     20,548   -18 %   86,452     81,242   6 %   Consolidated revenues $ 236,741   $ 248,812   -5 % $ 871,410   $ 864,521   1 %   Cost of goods sold $ 65,804   $ 64,337   2 % $ 232,893   $ 238,141   -2 %   Gross profit margin on pharmaceutical sales   70 %   72 %   70 %   70 %     Three Months Ended Twelve Months Ended December 31, December 31, Income from Operations   2007     2006   % Change     2007     2006   % Change       North America $ 35,275 $ 39,046 -10 % $ 100,335 $ 90,359 11 % International 11,363 22,556 -50 % 33,849 73,251 -54 % EMEA   11,199     17,528   -36 %   54,218     44,796   21 % 57,837 79,130 -27 % 188,402 208,406 -10 %   Corporate expenses $ (17,834 ) $ (20,317 ) -12 % $ (73,966 ) $ (75,467 ) -2 %   Total specialty pharmaceuticals 40,003 58,813 -32 % 114,436 132,939 -14 %   Restructuring charges (9,601 ) (41,494 ) -77 % (23,176 ) (138,181 ) -83 % Gain on litigation settlement - - - 51,550 -100 % Research and development costs   (12,991 )   (14,822 ) -12 %   (16,953 )   (37,891 ) -55 %   Total consolidated income from operations $ 17,411   $ 2,497   $ 74,307   $ 8,417         Three Months Ended     Twelve Months Ended   December 31, December 31, Gross Profit 2007   %   2006 % 2007   %   2006 %     North America $ 66,801 84% $ 66,958 85% $ 232,402 84% $ 220,834 84% International 35,777 66% 47,710 67% 133,381 66% 163,396 68% EMEA 51,410 60% 49,259 63% 186,282 61% 160,908 58%   Total specialty pharmaceuticals $ 153,988 70% $ 163,927 72% $ 552,065 70% $ 545,138 70% (a) Alliance revenue for the three months ended December 31, 2007 relates to ribavirin royalty of $16.9 million. Alliance revenue for the twelve months ended December 31, 2007 includes ribavirin royalties of $67.3 million and a $19.2 million milestone payment received from Schering-Plough related to the out-licensing of pradefovir. Valeant Pharmaceuticals International   Table 6 Consolidated Balance Sheet and Other Data (In thousands)   December 31, December 31, Balance Sheet Data 2007 2006   Cash and cash equivalents $ 309,365 $ 326,002 Marketable securities   52,122     9,743   Total cash and marketable securities $ 361,487   $ 335,745     Accounts receivable, net $ 194,273 $ 227,452 Inventory, net 115,177 130,747 Long-term debt 782,552 778,196     Other Data Twelve Months Ended December 31, 2007 2006 Cash flow provided by (used in) continuing operations   Operating activities $ 125,603 $ 127,148 Investing activities (34,900 ) (34,101 ) Financing activities (131,330 ) (7,093 ) Effect of exchange rate changes on cash and cash equivalents   23,990     15,192     Net increase (decrease) in cash and cash equivalents (16,637 ) 101,146 Net increase (decrease) in marketable securities   42,379     (467 )   Net increase in cash and marketable securities $ 25,742   $ 100,679   Stock-Based Compensation Three Months Ended   Twelve Months Ended December 31, December 31, 2007   2006 2007   2006   Cost of goods sold $ 92 $ 229 $ 596 $ 1,255 Selling expenses 437 1,055 3,097 3,390 General and administrative expenses 1,776 2,945 8,708 13,697 Research and development costs   186   388   819   2,504   Total $ 2,491 $ 4,617 $ 13,220 $ 20,846 Valeant Pharmaceuticals International   Table 7 Supplemental Non-GAAP Information on Currency Effect (In thousands)       Three Months Ended Twelve Months Ended December 31, December 31, 2007 2006 2007 2006 Consolidated   Product sales $ 219,792 $ 228,264 $ 784,958 $ 783,279 Currency effect (13,246 ) (33,971 ) Product sales, excluding currency impact $ 206,546 $ 750,987   Operating income $ 17,411 $ 2,497 $ 74,307 $ 8,417 Currency effect (2,298 ) (4,608 ) Operating income, excluding currency impact $ 15,113 $ 69,699   Geographic Product Sales   North America pharmaceuticals $ 79,916 $ 79,156 $ 276,420 $ 264,393 Currency effect (2,059 ) (3,068 ) North America pharmaceuticals, excluding currency impact $ 77,857 $ 273,352   International pharmaceuticals $ 54,523 $ 70,833 $ 201,037 $ 241,024 Currency effect (2,106 ) (5,228 ) International pharmaceuticals, excluding currency impact $ 52,417 $ 195,809   EMEA pharmaceuticals $ 85,353 $ 78,275 $ 307,501 $ 277,862 Currency effect (9,081 ) (25,675 ) EMEA pharmaceuticals, excluding currency impact $ 76,272 $ 281,826 Note: Currency effect is determined by comparing adjusted 2007 reported amounts, calculated using 2006 monthly average exchange rates, to the actual 2006 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 International   Table 8 Discontinued Operations with Infergen Summarized Financial Information For the Three and Twelve Months Ended December 31, 2007 and 2006 (In thousands)               Three Months Ended Twelve Months Ended December 31, December 31, 2007 2006 2007 2006   Infergen: Product sales $ 5,712 $ 8,568 $ 32,671 $ 42,716 Costs and expenses: Cost of goods sold(a) 10,438 7,978 24,961 18,838 Selling expenses 5,849 5,203 25,468 20,077 General and administrative expenses 326 74 1,693 1,315 Research and development costs 1,197 905 6,476 4,176 Amortization expense   -     1,650     4,950     6,600   Total costs and expenses   17,810     15,810     63,548     51,006   Loss from discontinued operations, Infergen (12,098 ) (7,242 ) (30,877 ) (8,290 )     Other discontinued operations: Other income (loss)   (1,108 )   (649 )   (1,108 )   5,089     Consolidated discontinued operations: Loss from discontinued operations (13,206 ) (7,891 ) (31,985 ) (3,201 )   Benefit for income taxes   (101 )   (36 )   (332 )   (45 )   Discontinued operations, net (13,105 ) (7,855 ) (31,653 ) (3,156 )   Disposal of discontinued operation, net   (278 )   1,007     (709 )   2,405   Loss from discontinued operations, net $ (13,383 ) $ (6,848 ) $ (32,362 ) $ (751 ) (a) The twelve months ended December 31, 2007 include a technology transfer payment of $5.3 million.